With 3 months already passed, security token offering services have been ruling the world. However, 2017 was the year of Initial Coin Offering with new companies raising funds.
Initial Coin Offering is based on the premise that a company, organization, non-profit or individual can create a digital representation of the value, which is generally called as a token.
This token rests on the system called Blockchain which is an immutable and a globally accessible ledger. Blockchain first became the technology that enables the Bitcoins to exist!
Therefore by having a token on the blockchain, the ICO token’s are easy to create, store, and easy to send to anyone in the world. Initially, companies would sell the tokens, called utility tokens. Due to liquidity factor, speculative secondary markets developed which gave rise to purchase the tokens at a higher price.
Soon, companies started focusing on offerings with the investment aspect of the token. As a result of this, the Security Token Offering (STO) was born.
What is a security token offering ? How is it beneficial?
In general STO’s are the crowdfunding mechanisms which came as an alternative for Initial Coin Offering! A Security Token Offering is, in general, a crypto token which passes the Howey Test.
According to the Howey test, an instrument is only security if it involves an investment of money or other tangible or definable consideration.
Nevertheless, the common misconception about STO’s is they are different from securities. But the thing is they have packed advantages already! It includes enhancing secondary market liquidity, reduced compliance costs, automating trade restrictions, offering fractional ownership, etc!
STO has opened the opportunity for business to raise the funds by issuing security tokens to the investors. One of the potential benefits of STO is with Small and Medium Enterprises looking to raise the funds!
This can result in lowering the barriers in the retail and commercial market.
STO Vs ICO
Overall STO’s eliminate the instances of fraud with ICO’s and offer legitimate securities a wide range of investors with efficiency, interoperability, and other liquidity factors.
Added, STO’s offer a lot of advantages compared to IPO. They are cheaper and encompass much broader assets.
So, How to Launch STO?
To launch your Security token offering you need to follow certain steps.
- Foundation or preparation
- STO for authorized investors
- Post STO
To have a clear perception of how to create an STO website we shall discuss each one with great depth.
- Foundation or preparation
The most crucial part of any business is idea generation. Before Token Offering, it is mandatory that you should have a well-defined idea. The idea should comply with the rules and regulations of the countries which you are planning to trade.
Added to the list, you need to be clear with how your token can gain value since people will be investing with the motto of reaping profits!
Moreover, tokens gain value with various prospects such as:
- Purpose and
What regulations should I follow while creating a token?
As already discussed, STO development services should pass the Howey test. This test usually checks any item from the below-mentioned points of view related to security:
- Money Investment
- Money which is invested with the motto of earning profits.
- The money is invested in a common company.
- Profit is the result of efforts of third-party.
If a token doesn’t satisfy any of the points, then it fails the Howey test!
Apart from this, there are various other regulations available which differ from country to country.
Evaluate various platforms available online which can be used to issue security and choose from them. Therefore it is necessary to choose the right platform for the creation and issuance which requires a proper infrastructure.
Drafting the Whitepaper
A whitepaper is essential for all types of business. This a vital and decisive document for security token development. Therefore it is crucial that there shouldn’t be any mistakes associated! If done wrong it could even result in destroying your product!
A Whitepaper is something which includes:
- Concept of STO and what it will offer
- Technical Aspects
- Project Details
- Legal Disclaimer
- Team member and advisory
Once all these factors are in, the whitepaper will be found satisfactory.
So, now things are ready! Gather the team of experts to kick-start your project.
The next important step is to launch your website to sell or buy tokens from the traders. The website should be designed in such a manner that it can handle loads of requests and data.
The primary details which a website should contain are:
- Product Details
- Team and People involved and
- Customer Support System
You can add visuals, graphics, videos and other things to make the site colorful and attractive.
The token sale should be made live which allows investors to register themselves.
A professional website developer should be involved in the smooth functioning of the business.
As we are looking for, how to launch an STO the next thing is to introduce your Security Token Offering to the market!
Before STO is launched, it is important to introduce a security token, which will be offered to the market.
