Security Token Offering (STO) is the offering of common stock on DLT. These tokens represent company’s shares held by investors with voting rights secured by Smart Contract through DLT platform. These tokens are acquired via an investment contract, where investors purchase in anticipation of future profits in the form of dividends, equal sharing of revenue generated and the appreciation process, which converts security token into equity token.
The key difference between Security Token and Equity Token: The Security Tokens represent tangible assets such as real estate, gold, etc., used as a collateral – underlining asset. The Equity Tokens represent the shares of the company converted into tokens.
Security Tokens Offering is subject to strict governmental regulations. They impose such requirements as know-your-customer or so-called company's whitelists and blacklists that combat money-laundering schemes and illegal capital flows.
If ICO is more of crypto crowdfunding that allows everyone to participate in the process, STO is oriented at professional investors willing to invest into projects within the security token ecosystem.