SECURITY TOKEN OFFERINGS (STO)
A Security Token Offering (STO) is a form of blockchain crowdfunding in which capital is raised in exchange for value, such as shares, debt, or asset-backed securities. An STO typically represents a stake in an asset or an external enterprise. Technically, a token is classified as a security token when it is subject to the rules and regulations of the law and derives its value from external tradable assets or businesses.
Startups and companies wishing to distribute shares to their investors can now do so in the form of security tokens in the following forms:
A share token is similar to traditional shares, except for how ownership is registered and transferred. Traditionally, share tracking is recorded in a database, with ownership of the shares printed out and certified by paper certificates. Instead, the stock token is written to an immutable ledger that is updated by dozens, hundreds, and sometimes even thousands of networked computers around the world. Share token holders are entitled to a portion of the firm’s profits and have voting rights.
Three main benefits:
- investors can vote in compliance with securities laws;
- startups have access to new and possibly more democratic fundraising models;
- regulators have a new and more transparent basis for evaluating project fundraising.
A debt token is a short-term loan at an interest rate in the amount provided by investors as a loan to a firm – this can be a mortgage on real estate, corporate bonds, or another type of structured debt. From the point of view of the blockchain, a smart contract lives on the network, which is a debt security. This contract includes repayment terms that define the dividend model and principal risk factors.
Such tokens represent ownership of assets such as real estate, art, carbon credits, or goods. Blockchain, being secure, immutable and transparent, provides a secure record of transactions; it reduces fraud and shortens settlement times, making it a natural fit for commodity trading. Asset-backed tokens are digital assets with characteristics similar to any commodity, such as gold, silver, and oil, which in turn provide value to those tradable tokens.
The main stages of the implementation of STO
Developing a solid idea to attract potential investors. The value of a token is determined by its role, purpose and characteristics. The role you define for your token will create a corresponding target. In turn, its functions can be defined and tailored to business goals.
Development of a marketing strategy, as well as the maximum use of forums and websites of crypto communities. Choosing a reliable cryptocurrency exchange as your partner. You also need to make sure that the exchange allows investors to comply with KYC and AML rules in their country. Collateral assets for security tokens must also have custodians. Once these details are agreed upon, you can proceed with token creation and marketing of your STO. The process of creating a token will largely depend on the platform you choose.
The next stage is the crowdsale, the most important part of the STO project is the sale of tokens to the general public and making a profit. At this stage, you need to make sure that the section and buttons for selling tokens are highlighted on your site and easily accessible. At this stage, investors can register, pass KYC and AML checks, and purchase tokens. The support team should be ready to help investors and answer questions on crypto forums and social media platforms. Responding promptly to requests is critical as it can mean the difference between a completed token sale and a missed one.
Building an application on the blockchain. It is extremely important to make sure that the product you are building will support your newly launched security token. While you are building your product, you should also keep your investors informed. They will want to know that the business plan is performing as intended and meeting their expectations and needs. After launching a product to the general public, it’s important to provide 24/7 technical support through live chat, social media, your website, and other platforms your customers use.
When implementing STO, a successful marketing campaign is also very important. First of all, it is very important to pay attention to the creation of a “delicious” site. After all, this is exactly what potential investors will first of all pay attention to. Do not forget about the important role of social networks in our today. Social media marketing allows you to reach a large target audience, as well as interact with investors. The next and no less important step to implement a successful marketing strategy is to create a traditional press PR. Choosing the right platform for listing your STO is very important. This gives the project the best chance of fundraising.
Advantages of STO
By tokenizing securities, startups launching Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs) can increase the liquidity of their assets and attract more investors. There are other benefits as well, such as lower issuance fees, high market efficiency, fractional ownership, and better access to real assets that are digitized.
Laws are strictly enforced regarding STO. Since security tokens are also technically pegged to a real asset, it is easier for a potential investor to assess whether its price is fair compared to the current market value.
STOs are also more cost-effective than, say, an initial public offering or IPO.
In addition, STOs open up the market to novice investors who may not have access to investment opportunities if not for cryptocurrency fractionation. Trading can also take place 24/7, providing investors with both convenience and liquidity.