Blockchain will revolutionize the industry at large. As an integral part of industry 4.0, it supports crypto assets like utility tokens and security tokens, presenting a massive opportunity to transform the financial services marketplace.
Security tokens are a relatively nascent development in the already niche domain of blockchain. Utility tokens are a means to service, whereas security tokens are indicative of ownership of a physical, real-world asset. The owners of these securities possess several rights. These include profit-sharing rights, equity, dividends, buy-back rights, and voting rights.
Developing a security token is a laborious process. However, it carries a host of benefits. Developing your own STO from the ground up can be an expensive and time-consuming process. Luckily, there are ways in which this process can be streamlined. More specifically, employing an external firm to develop your STO is a prudent option.
To 🚀 launch your own security token, you need to find the right STO development company. Tokenization enhances the liquidity of underlying assets, which makes securities more enticing to prospective investors. Tokenizing also enables fractionalization of bigger assets, improved market efficiency, and reduced issuance fees.
Security token issuance platforms
This token takes a look at the several token issuance platforms available at your disposal.
Polymath — This is a blockchain-based protocol that allows for the issuance and distribution of token-based securities that feature compliance with SEC rules and regulations. Polymath streamlines the procedure of financial product launch through embedding financial security requirements into the development of fresh security tokens.
Harbor — Harbor is open source, and enables conventional investment classes to transition into blockchain easily. Harbor utilizes a regulated procedure to streamline regulatory steps and ensure that firms migrating their assets onto the blockchain are compliant with legal specifications.
Securitize — Securitize is compliant with regulations, and is a cloud services solution for the tokenization of securities that enables the tokenization of firms, funding, and various other entities.
Swarm fund — Swarm fund utilizes SR20 protocol, a crypto standard for security tokens for the tokenization of physical assets. Administration, governance, and trade of these assets is simplified after the process of tokenization on the swam network.
The types of STOs
Before looking at the development process of STOs, let us take a brief look at the types of STOs.
- Equity token – This is a type of STO where every token is backed by stock in your firm, so owners have equal rights to stockholders with regards to voting and dividend issues.
- Reserve assets – Firms trading in real-world commodities like valuable metals and real-estate property can initiate an STO where the tokens are backed up by a reserve of these assets.
- Debt token – If your firm opts not to tokenize your stock or reserve assets, you can obtain funding through the issue of security tokens with assured payback to entice debt investors.
The process steps of developing your own STO
Blockchain App Factory deploys a holistic development process to ensure that your STO gets off the ground with as much momentum as it can obtain.
Step 1 – Identifying the securities for the issuance firm to tokenize like commercial real estate.
Step 2 – Audit, financial, and legal consultants are at the core of Blockchain App Factory’s security advisory team; they will advise on the jurisdiction checks regarding securities titles like credit ratings and other parameters indicated by the owner.
Step 3 – A special purpose vehicle is created particularly during the tokenization of securities for the sole purpose of security token trade.
Step 4 – The underlying tech behind tokenized securities is BAF’s strong point. BAF’s customized blockchains feature built-in smart contracts on top of Ethereum or in Hyperledger or Stellar.
Step 5 – The valuation of securities is evaluated by audit firms. Every token has a specified value. This is so the issuance firm can issue a token at that price.
Step 6 – After the token has been created with regulations built into the smart contract, a dashboard is given for investor management for the issuer and fund administration for investors. These dashboards consist of KYC/AML, accredited investor verification, and voting rights built-in for investors and project owners
Step 7 – The tokens that have been developed are given out through a security token offering for investors to obtain a legally compliant token under the framework of legal requirements. Smart contracts ensure automated regulatory requirements, and there is no need for third-party intermediaries like transfer agents.
Step 8 – Upon completion of the STO, the token is listed on the 💱security token exchange for investors to trade on the secondary market. The OTC (over the counter) market is another medium where accredited investors can indulge indirect trade with token holders.
STOs intend to shift institutional investors into the blockchain and crypto era. Blockchain will drive the automation of legal/audit requirements while integrating smart contracts.
Security tokens are basically securities that feature SEC compliance. Through ownership, investors get diverse financial authority, encoded in smart contracts. Tokens on the blockchain for trade will also contain this encoding.