If you’re familiar with terms like Bitcoin, Blockchain and Altcoins, then by now you should now what an ICO is. What you many not know is that there’s actually another more convenient, safe and trustworthy option for early investors called STO.
By the end of this article, you will now the difference between an ICO and STO, and know how to avoid scams, taking the easy route into the best STOs to invest in.
Know your Token Category
Tens of thousands of new crypto projects have been created since 2013, and it’s fairly common to get confused with the terms and their meaning. To clarify, you can see the difference between all of them below:
ICO
Initial Coin Offering
Crowdfunding
Unregulated
Medium Liquidity
Example of ICO: Ethereum
STO or ETO
Security Token Offering or Equity Token Offering
Asset Backed
Regulated
Low Liquidity
Example of STO: Aspen Digital
IEO
Initial Exchange Offering
Crowdfunding backed by an Exchange
Somewhat Regulated (on the exchange side)
High Liquidity
Example of IEO: BitTorrent
DAICO
Decentralised Autonomous Initial Coin Offering
Unregulated
Low Liquidity
Example of DAICO: Abyss
IPO
Initial Public Offering
Regulated
Medium Liquidity
Example of IPO: Alibaba
What is an STO?
STO is the acronym for Security Token Offering. The concept of STO came with the necessity of regulations in the crypto market.
Since there’s been many over-inflated ICO’s that have left their investors empty handed with the so called ‘exit scams’, the regulatory offices like SEC sought out a solution, and came up with the STOs.
A security token is an investment product or a financial instrument that has backing by a financial institution for an actual tangible asset.
To simplify, if a company offers a financial instrument that has monetary value, their investors can buy a share of it, and the transaction is recorded on Blockchain.
This means that their new owners will have the proof of ownership imprinted as a transaction on blockchain, and the representation of that new contract will be the security token.
STOs can be issued for the following assets:
- Stocks
- Penny Stocks
- Bonds
- Real Estate Investment
Categories of STOs
- Regulated: This means that the company is registered with the SEC, and the risks involved in a scam exit are practically nullified. This means that the owners and team involved in the project can work with accredited and non-accredited investors, and their crowdfunding doesn’t need to have any sort of soft or hard-cap.
- Exempt: This means that the company is only partially available, and will have some restrictions. The worst of these restrictions is that the tokens stay blocked, which affects on their liquidity.
What is an ICO
The acronym ICO stands for initial coin offering. ICOs were made intensively popular in 2017 till the end of 2018. What an ICO consists in, is a crowdfunding project, where the early investors gain natural digital currencies or tokens as incentives for investing.
These companies run their projects on the blockchain technology, which means that as a pre-requisite, an ICO has their own currency or token to distribute to their investors (shareholders).
Since there are no regulations in the ICO market, a lot of these projects have left people empty handed in their “scam exists”. There are many popular scam icos, and many great projects which unfortunately never got completed due to lack of investing or discontinuity of the project.
Usually, an ICO has 3 stages:
- Pre-ICO: during this stage, users usually focus their early efforts in acquiring investors with a larger sum of money, but still do not discard the option of having smaller contributors
- Whitelist: Also known as private sale, the investors register for being an early contributor, and they can make early investments in an ICO. This means that it’s also limited and not open to the public. There is usually no media attempt from ICOs during this stage.
- Crowdsale: this is the general sale that is open for everyone. It’s often broken down in rewards according to how early an investor gets in a project, but literally anyone can invest.
Do they Need all of this time to raise funds?
The reason for such a long fundraising campaign is due to these currencies being used throughout the stages for the companies to spend/invest in marketing, paying employees, etc.
the usual duration of an ICO is in-between 3-6 months, but preparations before launch and pre campaign can take years.
To partake investing in an ICO, means a user needs to hold some sort of cryptocurrency like bitcoin or ethereum. See our guide to crypto ICOs.
How do I know if an ICO or STO is a scam?
Just like an IPO, ICOs are shares of a cryptocurrency that are offered to the public in order to raise funds to their launch.
ICOs have blossomed during early 2017 and 2018 and the concept has yet again evolved to another stage, an STO.
There are many popular listings websites which offer this service. These websites usually contain all the information about newly coming projects into the market. Also see our guide to crypto STOs of 2024.
