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Security Token Offering: What is it? How to launch an STO for your business?

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Let's discuss what is a security token, how it works, security token platforms and how to launch an STO for your company.

‘Security’ and ‘Token’, the crypto space tried to keep these two terms far away from each other for a long time but the situation is changing day by day. The previous algorithm for generating tokens, ICO was spotted by SEC and SEC i.e. socio-economic classification clarifies that most of the projects of ICOs were similar to the securities, therefore, these projects must follow the regulations. This statement was the foundation of the beginning of another token offering algorithm, known as STO i.e. Security Token Offerings.

In this article, we will discuss what is a security token, how it works. We will also discuss security token platforms and how to launch an STO.

 

What is a security token?

In simple words, security tokens can be defined as the cryptographic blockchain technology based tokens, which can represent real0time financial values like shares, bonds, warrants etc. You own a part of the company by having the security token even though you are not actually taking any possession of the company. In terms of difference with ICO, we can say that STOs are the next generation of ICOs. They are basically the combination of some modification of ICOs plus the additional security. STOs are bounded by the regulations, hence more are trustable. Several organizations utilize security token to increase values for several investors using these STOs.

 

How do security tokens work?

The main aim of security tokens is to increase the money for the related organization, no matter a startup or a well-settled company. In this competitive world, no of companies evolving day by day is very high. If there are so many new companies, how the internal financial market would be capable of investing in them. This was the case for which earlier ICOs were evolved. Similarly, security tokens also work in the same fashion. They can also be used to tokenize the real financial assets. With the evolving crypto space, the scope of security tokens has also increased significantly.

In upcoming days, security token offerings i.e. (STOs) would completely replace its competitor. There is more fluidity in the security tokens as compared to ICOs. There are a lot of security token platforms which assist in investing or launching a new STO which we are going to discuss later.

 

What is a security token platform?

It is not easy for a person individually to set up and launch an STO. The decentralized exchanges of the crypto world make it much difficult. To avoid these kinds of problems, there are various security token platforms which assist in this field. A security token platform helps in the problems related to ease and stability with which a security token could be sold or purchased in the crypto space. Currently, this problem of liquidity is the main problem which is restricting a huge mass to adopt security tokens.

These platforms erase the complexations of the process of issuing of the security tokens. A security token platform would help you in issuing these tokens and also assist in completing all the legal regulations that are required to be approved by SEC in order to use the security tokens. They would also assist in the process of selection of a proper provider of KYC for your security tokens.

There are various security token platforms available in the market such as Polymath, tZero, Swarm, Harbor, Securrency, and Securitize.

 

How to do an STO?

People are often confused about the steps that need to be taken in order to launch an STO. In this section, we tell you the process of launching an STO.

 

Step 1:

Create a document which includes all the important point related to your business such as the idea, targeted technology etc. It is an essential document in launching an STO. This document is used to get the details of your product by the investors.

 

Step 2:

Go through and understand the legal regulations of STOs: Before proceeding, you must understand the legal regulation of the security token. You must understand whether your project and product are compatible with these rules or not. If yes, you could continue to further steps.

 

Step 3:

The next step is selecting the market exchange for your STO. The exchange would assist you in knowing whether you are capable of launching a specific security token or not. They would also validate some of the regulations of investment in STO.

 

Step 4:

Use a cryptosecurity token platform to set up your STO. As mentioned earlier in this article, there are various platforms which help you in the issuance of the security tokens as well as all the legal paperwork for your STO, you can choose either of them. Polymath is one of the popular such platforms to set up your STO.

 

Step 5:

The last step is marketing your STO. Although it is not a part of investing in an STO, you should always look at the ways to create the buzz regarding your invested STO. It is relatively easy to market an STO as compared to an ICO.

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ICO vs STO, Are Security Token Offerings Different?

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STOs are becoming more and more convincing for investors and companies to raise capital.  Securities can offer many financial rights to investors.

The initial coin offering ( ICO ) is the first, most frequently used and fastest way to finance a blockchain project without intermediary, at least in 2017 – 2018.
The STO can be compared to the IPO, where the tokens are treated as real securities.
With the increasing number of fraudsters in the ICO universe, as well as the strong desire of governments to control Israel’s deregulated crowdfunding campaigns, regulators such as Securities and Exchange Committee ( SEC ) were unhappy, and they could not leave aside.

Such smart contracts also allow for the production of nonfungible tokens ( such as ICO tokens ) or non – fungible tokens ( such as cryptocurrencies ) on the durable, battle-tested blockchain of Ethereum.
In contrast to ICOs, STO tokens are usually supported by a known element, such as assets, shares, income or profits.
In addition to the high initial legal and compliance costs, the other major drawback of STO tokens is that large cryptocurrency exchanges such as Binance do not yet support them.

