- A security token offering (STO) / tokenized IPO is a type of public offering in which tokenized digital securities, known as security tokens, are sold in security token exchanges. Tokens can be used to trade real financial assets such as equities and fixed income, and use a blockchain virtual ledger system to store and validate token transactions.
- An STO on a regulated stock exchange (referred to as a tokenized IPO) has the potential to deliver significant efficiencies and cost savings, however. By the end of 2019, STOs had been used in multiple scenarios including the trading of Nasdaq-listed company stocks, the pre-IPO of World Chess, FIDE’s official broadcasting platform, and the creation of Singapore Exchange’s own STO market, backed by Japan’s Tokai Tokyo Financial Holdings.
- Another function of security tokens is crypto-fractionalization, where existing assets in the real world are secured via tokenization or securitization. Global real estate assets are worth approximately $326.5 trillion in total while the world’s total market capitalization is estimated at $91 trillion, and technically, these assets can be tokenized.
Tokenization facilitates easier trading of securities, not to mention the lower cost of administration. Paperwork will likewise be significantly reduced or eliminated once securitization is adopted in equity markets.