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Security token offering services, the leading players to help launch an STO

 

Security token offering services

 

In the wake of the dramatic downfall of Initial Coin Offerings (ICO) arises the need for a token which is compliant with regulatory norms, thus fueling the rise of security tokens. Security tokens are financial securities like stocks or bonds but in the form of a digital token, this implies that these tokens are subjected to regulatory norms and derives its value from a tradeable external asset. The surge of interest in security tokens also simultaneously spawned the birth of platforms that offer security token offering services to enterprises looking to launch their own security token. But why is the crypto market excited about security tokens?

 
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While utility tokens grants investors access to the future services/product of the company, security tokens grants investors rights of ownership over the assets of that company. The security holders are also entitled to the profit shares, dividends and buy back rights, this feature itself is revolutionary in the crypto space.

 

The number of security token offerings (STOs) popping up has been swiftly gaining momentum, despite the reigning bearish market sentiment while ICOs have tapered, as reported by InWara’s security token offering landscape report. This trend is largely fueled by the regulatory authorities like the SEC imposing stringent regulations on token offerings.

 

The process of launching an STO is similar to an Initial Coin Offering but can seem daunting at first due to the array of regulatory norms that has to be satisfied. This article will help you deconstruct most of the critical steps behind this perplexing undertaking and report the leading startups that provide Security token offering services at each stage of the process.


Security token offering services- Regulations


For a token to be considered as a ‘security’, it needs to qualify the Howey test, otherwise it is classified as a utility token. Digital assets which pass the Howey test are subjected to federal securities regulations. In 2018, the U.S., Singapore, the United Kingdom and Switzerland were the leading countries in the ICO market space

USA

the U.S. was the leader in the ICO market space in 2018 and these are 3 regulations pertaining to the launch of a security token. 

-Regulation D
Regulation D enables a token offering to not be registered by the SEC if the founders fill the ‘Form D’. The investors in such an offering are required to be accredited investors. 

-Regulation A+
Regulation A+ enables founders to offer an ‘SEC approved’ security to non-accredited investors up to a maximum amount of $50 million. Regulation A+ is the most capital and time intensive of all the regulations. 

-Regulation S
Regulation S comes into play when an offering has to take place outside the borders of the United States. Despite this, the security offering is required to comply with the regulations of the country where they are executed. 

 

Europe 

In Europe, enterprises are required to create prospectus which describes the security being touted and also comply with local regulations. Although companies are exempted from this as long as they comply with the following regulations.

a) Similar to the regulation D in the U.S., if the investors participating in the token offerings are only accredited investors then such offerings are exempted. 

b) Companies are allowed to trade their securities to as much as 150 people per member state, freely. Also called the limited network exemption.

c) Dubbed as the limited amount exemption, companies are allowed to trade securities without creating a prospectus if the value of these securities is below 5 million euros. 

d) Companies are allowed to trade securities freely if each investor buys at least 1,00,000 euros worth of securities. 

e) Dubbed as the nominal value exemption, companies are allowed to sell securities freely if the value of each security is worth 1,00,000 euros.

 

Singapore

The Monetary Authority of Singapore (MAS), the country’s central bank and financial regulatory authority, have released a guide the sale of tokenized securities specifically. According to the MAS, companies are required to create and submit a prospectus to the MAS before launching a Security Token Offering and are only exempted from doing so if the companies comply with the following regulations. 

a) The MAS can regulate security token issuance or offerings if the tokens come under capital market products under the SFA (Securities and Futures Act).
MAS will analyse the characteristics and rights attached with a digital token to know if comes under capital market products category. 

b) A digital token can represent an array of things like a share, debenture or a unit.

c) In a CIS (Collective Investment Scheme) the small offering of a company should not $5million a year and is also subject to certain conditions. 

d) A private security offering should only be offered to a maximum of 50 individuals in any given year.


Security token offering services-The right Token issuance platforms

As security tokens are inherently different from utility tokens and hence they require a completely different technical approach. Doing this from the ground up is often a perplexing process especially for non-technical enterprises, a more convenient option would be to choose the right security token issuance platform which can seamlessly provide technical assistance. The following are the top security token issuances platforms-

Polymath

Polymath is renowned world over for popularizing the idea of security tokens. The company provides technical and legal support for securitizing assets like stocks or bonds. ST-20 token standard was developed by polymath for facilitating this. The company also has its own native token dubbed POLY which can be used within their ecosystem for all activities on its blockchain. Polymath is the most popular security token issuance platform among all the platform with 81 STOs observed so far (source)

Securitize

Securitize is another token issuance platform that aims to be a one-stop-shop for STOs. The company provides an end-to-end platform from handling security token issuance to management throughout the lifetime of the project.

Harbor 

Harbor is another end-to-end security token issuance platform that aims to assist enterprises. Harbor leverages a regulated token system, R-token to enable transactions. 

Swarm

Swarm is a security token issuance platform that leverages an SRC20 cryptographic standard for security tokens. This standard defines a set of rules that security tokens must incorporate to represent real-world assets. 

Securrency 

Securency is a complete security token issuance platform that allows users to launch an STO using its simple interface. Securrency also makes sure to curb any fraudulent activity by enabling KYC in 160+ countries and AML in both fiat and crypto.

Fincross

Fincross International is a regulated investment bank leveraging its experience in digital asset markets, investment management and product distribution to structure and issue unique security token offerings with a strong investment case. In 2019, the firm has partnered with over ten investment funds with mandates to buy security tokens.

