The Complete Guide On How To Launch A Security Token
The last two years have seen the explosion of ICOs (initial coin offerings) in the blockchain niche. The most successful of these ICOs was Block.one, which managed to raise $4 billion.
However, ICOs have become the center of controversy because of the fact that they are not regulated. Countries such as China and the United States have already raised red flags about ICOs. In China, ICOs are banned because most of them are considered Ponzi schemes.
The next reliable and effective option is the security token. And, as ICOs exit the stage, many people have been having a lot of questions and need for clarifications about STOs (security token offerings).
This post takes a comprehensive look into ICOs to help answer all the questions you might have about STOs, such as “How to start an STO?” and “What is a security token exchange?”
What Are Security Tokens?
A security token is a type of token that is tied to actual securities, which can represent tokenized assets of a company. This implies that anything, from real estate to bonds, can be tokenized without worrying about going against the law.
While security tokens are not necessarily pegged to equity, they can be used to fractionalize ownership in varying types of assets. In effect, the token holder gains some array of rights to the associated asset, such as equity ownership, or periodic dividends, which are codified through the use of smart contracts.
It is important to understand that the nature of the security token implies that they are treated differently from a legal perspective. Because this type of token draws its value from real securities, they are considered investments. This implies that the issuer has to meet additional regulatory and reporting requirements.
Today, security tokens are being used to bridge the blockchain sector by demonstrating the benefits that can come from it. The US Securities and Exchange Commission (SEC) holds the view that with the right regulations in place, the blockchain industry can realize its full potential.
Now that you know what an STO is, it is time to consider issuing one to raise the capital that your business needs. Here is everything you need to know about issuing an STO.
The Security Token Offering Process
The security token offering procedure closely mimics that of issuing an ICO. However, those issuing ICOs use tricks to avoid being classified as securities. The following is a closer look at the top STO issuance platforms, and a step by step guide to issue your own security token.
For those looking for the best procedure on how to launch a security token, everything commences from selecting the right issuance platforms. Here are some of the top issuance platforms:
Polymath is one of the leading blockchain protocols and is designed to facilitate the issuance of security tokens and their distribution. The protocol is designed to help issuers create security tokens that are in line with SEC regulations.
Polymath’s goal is to streamline the process of launching blockchain based financial products by adding financial requirements at all levels of the token design process. To help simplify the process further, Polymath also helps with trading, investor authentication, legal counseling, and a link to the marketplace.
Polymath is managed by Trevor Leverko, who serves as the platform’s CEO. It also features an ERC20 token, known as Poly, which is used to power the platform.
Harbor is an open-source platform for helping traditional enterprises transition to the fast-growing blockchain industry. The platform uses standardized procedures to help streamline the regulatory steps necessary for easy migration to blockchain platforms.
Harbor’s operational framework includes standard administrative requirements, including an accreditation status, tax rules, and reporting details. The platform also helps businesses comply with know-your-customer (KYC), and anti-money laundering (AML) requirements before their tokens can be launched.
The platform is managed by a team of financial, and blockchain experts, including David Sacks, Bob Remeika, and Arisa Amano.
Securitize is among the top cloud service solutions for security tokenization. It seeks to help simplify the security token issuance, so that businesses, no matter their size, can complete the process quickly.
The platform consists of security, legal, and blockchain experts who will ensure that every step is done correctly. The experts working for the platform also help clients customize their smart contracts, which ensures they match their clients’ needs.
Swarm utilizes the SR20 protocol, one of the top cryptographic standards for security tokens, to help businesses tokenize their assets. After the selected object is tokenized, the platform helps make the management and trading of digital assets easy.
The platform also allows existing cryptocurrencies, such as Bitcoin and XRP, to be invested and then exchanged for SR20 tokens. When people buy SR20 tokens on Swarm, they are entitled to certain ownership and governance rights.
Swarm targets assisting enterprises in renewable energy, tech, real estate, and agriculture sectors to help issue security tokens.
The platform is managed by Philip Pieper, Chris Eberle, and David Drake who want to see the investment landscape move toward the blockchain industry. They also want to assist small enterprises to realize the benefits of the blockchain industry by issuing security tokens to them help raise funds.
What Is The Process Of Creating And Issuing Your Own Security Tokens?
Now that you know what security tokens are, and what the best platforms are to generate them, it is time to look at how to create your own token. To make the illustration more succinct, we will use Polymath.
Fund The Polymath Metamask Account
Before the process of creating your own tokens can commence, a Metamask account has to be created and funded. You can download and install a Metamask extension on Google Chrome.Then, fund the account using Ethereum.
Create Your Account
To proceed to the next step, you have to sign into your Metamask account. This stage will synchronize your email address with your wallet to help make the wallet easily access your Polymath account.
Register Your Token Symbol
This is the name that your token will use when it finally hits the market. It is important to think of a label that easily matches the business or project name. Once a label has been selected, click “Reserve Token Symbol”, which prevents another issuer from choosing the same name.
After the label has been reserved, the issuer is given a 15-day window to consult advisors, lawyers, and other stakeholders to ensure that they are satisfied. If they are satisfied, you can confirm and submit the reservation.
Selecting Preferred Providers
At this step, you will be required to select the team that will walk with you through your security token offering journey. This step is very important because you will need to select your marketing team, your legal professionals, as well as your preferred advisory team.
The good thing with choosing an expert team is that members have seen other security token offerings. Therefore, they can tell you what works, and what does not on how to launch a security token.
Create Your Token
With a legal and marketing team by your side, it is time to include additional info about the token and the project. You will also be required to include any additional features of the offering.
If you are running a capped STO, only a specific number of tokens, at a predetermined price, can be sold. When the limit is reached, no more tokens can be sold. Other details of the STO that need to be included are:
- The starting and ending date of the STO
- The supported methods of payment
- The rate of tokens valuation
Once all details are okay, it is time to launch the STO. You will receive a message shouting STO configured correctly. At this point, you will need to select your preferred security token exchange.
Market The STO Aggressively To Investors
This is the ultimate step for taking your STO to investors. Here, you need to get the word that tokens are available and persuade investors to buy. Consider using an experienced marketing team to help you craft the right message, demonstrate the value of your tokens, and make the targeted audience want to invest.
Many marketers recommend that businesses should also use a landing page and a social media account to reach as many people as possible. Note that the STO exchange you select will also determine the reach and rate of success of your tokens. Some great options include Coinbase, Templum, Sharepost, and Swiss Securities Exchange.
The Final Take
While ICOs have been very successful, especially between 2016 and 2018, the time for change is finally here. The controversy around some ICOs has made some countries ban them, while others consider passing harsh legislation against them.
The entry of securities tokens and their support from governments makes them the next big thing in the blockchain niche. The blockchain has finally met and concurred with governments. Now, you can also issue your own STO by creating the tokens, using the outlined platforms, and launching them onto the markets.
Remember that the process has been simplified so that you can issue the security tokens fast without worrying about going against the law.