There are a lot of websites available where STO can be listed similar to ICO. To market, you can make use of digital marketing strategies such as Email Marketing, Social Media Marketing, etc.
This is the main step during the STO launch. Here the company sells the token to the public in the exchange of money.
To do this, it is essential that you have the required arrangements! That is a website. Investors should be able to participate in the token sales, pass KYC or AML checks and buy the required tokens.
You would probably be aware of Smart Contract! This smart contract should be deployed that will enable a safe and secured number of tokens at a pre-defined rate.
After the launch of STO, customers may have queries or complaints on the same in various social media platforms and crypto forums. Therefore it is crucial that a strong support team should be available readily to resolve the queries!
An emergency number will be an added advantage. This will solve any queries and serve a long-term relationship.
Additionally, it will help in reaching a potential number of customers.
The final step is the Post STO. Now comes the product building phase.
- In order to confirm that the STO launch becomes successful, it is imperative to make the product which forms the support of security token standard. The product should be in a way which is hassle-free and uncomplicated to use!
- After the product is offered to the public, it is essential to make sure that investors do not encounter any problems. It is good to hire experts who have knowledge of Blockchain Technology, security tokens, and others. This can result in 24*7 support!
What are the types of Security Tokens?
Well as we are discussing how to do an STO, initially you need to know these four Security Tokens for a clear picture!
Equity Tokens are the type of security tokens in which it states the ownership of an asset just like company stock or debt.
There are similar to a short-term loan in which the interest rate on the amount loaned to a company.
These tokens provide users with later access to the product or service. With Utility Tokens, companies can raise the funds needed for the Blockchain project.
This is a token based on the Blockchain platform which is associated with a tangible or intangible object of a certain value.
Tangible Benefits of Security Token Offering
Once you have launched STO, you will encounter a rich set of benefits.
Here I have listed a few!
Many investors and most of the companies have a great fear with Initial Coin offering since it may remain illegal in the country.
This has been the main reason why people started to march towards Security Token offering.
For investors this a huge plus. When it comes to security token development, the thing is it abides the rules and regulations.
Registration in the Security Exchange Commission will result in much other advantages for users and investors. With this, you can conduct your own investigation and verify the professionalism, efficiency and other needed factors of the company.
This will, in turn, have a positive impact for traders:
- Sensible capital accumulation by issuing companies.
- Getting rid of fraudsters and inefficient companies.
Implementing Blockchain Technology and creating a security token will result in liquidation. Now they can be owned by people with large capital.
This is made possible due to the fact that any asset can be tokenized.
Ability to Recover
If you are probably aware of bitcoin and other alternative currencies it is impossible to recover if you have sent to the wrong wallet. But if you have a well programmed STO, it is possible to return the stolen coins or tokens.
- Access to Global Markets
Buying tokens can be seriously an easy process. The only thing is to register on an STO website, transfer the respective coins, dollars or other means of payment.
With this, anyone can participate, regardless of the location, religion or citizenship!
With tokenization of securities, there are a plethora of enhancements done! It includes:
- Reduction of costs at issue due to the elimination of intermediation of banks.
- Automation of dividend payments.
- Automation of KYC/ AML procedures.
- Cost Reduction by reducing working staff.
This will reduce the risks for all market participants and in the long will create a new rating system. This will show that the company is reliable in which investor is successful and which developer is a scammer.
What is the infrastructure needed for STO?
The Security Token Ecosystem will be categorized into six factors:
- Custody and Trust
- Compliance and
Once the Security Token platform is composed of these desired features, it becomes a great factor to launch and reap a good set of profit to your business!
With the fall of Initial Coin Offering, STO development company have seen a great rise! Though ICO’s have helped companies to gain millions of dollars, it always lacks the regulated means and security. Thus Security Token Offerings overcomes these issues with legal compliances. Change is the only permanent factor in the crypto industry. Moreover, all is in dynamic development.
Every week some important projects are launched, new countries are evolved with the launch of regulation acts. If you are planning to launch an STO or develop an STO website, well there are countless startups around the global market to make your dream come true!