An ICO or STO should usually contain the following information:
Team members listed on their website, or publicly shown
Social media like telegram, Facebook, LinkedIn and twitter
Registered office address shown
Road map with information about the project, with milestones, etc
White paper with the project’s strategy
GitHub repository
A user-friendly homepage, with SSL encryption
KYC procedure (Know Your Client) or AML (Anti-Money Laundering)STO VS ICO – Which is a Better Option?
Although both are very similar, there is a big point that is crucial between determining the type of project.
STO
- Regulated by SEC, BaFin, FINMA or equivalent
- Modest approach
- Usually incorporated and registered in the USA
- Has an Asset Class
ICO
- Doesn’t need to be regulated
- Usually invests heavily in marketing
- Has an Asset Class
- Can be incorporated and registered anywhere
STO VS IPO – Which is a Better Option?
STOs and IPOs are very similar. In fact, one could say that an STO is the digital version of an IPO. ICOs can also be called a digital version of an IPO, but then they would be the unregulated and unsafe option.
Before listing the differences between an STO and an IPO, it’s important to understand the way the process usually goes for both.
On the investor side, for an investor to acquire a share of an IPO, they would need to contact or be contacted by a broker who would then sell and seal the deal for the share. For an STO, the users can buy directly with the regulated companies on their website, and the transactions become then validated on the blockchain.
On the Company side, for a company to sell an IPO, they would normally need to deal with lawyers and stock brokers until they finally reach the investor. There’s only so many fees that they need to add in the price of the IPO to sell to the general audience. With STOs, the users just need to deal directly with the company on their website and everything is registered on the distributed ledger (blockchain). The Smart Contract generated then becomes the proof of purchase.
STO
- Regulated by SEC, BaFin, FINMA or equivalent
- Usually incorporated and registered in the USA
- Has an Asset Class
- Backed by the Asset
IPO
- Regulated by SEC, BaFin, FINMA or equivalent
- Has the unregulated ones as well
- Spends a considerate amount in lawyer and broker fees
- Needs to be brokered and emit certificates in the Stock Market
- Needs to have a collateral
Celebrities that endorsed ICOs
John McAfee
Also known as the “King of Crypto”, the controversial John McAfee used to be an advisor for many early ICOs and projects.
In 2018 he stopped being an adviser and focused solely in Bitcoin and Cryptocurrencies since the SEC had threatened him for all his efforts in working with unregulated companies.
Despite all of that, it appears that the same McAfee just fell into a “pyramid scheme” with an ICO called SkyCoin. After he allegedly tattooed the cryptocurrency on his back, he just announced that they are “Unscrupulous people”.
McAfee’s name has also been associated with Automatic Trading Crypto tools like the Bitcoin Code, claiming that he endorses Bitcoin Robots, twitter scams, and other social media mentions. All of those have never been confirmed by him.
Nowadays, it seems that McAfee is playing low, and just investing in cryptocurrencies, as well as being a frequent presence in events like the Crypto Cruise.
I’ll keep it as a reminder that no matter how old I get, I still get scammed by unscrupulous people with pie in the sky plans. They almost drove me to violence.
— John McAfee (@officialmcafee) 20 March 2019
I got a Skycoin (https://t.co/2oeokRUOME) tattoo today. My tech folks will stitch a two minute video together that should capture the essence of the experience. For now, this short clip should summarize. Why Skycoin? If you have to ask, you’ve been living in a fucking closet. pic.twitter.com/c6plwQrH2t
— John McAfee (@officialmcafee) 7 November 2018
T.I
The Rapper Clifford Joseph Harris, also known as T.I, has created an ICO called FLik.
Due to his fame and using his own social media, he quickly pumped up on the price of the token which use is unknown.
The actor Kevin Hart also endorsed FLik, and was going to be one of the leading celebrities to help spread its advertising.
T.I and the company were sued by investors, who claim that their money was lost in a token that has literally no value whatsoever.
It seems that although it finished raising funds, the FLik token quickly became inactive. Even the domain its website was hosted on seems to be available for purchase.
Elon Musk
Wealthy Bitcoin investor Elon Musk has expressed countless times on the media about his support of cryptocurrencies. He’s claimed on twitter that he never really bought any Bitcoin, but he owns 25 BTC from a friend who sent him some.
Just as many times as he’s supported crypto, there’s been many scams and rumours involving his name, which he expressed he doesn’t partake in any of it.
