Clear DefinitionsSecurity Token Offering
1 min read
Pronunciation
[si‑kyuh‑ri‑tee to‑ken aw‑fuh‑ring]
Analogy
A STO is like a regulated private placement of shares, but executed through tokenized instruments on a blockchain.
Definition
A regulated sale of security tokens, combining blockchain issuance with compliance to securities laws, often involving accredited investors.
Key Points Intro
STOs ensure compliance through:
Key Points
Regulatory framework: Follows securities regulations (e.g., Reg D, S).
Accredited investors: Often restricted to qualified participants.
On‑chain compliance: Smart contracts enforce transfer restrictions.
Custody and reporting: Token custodians provide audit trails.
Example
A venture fund issues security tokens under Reg D; investors complete KYC on a platform, then receive tokens representing fund shares.
Technical Deep Dive
STO contracts implement ERC‑1400 with partitioned balances. A compliance module checks investor accreditation status via on‑chain identity attestations. Transfer functions call `canTransferByPartition` to enforce jurisdictional rules. A registry contract logs issuance and redemption events.
Security Warning
Regulatory missteps can lead to token freezes or legal sanctions; engage legal counsel.
Caveat
High compliance costs reduce accessibility for smaller issuers.
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