 

STOs are more transparent than ICOs

One result of the need for change is the increase in sales of collateral tokens ( STOs ), a more transparent investment vehicle.
Primarily, a security sign represents an electronically packaged interest or a share in a private interest or company – and can be extended to assets such as real estate, trusts, LLC, fine arts, etc.
Often, securities are given the right to a form of equity or ownership of a particular asset, whether fractional or whole and to expect profits through income, dividends or favorable price movements.
Companies can offer digital security tokens for a variety of assets that are otherwise illiquid, while investors can buy lower – risk securities in their preferred investments.

 

Utility Tokens and Security Tokens

In contrast to Utility tokens, Security tokens can be backed by corporate assets such as shares, voting rights or other rights to a real asset.
For example, if company X, which turns out to be a very successful mutual fund, moves 5 million dollars into a free chain STO, the resulting hype about buying and investing would be unprecedented.
Not only is it illegal to manipulate the market, but it also discourages institutional investors, such as Company X, from investing in such projects, because their total investment will be readily visible to the public.

Companies that register an STO will have to submit documents that are publicly available through the SEC EDGAR database.
Sto’s security tokens are based on Alternative Trading Systems ( ATS ) with intermediaries registered with the SEC and monitored by the FINRA.
More and more people will understand what the stock of the blockchain is, and security tokens will become an integral part of the global financial system.

Elsewhere in Europe, the financial industry, traditionally focused on fiat, is beginning to support cryptocurrencies as securities.
Regulators, the financial industry and many cryptocurrencies are slowly developing a common understanding of what blockchain security should look like.

 

STOs are more secure for Investors

STO has achieved this level of security, which IPO has, as well as the relative simplicity and accessibility that is inherent to ICO.
To have a convenient opportunity to view the list of all current ICOs in one place, particular aggregator sites have been created, called ICO trackers.
The following data is analyzed to create an estimate of this parameter: advertising of the development team, White Paper, the availability of a work test product, the reputation of consultants and partners, etc.
Detailed information on ICO projects can be found on larger sites, and some services can easily publish WP by linking to the official project source.
There are a lot of fraudsters on the ICO market, which you can find on specialized services – ICO trackers.
In short, and simply put, the definition of a hard fork is a significant upgrade of an existing cryptocurrency in which a new currency is created.

 

STOs offer more rights to the Investors

In theory, the symbolic economy can improve network effects by rewarding user involvement and even better governance by giving the most active users a more significant influence on future protocol decisions.
Some traders earn their living by doing so with the public market share, and the behavior of investing is one of the driving forces behind the current cryptocurrency market.
Stos are usually granted an exemption called D 506 ( c ), which is a public offering of securities to accredited investors ( each person with net worth 1 million dollars plus or annual income of 200, 000 or more dollars over the last two years – 300, 00.

STOs are becoming more and more convincing for investors and companies to raise capital.
Securities can offer many financial rights to investors, including shares, dividends, income shares, profit shares, voting rights, and other financial instruments.

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STO: Thailand set to legalize Security Token Offerings

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Thailand is all set to legalize security token offerings utilizing blockchain technology with an ongoing change to the Securities and Exchange Act.

Thailand is all set to legalize security token offerings utilizing blockchain technology with an ongoing change to the Securities and Exchange Act.

Thailand to Legalize Security Token Offerings

Thailand’s National Authoritative Get together has supposedly affirmed a change to the current Securities and Exchange Act on February eighth, as per the Bangkok Post.

The changed act is relied upon to become effective this year as indicated by Tipsuda Thavaramara, Deputy Secretary-General at the Securities and Exchange Commission.

The Director of the Corporate Communication Department at the Securities and Exchange Commission, Pariya Techamuanvivit, said that once this occurs, it will be legitimate for organizations to offer security tokens utilizing blockchain technology.

She likewise laid out that the Commission will almost certainly give legitimate clearness on regardless of whether certain securities can be issued as advanced tokens.

Besides, the rights and the commitments which are related with the advanced token, subject of the STO, will decide if it will be managed under the Securities and Exchange Act and the Royal Decree on Virtual Assets.

The declaration holds that if a financial instrument, for example, cryptocurrencies or digital assets, fits the meaning of security, at that point it will be managed under the act.

It’s important that last year Thailand set up tenets which put clear definitions for the expressions “cryptographic forms of money” and “computerized token”, thus finishing the cash versus security token discussion. Per the tenets, “digital currencies” are utilized as a mode of payment while trading products.

“Digital Assets” then again, are characterized as rights to partake in speculation.

 

Other Advancements

Moreover, the changed act will likewise enable organizations to acquire licenses to work as a repository of securities and digital tokens. This was earlier permitted just for the Thailand Securities Storehouse Co Ltd.

Thailand’s stock exchange (SET) is also thinking about to apply for a digital asset operating license with the Thai Financial Ministry. Whenever affirmed, SET may begin enabling its clients to exchange bitcoin and other cryptocurrencies.

