In this article, I will be highlighting the STO market and the process of launching an STO/security token on Stellar Blockchain.
Security tokens are tradable financial assets — Ex; shares or bonds of the company
STO is a process of Selling security tokens to the public by avoiding the lengthy and vetted process of an IPO.
STO’s are intended to be compliant with anti-money laundering requirements, security laws, and regulations of SEC.
Advantages of an STO:
- Regulations reduce scams
- Traded on verified exchanges
- Open up markets for investors
- Easier access to investors
Disadvantages of an STO:
- Too many regulations.
- Lock-up prevents quick gains.
STO, types of investments:
Equity / Common stock
One option is to allow your token holders to become owners of your company. To do this, you should offer equity shares. These are the most important aspects:
- Token holders own part of your company
- The equity can be transferred from one person to another
- Token holders receive dividends
- Token holders can control the direction of your company
Another option is to give your token holders a portion of your revenue. This means they do not have an ownership stake in your company and don’t have a right to control the direction of your company. But, you are rewarding token holders for holding your coins.
For instance, Lottery play service Lottery.com launched a revenue-based security token called LDC Crypto. This token gives out seven percent of the revenue from Lottery.com’s global impact raffle program. The company raised $47 million in a security token offering.
Recently, Stellar Blockchain has gained its popularity over Ethereum due to its enhanced security features.
Key features of Stellar Blockchain: Speed, Cost and Scale
- Multi-currency: Any currency, asset or token can be issued inside of the Stellar network.
- Speed: Transactions are confirmed in 3–5 seconds.
- Cost: One cent will pay for 100,000 transactions.
- Scalability: Stellar can process 1,000 concurrent transactions per second.
- Safety: Stellar gives participants the ability to choose which other member on the network they trust.
- Compliance: Protocol allows participants to perform AML/CFT checks prior to confirm the transactions.
Steps to creating an STO/Security Token:
- Decide what rights the security token provides
- Choose which jurisdiction to operate-in
- Choose a security token issuance platform like Stellar
- Creating an issuing account and distribution account
- Create the token
- Publish information about your token
- Limit the supply
- Distribute your Token
How to deploy on Stellar Blockchain:
- Develop your own Stellar Core node.
- Query trust-lines table of the underlying database directly to retrieve a list of your asset holders and the amount they hold.
- Split the list into batches, 100 accounts per batch.
- For each batch, create a transaction, add 100 payment operations (pay dividends to every holder).
- Submit the transaction to the network.
- Rinse and repeat until you process all payments.
Regulations used by STO’s:
Simple agreement for future equity (SAFE)
A SAFE is a pre-existing contract that is used by startups to raise money. When a security token is issued as a SAFE, it means the token holders are entitled to receive equity when certain conditions happen, such as the sale of the company.
Freelance platform Moonlighting was on the first security token offerings using the SAFE contract. According to venture crypto fund Evercity and security Token Club, the offering closed in December 2018 and raised $100 million.
The choice of which rights to give token holders will depend on your business model and your plans for generating revenue. It also depends on which stage you are as a company. Once you have decided this, you need to consider which countries you will be operating-in.
Feel free to check out the link below, a complete understanding of STO dashboard functionalities:
Click on the below link to understand whether Ethereum or Stellar Blockchain for your Security Token offering(STO):
List of STO exchanges:
Disclaimer: We are not lawyers, and this is not legal or investment advice.
At QuillHash, we understand the Potential of Blockchain and have a good team of developers who can develop any blockchain applications like Smart Contracts, dApps, DeFi, DEX on the any Blockchain Platform like Ethereum, EOS , Stellar and Hyperledger.
For further discussion and queries on the same topic, join the discussion on Telegram group of Quillhash — https://t.me/quillhash.