5 steps to launch your own STO
Initial Coin Offerings (ICOs) brought brand new life into conventional investment techniques, providing retail investors a different way to cash in on innovative blockchain based projects. The idea of an ICO is simple: a business creates tokens, a kind of electronic asset, as well as proceeds to offer these tokens by way of a crowdsale. Unfortunately, total freedom can have its downsides, and many fell prey to scams. Enter 2019 and the STO era begins, bringing much-needed protection and regulation to the blockchain investor.
As a consequence of the groundbreaking fundraising method, cross border investing started to be significantly much easier as investors around the planet might take part in token offerings within previously unavailable jurisdictions, albeit in a very unregulated environment.
While the thought of these unregulated investment opportunities was fascinating for many, it involved a significant amount of danger. For instance, throughout 2017, ICO scams ran unrestrained. Under-qualified and quite often ill-intentioned teams raised millions of dollars with no achievable digital business models, fleecing investors searching to cash in on the following blockchain unicorn project.
Bad actors similarly uncovered possibilities to reinvest illegally obtained funds and turned them into tokens, therefore circumventing KYC (Know Your Customer) and AML (Anti Money Laundering) procedures needed to invest on standard securities offerings legally.
From a necessity for substantial regulation in the crypto industry, the Security Token Offering (STO) was born.
STOs bridge IPOs and ICOs. In other words, they mix several of precisely the same technological advantages of an ICO with the strict regulatory standards of an IPO.
When you are debating whether to follow an STO to raise capital for your business, here is what you will have to consider for a successful launch:
1. Is an STO the best option for my venture?
Before getting into any specifics, you need to verify whether an STO may be the appropriate fundraising technique for your business. You will find various positive attributes regarding conducting an STO over some other forms of funding.
For starters, especially for startups, an STO is much more adaptable compared to regular venture investment. Although your token holders are going to expect returns, you will hold more control over the decision-making process if compared to traditional VCs. Additionally, because an STO is regulated, you will have the ability to offer your security tokens to investors across the world, all while staying compliant with the pertinent laws.
That being said, VCs are important. Alongside entrepreneurs, VCs benefit the most financially from the creation of world-leading companies. Without the capital given by VCs, there would be no Facebook, Google, Uber, Amazon or WhatsApp. And the returns for investing in the right companies can be astonishing.
Nevertheless, an STO isn’t always the best option for fundraising in many cases. Businesses with expectations of lower initial revenue or growth will be not as likely to draw in investment. However, in case you have the confidence that you are able to deliver a return to your investors within a reasonable time frame, then your business will be well suited for a type of transferable and highly fluid shares; subsequently, an STO may be the best match for your fundraising needs.
2. What type of Security Token do I need?
You will find 4 distinct types of security tokens.
- Debt tokens: This kind of token effectively can serve as a loan that the company agrees to spend, with interest for the token holders.
- Equity tokens: These tokens symbolize shares of the company itself, similar to a regular stock. Equity tokens might entail profit sharing in the form of dividends.
- Asset-backed tokens: These tokens are given against a current asset. Thus, if a venture is performed by a recognized business which has an asset like property, the asset could be fractionalized into security tokens and also offered to investors.
- Utility tokens: These tokens offer a way of accessing future services of the endeavor itself. A lot of ICOs performed during 2017 as well as 2018 were sold as utility token offerings.
3. Which legal considerations apply?
Legal considerations are a crucial part of introducing an STO, and its implications will depend on exactly where your token sale will happen.
For securities offerings in the US, three related regulations apply. Regulation D may be the least challenging, needing a declaration to the SEC that the offering is only available to investors credited by the SEC. In this particular situation, the investors must have a specified net worth as well as an income threshold to qualify as an accredited investor, which means that the general public is excluded. Regulation A+ permits the offering to solicit non-accredited investors, to a total of USD 50 million in value. Regulation S is designed for securities offerings which occur outside the US. It merely requires that the offering is pronounced in conformity with the law of the subject jurisdiction where the offering is taking place.
In Canada, the regulations are similar to the US. In Europe, EU legislation calls for any securities offering to file a prospectus. Nevertheless, special exemptions may be used based on the number of investors or the amount invested.
As every jurisdiction has specific rules, it makes compliance among the trickiest aspects for virtually any STO. Therefore, it is considered appropriate business common sense to hire a lawyer or maybe a legal advisory firm which may help navigate the compliance requirements within the relevant jurisdiction. At the time of writing, the Cayman Islands provides the most welcoming juridical sphere and infrastructure for STO’s in the world.
4. Which platform must be utilized?
There are many platforms available that will help you effectively launch an STO, and they all provide similar benefits. In determining which platform to use, it’s crucial to think about the following two things. For starters, to what degree will your selected platform help you go over the compliance needs of your respective STO launch? For instance, Wuzu enables token issuers to link accredited investors and regulate their offering in a single ecosystem.
In addition, Wuzu provides a fully compliant and proprietary exchange for token purchasing and trading. The security token is subjected to protection legislation throughout its lifetime, not only for the original offering.
5. Promotion and Marketing
Lastly, after the infrastructural issues above mentioned are in position, you will need good marketing to launch your STO in order to get visibility from eligible investors both willing and prepared to fund your venture. This is a challenging undertaking, so using an agency with the proper experience and contacts is usually a less risky option.
By making the proper decisions at every phase of the procedure outlined above, your STO will have a higher probability of being a success. The best way to achieve this is by leveraging the best practices and know-how of others who have successfully launched STOs before. Wuzu is your one-stop shop for everything STO related, we have all the resources to assist you in every step of the way.
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