Fincross believes there are few key elements to focus on, while choosing an STO issuance platform, such as the firm's buyer and distribution network for token sale and its legal expertise. On top of this, an STO issuance platform should also possess the skill to structure a new investment product in the form of a security token while creating conducive environment for investors to easily buy these tokens in a compliant and efficient way.

As Henry James, Deputy CEO & CSO of Fincross International, was quoted saying "I believe the key factors when choosing an STO issuer should be the firm’s: legal expertise, buyer and distribution network for the token sale, ability to structure a new investment product in the form of a security token and the ease in which investors can go through the buying process in a compliant and efficient way."

 

Security token offering services- Marketing is critical

Marketing is the most critical step in the process of launching an STO and it involves the following sub-steps.

Whitepaper creation- A whitepaper is a crucial marketing document that covers topics from industry overview to product details among several other essential details. Whitepapers should also describe the solution it aims to bring to the market through its project.

The right team- Finding the right team members with expertise in their respective domains is not only essential for the project but it also boosts the confidence of investors in the project.

Website- a website is quintessential to launching an STO as this is how investors find a promising startup. The website contains information like a link to the whitepaper, live token sale counter etc.

On top of these, in a successful marketing campaign, it’s essential to make sure crucial information like the startup’s whitepaper reaches the desired audience and creates a buzz in them. This step is often outsourced to a marketing firm. 

Crowdcreate

Crowdcreate is a global ICO marketing firm that has managed to raise over $106 million across 40+ campaigns. The company claims to have the cater to some of the leading tech companies to grow their online community. 

Amazix

Led by an elite team of managers, Amazix is a group of crypto professionals. The company has managed marketing campaigns for some high-profile ICOs like Bancor, Hdac and BANKEX. 

Element Group

Element group is a leading marketing firm that provides ICOs with a comprehensive range of services. The company allegedly executes marketing campaigns in a precise and effective way to make sure the right audience gets to know critical information. 

FoxTail Marketing

This American digital marketing firm has successfully conducted marketing campaigns for an array of ICOs, offering a comprehensive range of services like lead-generation. Uniquely Foxtail marketing also conducts marketing campaigns for companies outside the ICO space. 

ICOBOX

Icobox is a marketing firm that focuses on ICOs specifically and offers a wide range of services from whitepaper writing to generating marketing leads. The company aims to be a one-stop-shop for all needs a startup might need to launch an STO.


Security token offering services- Consulting custodians

Most often real-world assets like such as real estate and shares of private companies could be used as collateral for security tokens. While tokenizing the assets are required to be kept with a third-party using processes such as Special Purpose Vehicles or Trust Companies. This agreement between companies and third-party custodians are also required to be made official via smart contracts. 

Coinbase is a qualified custodian organization that helps startups launch STOs. Coinbase uniquely has a partnership with regulatory authorities like ETC and FINRA. Coinbase has reportedly stored more than $20 billion worth of crypto assets on its platform.


Security token offering services- Getting listed on exchanges

After the launch of an STO, it’s quintessential to get it listed on an exchange, so much so that this single step could make or break the user adoption levels of the project’s cryptocurrency. Here are some of the top exchanges for getting an STO listed- 


Binance

Often touted as the world’s largest exchange, Binance has a trading volume of over $500 million per day. The platform allows for the trade of over 130 cryptocurrencies and an incredibly low transaction fee of 0.1%. Uniquely Binance has its own cryptocurrency dubbed Binance coin or BNB with a market cap valuation at $1.3 billion. 

Coinbase

Coinbase was the first a crypto exchange to earn a ‘unicorn’ status and is hailed as the beginner-friendly exchanges. On top of this, coinbase platform functions as an amalgamation of an exchange, wallet and toolset. Coinbase has also been a prolific acquirer in the crypto space, making over twelve acquisitions so far (Source

tZero

tZero is a subsidy of retail giant Overstock and its platform is among the most sensational in the crypto space. Its platform is designed in an intuitive way creates a conducive environment for trading tokens convenient and seamless. The company has also partnered with token issuance platforms like Polymath and the company has managed to raise an incredible $134 million during its own token offering. 

Open Finance Network

Open finance network another crypto exchange that enables accredited investors to trade securities on its platform. Uniquely Open Finance Network is the only American security token trading platform and for listing a token on its platform there are several requirements that need to be met. The company also has relationships with leading custodians, banks and brokerage houses among others which helps streamline the entire process of listing a token swift. 

BankToTheFuture

Similar to Open Finance Network, BankToTheFuture is a securities trading platform aimed at accredited investors. The company is a veteran in the crypto space and has led investments in disruptive products like Bitcoin. Uniquely the company claims to have amassed the largest community of high net worth individuals aiming to fuel the growth of startups in FinTech, Financial Services among other industrial sectors.


Security token offering services- Market Makers?

Crypto Market makers are enterprises that help create liquidity in ICO and crypto exchange markets but these tactics have often been criticized as an unfair practice. Market makers often promises a startup to help reach a certain token price target or trading volume. Some of the popular market making platforms include-

Wintermute trading

Wintermute trading claims to have a proprietary trading algorithm developed by in-house engineers and provides an automated connection as much as a 100 crypto exchanges.

Often these are the critical steps that either make or break the launch of a security token and with STOs poised to take the crypto space by storm, the profound impact of these service providers is only likely to increase in the future.

Which is why it is quintessential for an enterprise or an individual looking to launch a security token to choose the right service provider at each stage of the process. But this is easier said than done, as choosing the service provider can be as perplexing as the process itself. But by leveraging InWara’s STO services database, companies can better navigate the STO ecosystem and make a better-informed decision as to which service provider is most compatible with their vision.


STO ecosystem

Security Token Offering Services


Related Read: Tezos STO suffers from governance issues

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