Security Token Offerings

The blockchain industry has seen significant evolution in the past few years. The blockchain is one of the interesting technologies that support “decentralized” crypto-assets like Ether, Bitcoin, utility tokens, and security tokens. 

There is currently an intense debate raging within the crypto community. This debate is centered around the emergence of a new method of raising money for blockchain projects. Blockchain has now taken the next step to change how companies raise capital, this method is called a Security Token Offering. 

Essentially, Initial Public Offering (IPO) of stock markets became Initial Coin Offering in 2014 (with ethereum’s first ICO) and evolved into Securitised Token Offering in 2018 which was essentially a regulated version of ICO, and deferred payments instead of 1 shot all payment initially. ICO’s 2 biggest flaws of being unregulated and giving early exit to blockchain startup teams were addressed by STOs by regulatory approvals and milestones linked tokens unlocking in smart contracts.

The earliest form of blockchain-based fundraising was the Initial Coin Offerings (ICOs). Initial Coin Offerings were revolutionary because of its convenient handling. Initial Coin Offerings were used by companies and startups that dealt with blockchain-related projects.  

It provided investors with digital value in exchange for their capital. Initially, investors were investing in ICOs. The challenge with an ICO is that the industry is not regulated. The Securities and Exchange Commission (SEC) has opined that ICOs are not securities. It has ruled that tokens sold in an ICO are utilities.

And, when there are no regulations, people can take advantage of a situation. Over the period of time, there was an increase in the number of frauds in this space. It led to the ineffectiveness of the ICOs, and STOs took over. 

What exactly is an STO? 

STO stands for Security Token Offerings. In order to understand STO, we first need to understand Security. 

“In terms of finance, a security is a certification or some other financial instrument, that has an intrinsic monetary value. These securities can then either be traded by exchanges, who will broker the transaction or, they can be traded directly from peer-to-peer. These securities are then broken down into two subcategories, equity, and debt securities. This is in effect, owning part of a company, without actually taking it into your possession.”

Companies use this as a way of offering part of their business to investors, in return for a short-term cash injection that can help them to realize their latest goals and plans. Investors can also be entitled to profits, dividends and interest rates.

So, a Security Token is a crypto token which can entitle the owner to either a share of the profits of the business, a stake within the business itself or some other form of reward in exchange for their own money.

STOs are always backed by some form of tangible asset, which helps to prevent investors from falling prey to fraudulent business practices.  Due to the fact that STOs are classified as securities, they are also subject to securities regulations for the country they are launched in and for the countries of their investors. 

Advantages of Security Token Offerings (STOs):

A common question, which comes to everyone’s mind is why a company should consider issuing an STO over Initial Public Offering (IPO) or ICO.

Basically, there are several benefits of using an STO as a way of raising money. These advantages are:

  • STOs are typically regulated making investors more confident compared with other unregulated cryptos and ICOs.
  • The STO process is relatively easy – IPOs take a long time to organize and launch successfully. An STO is relatively easy to plan and launch as it’s driven simply by smart contracts.
  • STOs are relatively cheaper – An IPO is very expensive because of the number of consultants who are used. Also, companies must pay an exchange a high fee.
  • STOs are global – An IPO is relatively national in that only people from a country can buy shares. STOs are global events.
  • STOs are 24/7 – STOs run for 24 hours, 7 days a week. This is different from public companies, which can only trade for a few hours every day, i.e. monday to friday.

So, as you now know how STOs are safer than ICOs and convenient than IPOs, lets understand launching of an STO step by step:

White Paper: 

A white paper is a very important document that you must come up with when launching an STO. A white paper can be viewed as a business plan, where you need to showcase the business you are getting into, how you will make money, and how profitable this project will be. 

STO Regulations: 

As part of your preparation, you need to consider the underlying regulations in your country. This is simply because you want to ensure that the STO is legal to do in your country. You don’t want to go against the law!!

Fortunately, many countries allow STOs. In the United States, the Securities and Exchange Commission (SEC) has said that STOs are securities. This means that all issuers must register with the SEC and abide by the regulations.

 STO Platform:

As part of the preparation stage, you need to select an STO platform where you would launch your project. It’s like Seeders or Kickstarters for startups. 

Hashcove provides you end to end solutions for making tokenized crowdfunding user friendly, secure, automated and fully compliant STOs.

Since all transactions on Hashcove are carried out on a blockchain, it helps entrepreneurs raise funds in a simple, cost effective and completely transparent way. Companies may register themselves on the white labelled Hashcove STO platform to issue Equity Tokens, Reserve Assets Token, or even Debt Tokens.

Some of the variety of contracts offered include

•Capped Contracts (predefined minimum and maximum cap as their fundraising goal)

•Mintable Tokens (mint tokens during the crowd sale if the demand exceeds initial token supply)

•Multi Signature Contracts (multi stage authorization for movement of funds)

•Dynamic Contracts (set the token price and discounts in real time)

•Burnable/Freezing Tokens (to handle unsubscribed tokens after the sale)

•Time Vault Contracts (establish time limits before funds can be withdrawn)

•Discount Varying Tokens (time/investor/consumption order specific discount)

Further, each company may issue a private or public token sale, to restrict the number and nature of investors.

The platform supports multiple currencies based on business and regulatory requirements, including both digital and fiat currencies It can be integrated with local payment gateways for easy real time pay in and pay out of funds.

STO Website: 

The final step in STO preparation is to have a good website. The website is what will introduce many people to the STO. Ideally, you should have a simple but powerful website. 

Pre STO: 

The steps that we have mentioned above are in the preparation stage of an STO. These steps help form a foundation of what will happen before the STO kicks off. After you have done these, you now need to start the pre-STO process. 

The first step of pre-STO launch is to introduce it to the market. You can do this by listing the STO in the various websites and directories that list these products. By doing this, you will be at a good position of reaching more investors who are interested in STOs. 

Hashcove STO Platform: 

As part of the preparation stage, you need to select an STO platform where you would launch your project. It’s like Seeders or Kickstarters for startups. 

Hashcove provides you end to end solutions for making tokenized crowdfunding user friendly, secure, automated and fully compliant STOs. Hashcove’s STO platform screenshots attached below.

Since all transactions on Hashcove are carried out on a blockchain, it helps entrepreneurs raise funds in a simple, cost effective and completely transparent way. Companies may register themselves on the white labelled Hashcove STO platform to issue Equity Tokens, Reserve Assets Token, or even Debt Tokens.

Some of the variety of contracts offered include

•Capped Contracts (predefined minimum and maximum cap as their fundraising goal)

•Mintable Tokens (mint tokens during the crowd sale if the demand exceeds initial token supply)

•Multi Signature Contracts (multi stage authorization for movement of funds)

•Dynamic Contracts (set the token price and discounts in real time)

•Burnable/Freezing Tokens (to handle unsubscribed tokens after the sale)

•Time Vault Contracts (establish time limits before funds can be withdrawn)

•Discount Varying Tokens (time/investor/consumption order specific discount)

Further, each company may issue a private or public token sale, to restrict the number and nature of investors.

The platform supports multiple currencies based on business and regulatory requirements, including both digital and fiat currencies It can be integrated with local payment gateways for easy real time pay in and pay out of funds.

This STO platform also comes integrated with our matching engine and clearing technology, which can help you build a completely self-reliant offering

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