STO stands for security token offering. It is a process similar to an ICO where an investor exchanges money for coins or tokens representing their investment. However, unlike ICOs, STO’s take it a step further and distribute tokens that fall under the status of securities. They are linked to an underlying investment asset in a way like stocks, bonds, real estate investment trusts (REIT) or other funds.
As such, security token offerings distribute securities. These are tokens that are fungible, negotiable financial instruments with attached monetary value, like a part of property or company.
Security tokens are not traded on regular token exchanges. Exchanges that want to offer security token trading need to fully comply with regulations, including extensive investigations into token listings, data sharing, and investor onboarding procedures. Thus, security tokens trade on specialized exchanges.