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Security Token Offerings: 15 reasons why STOs will replace ICOs

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STOs are another alternative of ICOs, that is known as Security Token Offering (STO). Let's discuss the reasons why STOs will replace ICOs.

The securities have always been a matter of concern for the crypto industry. Therefore, it still goes under several modifications and new regulations. In mid-2018, an announcement came from socio-economic classification (SEC). It stated that since most of the projects under ICO were similar to securities, it must go through the regulations of SEC. And here came another alternative of ICO, that is known as Security Token Offering (STO). Let’s discuss the reasons why STOs will replace ICOs.

 

1. The credibility of the STOs project:

Since STOs obeys the rules and regulations of the SEC, it provides a kind of trust for the projects under STOs. This was missing in case of ICO oriented projects. Hence, in the future, more and more plans would tend to gain instant credibility after getting approved by SEC, a sign that STO is going to replace ICO.

 

2. Ownership of the asset:

The main idea of ICO was to generate utility token. However, there was a problem of ownership with ICO. Since no real-world asset was involved in the case of ICOs, the investor doesn’t own anything. In the case of STOs, the investor will have own asset that would be represented by the security token.

 

3. Easy to be programmed:

More the ease of programming more is the flexibility. ICO projects don’t allow the developers to program. Hence, modifications were difficult to be implemented. In the case of STOs, they are programmable. This implies that one can apply certain rules within the security token to be applied. This is a major advantage of STOs.

 

4. Full Liquidity:

Current ICO securities only work for work hours usually 9-5 and only for weekdays. However, in the field of crypto, the security may be required and any transaction may happen at any point in time. STOs have full liquidity and operate for 24*7. This feature may lead STO to replace ICO in the future.

 

5. Accessibility to the global world:

We all are aware that transaction in blockchain technology knows no boundary and no nation. However, with the present ICOs, one has to pay a huge amount of fee for launching an initial public offering in the global market. This is not the case of the alternative STO, where this fee is considerably low.

 

6. Completely Traceable:

Since the projects of STO are approved by the regulations and norms of the SEC, it makes them completely traceable. This brings transparency in the market as anyone can watch who hold the coin in the market and for how much longer time interval. It can trace a coin throughout a complete year. This is really amazing.

 

7. Embedded Compliance:

Since the rules and regulations of a market vary from country to country, state to state; it was difficult to impose different securities measure with ICOs. However, since STO is programmable, it implies that one can modify the compliance easily with a change in the program of securities as per the location. This enables the embedded compliance in STOs.

 

8. Less prone to scams:

With the guidance of SEC regulations, the chances of scams and Ponzi schemes are relatively low in STOs as compared to ICOs. ICOs hasn’t this feature and has faced a lot of such scams in its history. Wil less prone to these scams, higher is the chances of replacement of ICO by STO.

 

9. The world is welcoming STOs:

There are still some countries who have a negative view of crypto space. However, with the introduction of STOs, some of such countries are welcoming this market for future activity in their country. Recently, Hongkong welcomed crypto along with STOs. This is a good sign for both crypto spaces and STOs.

 

10. The cheaper process of generating tokens:

The process of generating utility tokens in ICOs was very costly. However, in the case of STOs, the process of generation of security tokens are very cheaper and easy to issue. This is also one of the reasons for increasing popularity and use of STOs as compare to ICOs.

 

11. High no of issuance platforms:

There are numerous platforms that create and distribute security tokens. These platforms are also responsible for having compliant, regulated smart contracts for the issue of the security tokens. More is the number of such platforms, easier it would be for the investors.

 

12. Blockchain protocols of STOs:

Unlike ICOs where the utility tokens were entitled to their own project’s protocol technology, security tokens are constructed on existing blockchain protocols. While most of the security tokens are constructed on Ethereum technology, there are a lot number of such protocols that are entering the space.

 

13. Cover almost every feature of existing ICOs:

Most of the analyst believe that STOs are an advanced version of ICOs. While they cover almost every market feature of ICOs, in addition, they also have the facility of more securities. If they are providing existing as well as more securities feature, why wouldn’t the world go for it?

 

14. More compatible with crypto space:

While the securities have been always the major concern in crypto space, the introduction of STOs in this market would surely be a huge relief. STOs projects that are secured by SEC regulations, hence they are more compatible with crypto space as compare to their competitor ICOs.

 

15. They have already marked their position in the global world:

It is not the situation that STOs are yet to come in the market. They are already present in the market. Huge countries like Russia have already replaced their ICOs project with STOs. One can easily track the progress of STOs as in January 2018, there were only 5 STOs conducting the main sale and by October 2018, it raised by more than 400% to 22.

 

The above points indicate that Security token offerings are going to replace Initial coin offerings in the near future.

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