Elon Musk has been said to endorse:
- Bitcoin Robots like Bitcoin Revolution
- Crypto giveaway on Twitter
- Creation of his ICO, the Muscoin
All of the above have never been confirmed.
Famous ICOs
KODAKCoin
If you have been around in the 80s and 90s, you will know what Kodak is. In case you don’t, Kodak is a photography and printing company that specialized in the photography.
Their business was reliant on their registered patent, and on providing the photo cartridge for the cameras.
Sadly Kodak has to file for bankruptcy in early 2000’s, as their business model didn’t follow up with the latest technology.
In 2017, however, Kodak reinvented their brand and launched kodakcoin. Their hard cap was raised during pre-ICO and whitelist, and it never went into general crowdfunding.
Ethereum
Ethereum was the first altcoin to have an economical importance like bitcoin.
Ethereum, for years, was compared and even said to be the sucessor of bitcoin but in reality the two are completely different.
Ethereum’s platform and technology has actually been used as the technology behind most ICOs, STOs and dApps.
The ERC-20 token, a technology that is compatible with ethereum’s code which is mostly used by crowdfunding blockchain companies, has been crucial to the expansion of this market.
EOS
EOS has been a very promising altcoin since before it was actually born.
Its funding was one of the biggest in the history of crypto, and at one point, the amount of ethereum it raised on its crowdsale was 20% of the total amount of ethereum circulating.
EOS’s blockchain is ideal for running dApps.
ICOs to look out for in the future
Although the concept is slowly losing its traction, there are still companies that consider creating an initial coin offering or native currency. Mostly of these ICOs come with the promise to bring a service provided for their currency, but if you want to be an early investor you should definitely look out for these.
You can find a a few ICOs to look for in the future below:
Facebook Coin
The social media giant created by Mark Zuckerberg Facebook has already announced plans to launch its own native currency.
This is not the first time that Facebook adheres to the concept of tokens, as some of the apps and games inside their platforms have a pay to use or subscription model, which exchanges currency for virtual currency.
It must be said though that recently Facebook has been involved in a lot of negative events regarding its business model, which shares information with companies to provide them personal information about their users.
Not only that, but Facebook has lost a lot of market share and their stocks have lost a lot of value in 2018.
Who knows if by launching an ICO Facebook will be able to fit their business strategy? It’s best to observe news on facebook and crypto.
JP Morgan Coin
The JP Morgan coin is an utility token created by the bank J.P Morgan.
Although Jamie Dimon, the CEO of the bank has explicitly criticised Bitcoin and cryptocurrencies, it appears that they cannot help but to follow-up on the technology and competitiveness of the crypto universe.
JP Morgan went public with news regarding its native currency which will be used for transactions inside the bank. According to their press, they have already tested a prototype and it should soon be ready for the official launch.
STO and ICO Wiki:
Hardcap: a hard cap is the target set to reach for a blockchain crowdfunding project. This is usually the “ideal” scenario for an STO and ICO
Softcap: a soft cap is the minimum amount needed to be raised by a blockchain company to operate and fulfill their vision
Whitepaper: a whitepaper is the scope of the project, or the whole planning of the project. It includes information about the company and their execution plan.
Crowdfunding: just like the name says, a crowdfunding is a set of events to raise money for a particular goal. With cryptocurrencies a crowdfunding is the process of raising funds to initiate the blockchain based project
Crowdsale: just like the previous item, a crowdsale is the event an ICO or STO undergoes when they sell their tokens or native cryptocurrency to general audience
dApp: dApp is an acronym for decentralized app. Also known as smart contracts, a dApp is an application built on blockchain. A great example is the game CryptoKitties, which surpassed the limit of transaction processing and lagged the ethereum network.
NFTs: NFTs are an acronym for non-fungible-tokens. Commonly known as “ERC-721”, this is a token that has no value, except fictional value. This token is seen in games that have a native currency, and can be exchanged for fiat currency or cryptocurrencies to be used inside their platform or within the context brought inside it. It’s a worthless real value token, with fictional value. A good example of this token is the game CryptoKitties.
ATO: Asset Token Offering is the crowdfunding process of the fundraising of a token viewed as an asset.
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Q&A
What is the best ICO to invest in in the last crypto bull run?
The best ICO to have invest in 2017 would have been EOS. The best ICO to have invested in 2018 would have been Nagacoin. Fast forward to 2023, and AI crypto projects are all the rage - the best to invest in may be AiDoge.
