STO is a better startup funding mechanism than an ICO, Research

  • Rotterdam School of Management study shows that STOs are better at financing startups than ICOs.
  • Utility tokens in an ICO only grant holders with consumptive rights and is not a “financing mechanism,” as per the study.
  • Researchers found that corporate governance is an essential factor for the success of an STO.

Recent research by Rotterdam School of Management has shown that Security Token Offerings (STO) are better at financing startups than Initial Coin Offerings (ICO). Although both are issued on distributed ledgers, the idea behind an ICO is “value creation for a community.” Utility tokens in an ICO only grant holders with consumptive rights on services or products and cannot be viewed as a “financing mechanism,” the research paper noted. However, STOs can be. 

A security token is a digital representation of an investment product recorded on a distributed ledger, which is subject to regulation. STOs can be issued either early in the lifetime of a company as equity tokens or in later stages as fund tokens. Researchers found that corporate governance is another factor for STOs’ success. 

The paper concludes by stating:

Even in the STOs’ more “transparent” blockchain-based context, unbundling voting rights and cash flow rights negatively correlate with success outcomes, consistent with the traditional corporate finance view.

 

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