STO - Security Token Offering, it is completely a crypto crowdfunding model which replaced the need for ICO. Launching an STO is not so simple as Like ICO. In Initial coin offering concept, you will create tokens, publish your white paper, deploy your website, Market your token and will collect funds for the tokens you sold. Whereas in STO, you'll do the same, but here you should create security tokens instead of utility tokens. You must give security to the investors you get to connect with.
Most importantly you should do all these things by underlying the SEC rules and native government rules. Because this innovative crowdfunding model involves with security tokens that are packed with existing real-world assets. So we'll discuss every detail of launching an STO in brief below.
WHAT ARE SECURITY TOKENS?
After smart contracts, ethereum, and utility tokens the crown of cryptocurrency now powered with one more star called – security tokens
Security tokens are considered to be the best remedy for wounds caused for ICO. What is actually a security token?
Tokens got split up and categorized into two.
- Utility tokens
- Security Tokens
A token that pays share profits, pay dividends and let the investor invest in other tokens are considered to be the security token. This kind of tokens will act as digital shares which are backed with tangible like assets, profits, and revenue of the firm.
As we said above it is just similar to ICO, But this is kind of crowd-funding model provides high-level protection for investors rights and reduce risks of issuers in regulating the token distribution. This is achieved by selling the Security Tokens.
Though the Two crowdfunding models are look alike, there are some significant differences.
In STO The issuer must comply with higher costs Because the this is a type of crowdfunding model which involves the placement of securities. Whereas ICO, Is just a crowdfunding model, which doesn’t require any security involvements.
In STO Only professional investors can participate. Because the nature of STO is considering the investors as business partners.
STO Sells Security Tokens, Whereas ICO Sells Utility Tokens
Investors of STO have rights to claim the share of profits, But whereas in ICO, Investors can claim only the product or services after the launch.
ICO’s are not regulated But STO’s are regulated.
Every country has a set of rules and regulations in buy, sell, fundraising, investment, and Security issuance processes. Most of the countries like India are having cut-throat restrictions to sell, buy or invest in crypto tokens/ cryptocurrencies. So it is very important to find out whether your country can allow you to launch STO.
For global understanding let us explain this concept based on US federal security regulations and legal compliances.
There are four major regulations In US, to launch your STO.
This regulation avoids an STO to be registered with SEC, But instead, the token issuer must fill the Form D after selling the security Tokens. The issuer can obtain legal documents from the investors via the section 506c, whereas the solicitation should prove that the investor is accredited and all the information provided must be exempt from misleading/false statements.
This let the issuer of STO to sell security tokens which are approved SEC. Here Non-accredited investors can participate whereas the sum of capital funds raising will be up to $50 million. When compared to other Regulation A is more expensive.
This regulation occurs when launching an STO outside of US. Whereas the issuer must comply all the security regulations, of the native country.
After understanding the basic regulations you must write down a smart STO Business Plan, In that business plan, you must cover to whom you are going to sell your tokens (i.e) Target audience. And how much capital you are going to raise through STO.
As we said above STO needs a lot of regulatory claims and should have legal compliance issues in order to properly launch it. So, Getting connected with an STO development company will make it easier for the issuer to properly filter out the possibilities to launch STO.
Blockchain development company can alone create security tokens, so it is better to find out an STO development company like bitdeal to create your security tokens.
It is not a simple task as you do like in ICO, Launching an STO will involve the gradual implementation of sequential processes. First and foremost, the issuer must know what he/she are going to do, How is going to approach the entire process. The issuer must define the right strategy before launching the STO.
Write up what you are going to do with your STO, and make it as a document, finally wrap it up as a white paper.
Before releasing the white paper, you must have complete some mandatory things. Which involves understanding the security laws which cover up obligations on chosen jurisdiction.
At the moment of releasing the white paper, you must have a pack up of Tokens. So you must connect with a blockchain company like bitdeal, who are expert in developing security token.
You should do some marketing activities to promote your security tokens. But remember you should do marketing activity with a subject to the laws involved. So you cant market your tokens on the internet as you do in ICO.
In STO, Smart contracts are main elements, So your STO platform must have the ability to automatically generate, proper smart contracts for everyone who involves in crowd selling.
Make sure your smart contracts are properly encrypted and has no code bugs.
1.Market your tokens, but your marketing plan should comply the security laws
- Define right and affordable securities, so that you can prevent not fulfilling the investor's claims.
- Must understand the security laws
- Define a strategy for your token sale 5.Make your STO activities transparent to the investors
1 .Never scam the investors
- Never cross the security lines which is defined for the particular niche you choose
- Never do raw marketing for your Tokens on Social channels
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