What's an STO: Explained

April 30, 2019 STO

Overview

At times, Security Token Offerings can be somewhat intimidating for the average non financially astute person to easily understand. The biggest challenge is that there really does not exist any mental frame of reference for the vast majority of people to grasp the concept of a security token offering. Moreover, a person can find themselves struggling at times to explain what precisely is a security token offering and how it is relevant to the average Joe. The sheer mention of it can bring about blank stares and faces of bewilderment to the point of boredom.

There is a saying that goes something like this, “If you really want to understand something, the best way is to try and explain it to someone else.” When it came to trying to explain, security token offerings, it could be difficult to describe in simple terms which is the purpose of this article. We want to provide a simple and easy to understand explanation of just what is a security token offering.

Let’s first look at the phrase, “Security Token Offering” and try to chunk it down into bite-sized pieces that are easier to mentally digest. Similar to a pie, you would not eat the entire pie in one single serving. No, you would cut the pie into pieces and then proceed to eat it.
This is what we will do.

Security

The first word is “Security” and for many “security” can mean anything from comfort to maybe pictures of an armed guard. However, in the world of finance, security is another word for an investment such as a stock or bond. Don’t worry we are not going to quiz you on what is the textbook definition of a stock or bond, just remember that a stock or bond gives you “ownership”.

For example, when you buy a stock from a company you are in essence given ownership into that company. In other words, you are an “owner”. Depending upon how much you purchase depends on how much ownership you actually have. It’s worth noting that ownership can be in a person, place or thing.

Token

The second word, “Token”, now this word is an interesting word and depending on your experiences it may conjure all sorts of images for you. Think of a token like a token when you go to an amusement park. You exchange money at a kiosk and you are given tokens to use at your favorite amusement park ride.

Another way of thinking of tokens is when you want to watch a movie at a local cinema or take a flight to your favorite destination you need to buy a ticket. For the purposes of this example, we can substitute the word “token” with ticket, as in airplane ticket, bus ticket, metro ticket, and movie ticket. Nowadays with the advent of smartphones and QR codes, you don’t even need to have a physical hard copy ticket, you can have a virtual or digital ticket on your phone provide the QR code and be allowed entry.

So we have covered the word, “Security” and that it is basically “ownership” albeit a person, place, or thing. And that the word “Token” just means “ticket”.

Offering

Let’s move on to the last and final word – “Offering”. An offering is essentially when something is “available”. When something is available you have the opportunity to take part in that something depending on what it is. For example, when a show, event, or concert is available you have an opportunity to go and attend it.

Conclusion

To recap:

Security = “Ownership”

Token = “Ticket”

Offering = “Available”

Now let’s reconstruct the phrase “security token offering” with our new found understanding, and you can think of it as an available opportunity to have ownership in a person, place or thing by the purchase of a ticket.