STO 101: The Typical Process of Launching an STO

What is a Security Token Offering (STO)?

It is a digital token in cryptocurrency that represents a stake in an asset. STOs offer digital funding opportunities to companies, startups, and individuals while complying with the regulatory obligations of financial markets. Security tokens are not regular tokens, they are regulated and traded under certain conditions. STOs represent real-world assets as digital assets. For example stocks, shares, bonds, gold, etc. can be shown as digital assets that further enable asset tokenization for many businesses. Before diving deep, there’s something very important to know about STOs. From 2016-2018, ICOs were in full swing due to the flexible utility of tokens. However, in quarter 4 of 2018, the crypto market cap fell by over $750 billion after which authorities started emphasizing regulatory compliance. In this response, ICOs disliked the changes in the structure as they were leveraging flexibility. On the contrary, STOs were created specifically as regulated tokens that comply with the relevant rules and regulations.

Types of Security Tokens

Some different types of security tokens include:

Equity Tokens

The security tokens represent ownership of a company’s assets such as debt or stocks. As with shares, certain terms and conditions are applied in the contract. An equity token holder can be entitled to dividends or voting rights or both. Other than that, entitlement may also include subscription or appraisal rights.

Debt Tokens

Debt tokens are the type of tokens that are equivalent to a short-term loan or interest rate on the amount loaned to a company or an individual. This is the debt owed by token holders. Debt tokens further have two types: variable tokens and stable tokens. In variable tokens, the interest rate varies for debts. And in stable debt tokens, there is a defined stable interest rate for debts.

Utility Tokens

Utility tokens help startups and companies raise capital to develop their crypto-based projects. It is basically a crypto asset issued at the time of Initial Coin Offering (ICO) that allows the token holders to perform certain activities on the network.

Asset-backed Tokens

Tokens that are built on blockchain technology and are considered real-world assets are called asset-backed tokens. They are associated with tangible or intangible assets having a certain value. These assets could be commodities, company shares, or even gems.

How to Launch a Security Token Offering (STO)?

Launching a Security Token Offering (STO) involves five major stages.

• Consultation from Legal Advisor
• Pre-STO
• Technical Implementations
• STO Marketing
• Post-STO & Secondary Trading So let’s look at each stage in detail for your STO launch.

  Consultation from Legal Advisor

  The first and very important step in the security token offering process is to take consultation with a legal advisor if you have reached a plan of conducting a Security Token Offering. Consultation helps you figure out the scope of your STO and how you can engage more investors. As we know, STO has to follow regulatory requirements and so it is critically important to involve a legal advisor and analyze compliance needs in different countries. Other than that, the following are key aspects that are considered.
• Financial structure
• Jurisdiction to follow
• Security measures
• Scope of secondary trading
• Target investors
• Risk assessment

The purpose, role, and feature of an STO are three major components that decide its value in the market. Therefore, the consulting stage must clear the rationale and future plan to avoid problems. There are two critical tasks that you would have to perform:

Designing a corporate structure for STO: You can create new companies, and build relationships in the market. And, to make it a legitimate business, you would have to open a bank account in its name and transfer some of the assets to the new company.

Preparing all the documentation needs: In this, you would have to do all the documentation work. For example drafting disclosure documents, fund management agreements, and contracts with companies and clients, as well as designing compliance policies.

Pre-STO

The second stage in the security token offering platform is pre-STO in which you would have to introduce your STO to the market, choose your STO exchange, and look for a third party to take custody of your collateral assets for security tokens. The third party here is abstracted in the blockchain using smart contracts.

Introduce STO: You can disclose your STO to the market by listing it on the websites. You can also activate your social media accounts, start posting and run social media campaigns for awareness of new STO in the market. These actions start grabbing the attention of potential investors.

Choose STO exchange partner: The market is full of exchanges but you need to choose the one that complies with regulatory obligations. These exchange partners have integrated verification systems that do not allow banned investors from investing in your STO platform. Harbor, Alpha Point, and Polymath are some regulated exchanges for security tokens.

Technical Implementations

Technical implementation in security token offering development includes the identification of functionalities, scope, and behavior of the security token. Developers analyze the structure for smart contracts based on whistling requirements to build STO blockchain. After this, a token-sale platform is launched where investors sign up, complete the verification procedures (KYC & AML), and buy the tokens. Crowd-sale platforms are where companies sell tokens to raise capital. For this, you will also need community support services to provide quick assistance to the members having queries from multiple platforms (emails, social media channels, and campaigns).

STO Marketing

STO marketing is a big step. It is essential to build trust and reach the target crypto investors in the market. For this, you would have to allocate some budget for marketing campaigns and activities. The cost of STO listing is different for multiple platforms. Other than that, paid ad campaigns, email marketing, social media marketing, community management, etc. can be done. While moving towards STO marketing, below is a quick checklist to consider.

• Make sure you know the target audience for your services
• Build a map of channels you will use to run campaigns
• Identify the marketing campaigns according to time zones and locations

  Post-STO & Secondary Trading

  The last step is to ensure a successful launch of your campaign. Once the token is launched, the product can be developed. For this, hire a security token offering development company with an experienced team of blockchain developers, engineers, and designers. You know once you have started gaining the attention of investors, now it is your responsibility to meet their expectations. You need to vigilantly show them progress on their business idea without confronting any legal issues. Below are some tips to streamline the processes post-STO.
• Build a professional culture to execute an effective business plan
• Increase business revenue by implementing result-oriented methods that enhance STO liquidity
• Determine the success factors for your business
• Once the product is launched, start offering technical support to your customers

  Reasons Why Security Tokens are Appealing to Companies

  With the passage of time, security tokens are gaining popularity among company founders and fundraising platforms. Let’s look at potential reasons contributing to the rapid adoption of security tokens.

  Seamless Operations

  The assets having high investment amounts can easily be fractionalized using security tokens. Moreover, they are owned by a pool of potential investors.

  High Speed

  STOs are processed quickly. Their issuance, origination, and listing can be done in a concise period of time as compared to traditional investment platforms.

  Effective Cost

  All the investment processes in STO are highly cost-efficient as compared to traditional processes where each medium costs a hefty amount.

  Low Entry Barrier

  STOs reduce the up-front costs and their cryptographic tokens have the ability to tokenize any asset that ultimately lowers the entry barrier within the infrastructure.

  Access to Institutional Capital

  Security Token Offerings have a regulated nature that makes it possible for it to process international payments that ultimately reduce the costs and overhead of traditional procedures. Moreover, they offer an opportunity to seamlessly reach international financial markets, allowing midsized companies to attract investors from global offices.

  Final Thoughts

  The article gives a step-by-step guide to launching an STO. In a nutshell, legal framework, advanced development procedures, marketing and promotion, and post-STO support are major components of the STO platform.