STO vs. ETO — Summary

Security Token Offering (STO)

An STO is a fundraising mechanism where digital tokens represent regulated financial securities such as debt instruments, revenue-sharing agreements, profit-participation rights, or tokenised assets. These tokens fall under securities laws and must comply with regulatory requirements around investor protections, disclosures, and KYC/AML.

Key Characteristics

• Token represents a security, not necessarily equity.

• Can mirror bonds, revenue-share agreements, fractional real-world assets (RWA), funds, or structured products.

• Highly flexible for innovative financial engineering.

• Typically attracts institutional, accredited, or qualified investors.

• Regulatory compliance is central, often making adoption smoother with regulators.

Equity Token Offering (ETO)

An ETO is a specific type of STO where the token directly represents equity ownership shares or membership interests—in a company or special-purpose vehicle (SPV).

Key Characteristics

• Token represents shares, voting rights, or equity-linked claims.

• Simpler capital-raising narrative: “tokenized equity.”

• Aligns investor incentives directly with company growth.

• Works well for early-stage ventures or SPVs structured around a single asset or project.

• Typically issued via compliant frameworks (e.g., EU Prospectus Regulation, Reg D/Reg S, etc.).

When to Use an STO

1. Real-World Asset Tokenization (RWA)

For assets like real estate, commodities, project financing, fine art, or revenue-producing instruments.

• Example: Tokenising a €12M real estate portfolio under an SPV using fractional securities.

2. Debt or Yield-Bearing Instruments

Perfect for structured notes, bonds, or yield-linked tokens.

• Example: A 5-year digital bond paying 6% annual coupon to token holders.

3. Infrastructure, Renewable Energy, and Project Finance

Ideal for large capital projects requiring structured investment tiers.

• Example: Solar or wind farm project offering investors revenue-share security tokens.

4. Regulated Funds & Alternative Investment Vehicles

Performance-fee-based or fixed-income strategies wrapped in digital securities.

• Example: Tokenized hedge fund shares or closed-end real-estate fund units.

5. Multi-Utility or Hybrid Tokens

When combining utility access with an underlying financial claim.

• Example: A healthcare data token that provides platform utility plus regulated security-based revenue rights.

This is often where STOs become more flexible than pure equity structures.

When to Use an ETO

1. Early-Stage or Growth-Stage Company Fundraising

Startups and SMEs issuing tokenised shares to investors.

• Example: A tech startup raising €5M via tokenised equity with digital voting rights.

2. SPV Ownership Structures

When investors directly own equity in a single-asset vehicle.

• Example: An SPV owning a property in Nairobi tokenises its share capital into ETOs for fractional ownership.

3. Venture Financing With Transparent Governance

Where token holders require:

• shareholder voting.

• board rights.

• dividend entitlements.

4. Companies Seeking Long-Term Alignment

Perfect for firms wanting to bring investors onboard as partial owners rather than creditors or yield-seekers.

Choosing Between STO and ETO

Choose STO if you need:

• Flexibility (debt, revenue share, asset-backed instruments).

• A structure that appeals to yield-driven or institutional capital.

• Tokenisation of real-world assets or projects with variable cash flows.

• Compliance with securities law while avoiding dilution of company equity.

Choose ETO if you need:

• Straightforward equity fundraising.

• Clear alignment between investor and company growth.

• Tokenised governance rights or cap-table modernisation.

• SPV-based real estate ownership where investors directly hold shares.