Photo: ShutterstockAn abbreviation STO stands for Security Token Offering. STOs are similar to ICOs but have some fundamental differences. For instance, security tokens are regulated offering like traditional securities and are subject to the same legal compliance requirements. Their key difference is that a security token records the ownership of the investment product on a blockchain.The interest in STO lists has grown recently as startups and established companies are looking for new fundraising methods.Pros and Cons of STOsSTOs are regulated, which means there is a lower risk for investors. Security tokens are usually backed by real-world assets which also helps investors assess the intrinsic value of the tokens. Combined, the preceding two factors allow STOs to draw more attention
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Photo: Shutterstock
An abbreviation STO stands for Security Token Offering. STOs are similar to ICOs but have some fundamental differences. For instance, security tokens are regulated offering like traditional securities and are subject to the same legal compliance requirements. Their key difference is that a security token records the ownership of the investment product on a blockchain.
The interest in STO lists has grown recently as startups and established companies are looking for new fundraising methods.
Pros and Cons of STOs
STOs are regulated, which means there is a lower risk for investors. Security tokens are usually backed by real-world assets which also helps investors assess the intrinsic value of the tokens. Combined, the preceding two factors allow STOs to draw more attention from traditional institutional investors.
A wide variety of companies can participate in the STO ecosystem. Platforms like exchanges, broker-dealers, or custodians can all benefit from STOs. These companies can easily issue security tokens to facilitate access for retail investors, as long as the security token can be filed as security.
STOs can be tricky, though the legal aspects of security tokens can sometimes be blurry and according to Marvin Steinberg, an STO expert and the founder of CPI Tech, companies that want to issue an STO will have to take account for promotional and technical aspects as well as legal compliance. The demand for security token offerings is increasing rapidly, which puts pressure on companies not to miss out. As a result, hundreds of both startups and enterprises are rushing things and consequently making critical mistakes.
Businesses that want to make use of STOs will need to have a solid platform and comply with all the regulations and laws, this is crucial for the success of the STO. To aid the growth of security tokens, Marvin Steinberg has created an STO guide that offers crucial information on how anyone gets started with STOs.
Steps and Tips to Launch a Successful STO
In his guide, Marvin Steinberg states that the first thing a business needs in order to launch a successful STO is to choose the type of STO, as well as its jurisdiction. Different types of STOs will attract different types of investors. Its structure also has a massive impact on dividends, shares in the company, and many other aspects.
Marvin Steinberg goes on that businesses would also need to create something called SPVs. A Special Purpose Vehicle is a structure that becomes an equity shareholder in the main company and allows investors to access dividends and equity shares. Marvin Steinberg clarifies that he has been taking advantage of the EU’s small offering exemption by creating 3 main STO rounds.
Most security tokens are typically created on a few main blockchains including Ethereum, Stellar, or EOS. Businesses will need to issue the token and then customize it to their needs.
Marvin Steinberg asserts that businesses need to understand how crucial it is to have a dedicated dashboard to the STO as a solid infrastructure will ensure that the issuance of tokens is safe and compliant with all the regulations required. As previously stated, an STO will be successful only if it’s able to reach the right network of investors. The classic model still prevails here with the 3 traditional stages: the private sale, the pre-sale, and the main sale.
It’s important not to forget about marketing. Sure, you might have the greatest product or service ever but who is going to buy it or use it if no one knows about it? Marvin Steinberg explains how important marketing is if a business wants to raise money through an STO, and he emphasizes how strict the rules for crypto marketing can be. Google and Facebook, for instance, do not allow regular PPC ads for cryptocurrency products.
Businesses need to use innovative marketing strategies that are unique to their business model and are able to reach the right group of investors while taking into account all the metrics and milestones.
Clearly, launching a successful STO can be hard and confusing, especially if you are not too familiar with the blockchain industry. Getting help from a certified STO advisor or service is crucial even if you are familiar with the cryptocurrency market. Many companies simply rush the process and make simple mistakes that can easily be avoided.
Use Only Reputable STO Services and Solutions
While the demand for STOs is increasing, the number of services offering STO solutions is also increasing. However, most STO service providers aren’t always professional and can, in fact, be scams. That’s why it’s extremely important to choose a reputable service or platform with a good record.
Marvin Steinberg and CPI Tech have a proven record with more than 43 successful projects and currently aiming to tokenize a part of Times Square, embarking into a $700 million project. CPI technologies was co-founded by Maximilian Schmidt, an expert in developing BTC applications.
The State of STOs
One of the biggest innovations for the fundraising of cryptocurrencies was the creation of ICOs. This form of crowdfunding was extremely popular in 2017 and 2018 when hundreds of ICOs were launched every month. However, the hype quickly faded as most ICOs failed or were simply blatant scams.
STOs are safer as they are required to comply with regulations. There is a stark gap between how an ICO operates in comparison to an STO. Common ICO promotional tactics like cryptocurrency airdrops and cryptocurrency bounties should not be executed with STOs, as legally compliant securities cannot be distributed with ease.
Businesses looking for growth opportunities that offer investors peace of mind and have a higher chance of attracting reputable institutional investors will be able to do so with STOs. Marvin Steinberg believes STOs will dominate the sector in the near future and has created a simple-to-understand guide on STOs and how to execute them successfully while complying with all regulations.
Additionally, for those helping to acquaint themselves with STOs, Marvin Steinberg’s 2-minute STO quiz could be a good place to start. Access the quiz here.