Let the Regulations Begin! A New Way with Security Token Offering – Part 1

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Security Token Offering

If you are planning to raise through traditional funding methods by following regulations, then try the Security Token route. The Security Token Offering have the same array of financial rights similar to IPOs markets such as equity, dividends, voting rights, and buy-back rights to name a few and all these forms in the framework of an underlying asset. The advantages of tokenization are numerous such as fractionalization of assets, increased liquidity and low fees thereby increasing the market efficiency.

How to create your very own STO?

Just follow the list below to know the initial requirements

The greatest benefit is that there is a global pool of capital to the issuer. These tokens have to be traded within the regulations of each country, thereby, being more price attractive to investors. STOs, give a recognizable regulatory framework for the institutional investors to join as investments and for crypto investors for the technological innovation.

So what to tokenize?

VC Funds Tokenizations – Each token represents a fixed amount of investor rights such as profit sharing, direct or indirect buyback architectures, and other liquidity framework requirements. A traditional VC locks the fund for 7-10 years, however, in a tokenized VC, liquidity begins at the end of 12 months as per U.S. Securities Laws.

Equity Tokens – Ownership stakes benefits such as limited partnership(LP) shares, voting rights, dividends, and profit shares will benefit through the tokenization process. Due to blockchain and smart contracts, there is automated compliance, reduction in operational costs, and layered shared rights. This enables overall flexibility to the process.

Asset-Backed Tokens – Asset-backed tokens are right to ownership to real-world assets like commodities, power plants, and commercial real estate. These can be fungible or non-fungible assets requiring an abstraction layer. Larger assets can be divided to create a unique and diversified portfolio comparing themselves to derivatives but in a more transparent way.

Crypto-bonds – These are debt instruments that can act as bonds constituting a fixed claim to future streams of income. A tokenized debt is a topic of debate maintaining a seniority claim over equity in repayment and accreditation requirements. However, blockchain-based crypto-bonds will eliminate the middlemen.

There are two types of STOs 

  • Registered STOs
  • Exempt STOs

Registered STOs
By registering your STOs with regulatory compliance, you will build trust with investors by giving the rights to the token holders. The process involves reviews of the forms and provisions that are placed for feedback and then registered effectively. These are the basic process for any IPOs.

Benefits of Registrations :

  1. Accredited and Unaccredited Investors can participate
  2. Marketing of Offerings
  3. Immediately Tradable and Liquid
  4. Unlimited Capital Rise

Exempt STOs
STOs are a cost-effective way to issue STO with certain exemptions and registration requirements. When the tokens are issued to the founders and early team members, the founder’s exemption is relied on. The SEC’s Reg D 506(c) allows only accredited investors to participate in the STOs when it is applying for exemptions.

Benefits of Exempt STOs

  1. Raising capital without restrictions
  2. Can be sold to accredited investors through a publicly available website
  3. Exemptions from covered securities

This is just the beginning of our blog series on the checklist for starting STOs. Blockchain App Factory is a pioneer in providing end to end STO services. We provide security tokens on your own blockchain, legal consulting coupled with STO marketing to build your brand.


Security token offering services

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