2017 was the year of “Initial Coin Offerings”, the new fundraising strategy to upscale the startups. But with the recent scams and downfall, ICO’s have lost its potential investors. This has paved the way for yet another fundraising strategy, Security Token Offering. “Security” and “Token” have been the tied term in the crypto space. Moreover, Security Token Development is being subjected to federal security regulations before launch.
What are Security Tokens?
Security Tokens are the cryptographic blockchain technology based tokens, which represent financial securities such as bonds or stocks in the form of digital tokens. To put it in simple words, you will own a part of the company with security tokens even though you are not taking any possession of the company. Added, security token offering platform can bring in huge benefits to the investors such as enhanced performance, lower issuance fees, etc!
Categories of Security Tokens:
Security Tokens are being classified into three major types:
- Equity Tokens
These type of security tokens are being issued by the company stock or capital. They represent the value of shares backed by the organization.
- Debt Tokens
As the name suggests, debt tokens represent debt assets such as real estates. They are being issued by the company with the promise of reimbursement in order to attract debt investors.
- Asset-Based Tokens
These are the tokens which represent the ownership of different assets such as real estate or commodities. These assets are being converted to tokens which can be purchased or traded.
Benefits of launching STO
- Higher Success Rate
When compared to ICO’s, Security Token Offerings are much beneficial and have a very good success rate. Since they are being well-regulated, there are higher chances of remaining positive. According to Inwara database, it has been seen that there are over 60% of new ICO’s upcoming in the future years.
- STO’s are programmable
Security Token Offerings can be programmed easily. Therefore, if there are any modifications to be made, it can be done simply.
As the STO’s are being developed in adherence to SEC Guidelines. Thus, investors can spend less time analyzing the company. This can gain high credibility to the projects involved.
- Micro Investments
When you consider popular fundraising platforms like ICO, they demand high-end investments and thus remains a low barrier. While in Security Token Offerings micro investments are made possible. Therefore, crypto startups which were restricted can participate now.
Steps to Launch your Security token offering
- Understanding the regulations & consulting the legal advisors
Right off the bat, it is important to come up with an excellent idea. While creating security tokens, it is mandatory that they are in adherence to regulations and securities. Yet another thing is that tokens should pass the Howey test.
It is also crucial to understand the market and know the regulations. Depending on the duration to fundraise the project, you will have your regulation. Therefore, consult an experienced lawyer in the crypto field to have a clear understanding of regulatory filings.
- Drafting Whitepaper
A Whitepaper remains to be the soul part of any business. It is said that around 76% of clients make decisions only with Whitepapers. Therefore, the next thing you need to do is to come up with an STO Whitepaper. It should include important sections such as Legal Disclaimers, Technical Aspects, Team Advisory, Project Details, Tokenomics, business model, etc.
- Identifying the perfect Blockchain Platform
In accordance with the idea of the project, it is important to select the Blockchain platform. Most of them prefer to launch on Ethereum platform since it provides greater security. However, other platforms like Stellar are also available. Find the perfect platform in compliance with your project.
- Get in touch with Issuance Platform
In accordance with your Blockchain, the next thing you should do is to figure out the best issuance platform who can develop your security tokens. Once they develop, your legal team is available to check for regulations and securities.
- Raising the Capital
To successfully raise your funds, it is important to gain potential investors. They can be done by agencies like brokers, transfer agents, etc. Brokers will be responsible to bring in the perfect customers for your company. To do so, they will covey your company’s goals, initiatives, etc. On the other hand, transfer agents will overlook the issuance of the tokens and make sure all your legal requirements are met properly. With this, there are greater chances that investors can help your company with raising the funds.
- Get Started with Fundraising
Once your legal advisories have checked your tokens, it is the time to get started with fundraising. Now companies will start selling the tokens in exchange for raising the capital. For launching STO, it is important to have an STO website/ infrastructure which ensures the safety of emissions and complies with regulations.
- Marketing your security token offering services
Now it is the time to get started with marketing your STO development solution. You can start telling your idea to the public by issuing them with the roadmap, whitepaper, etc. This can help the investors to know about your Security Token Offering.
You can promote your product by listing on popular sites like Forbes, The Economic Times, etc. This can include putting short articles explaining your STO script software. By this investors are ready to invest in your product. The money gained here can be spent on development, salary for the team, etc.
- Listing on Crypto Exchanges
Liquidity is a crucial factor here. Therefore, once the sales are being completed, the tokens will get listed on crypto exchanges unless the restrictions are being imposed on them. Marketing campaigns include social media marketing, video marketing, email campaigns, bounty programs, Content Marketing, etc.
Your major goal is to promote your security token and build trust in your community. Added, you can provide customer support on the social platforms you have listed. This can maintain good bonding with the investors and respond to their inquiries properly.
Crypto Industry has seen a deep sigh of relief with the emergence of STO that is being developed in compliance with SEC compliance. In the upcoming years, STO’s can overtake ICO’s. We can see large market potential for Security Token Offering. Most of the companies would start adopting STO development services to raise their capital.