The tokens offered in a Security Token Offering (STO) are called security tokens. They are basically crypto tokens that pass the Howey Test.
Just as the name suggests, security tokens are grouped as securities and are therefore subject to the federal securities regulations. This is why STO is said to be the most regulated method of raising funds for blockchain projects, compared to other means like ICO and IEO.
Security tokens are developed in a special way because they require an additional layer in their smart contract to make them regulatory compliant. This additional layer helps in identifying who is allowed to purchase, trade and interact using the token. That is why Security tokens are not developed using common ERC-20 standards. The ERC-20 standards lack the crucial layer that makes security tokens to comply with regulations.
Therefore, a number of companies and organizations have come up with different standards to help in creating security tokens. One of those companies is Polymath, which has gained lots of popularity since its launch a few years ago.
Polymath security token standard
Polymath designed a security token standard referred to as ST-20, which defines a number of rules for Security tokens. For instance, ST-20 tokens define who can use the token and how the token should be used within the smart contract.
Creating a Security Token for your blockchain project using Polymath
Below is a step by step guide on how you can develop a security token for your security token.
- Create a funded Metamask account
To create a Metamask account, you download the Metamask chrome extension and then fund the account using Ethereum (ETH).
Metamask is an API that allows you to access Ethereum enabled Dapps using your browser. It is simply an Ethereum wallet.
Then, open the Polymath website and click on the ‘Configure Your Security Token’ so that you can start creating your security token.
Note: You cannot proceed without first downloading the Metamask plugin on your browser. If you try clicking on the ‘Configure You Security Token’ button without first downloading the Metamask, you shall be directed to the page below. However, you don’t have to worry, just click on the Metamask link on the page to download and install the Metamask.
- Create a Polymath account
When you click the ‘Configure Your Security Token’ button, you will be directed to the registration page where you will be required to fill in your name and preferred email address.
When you click on ‘Create Account’, you shall be required to sign in with Metamask also. This is done so as to sign your email address with your Metamask wallet.
- Choose your Token name, symbol and register it
After completing the registration process in Polymath, the next step is registering your security token. You will have to choose a name and abbreviation (better referred to as token symbol).
When choosing the name of your security token, it is advisable to choose a name that is in line with the name of your blockchain project.
An example of a security token name can be ‘Transporty’ with a symbol ‘TRP’.
You have to ensure that the name and symbol that you choose is not used by any other blockchain/cryptocurrency project anywhere in the world.
Once you click on the ‘Reserve Token Symbol’ button, you are given a 15-days window where you can consult with your team members and advisors before submitting the symbol name and symbol for approval.
Once you submit the name and symbol, you get a confirmation email to contain the full information about your security token.
- Choosing your partners
The next step is usually selecting the people that you want to help you with your STO. Here you choose the KYC/AML providers, legal team, advisory team, and marketing team.
It is, however, important to note that the portal doesn’t directly contact the selected persons or organization. It only sends you an email containing a sample of the email you would send to them.
Once you are done with selecting all the four teams (Advisory, Legal, KY/AML and Marketing), you go on to create your token.
- Creating the Token
When creating the security token, you can add a link to a file containing any additional information on the token.
- Setting up the details of the STO offering
Here, you are supposed to choose the currency that you want the investors to use when purchasing your security tokens.
When you click on the ‘Select And Configure STO’ button, you proceed to configure all the important aspects like the start and end date, the hard cap, the amount to be raised, and etc. of the STO.
Once you complete the process an email address containing the details of the STO configuration is sent to your email address.
- Whitelisting investors
The last step is whitelisting your investors. This enables the investors to buy your security token in the future. Since STOs are highly regulated, it is important to know who holds the securities.
However, the whitelist can be changed during the STO. You can add new investors along the way as the STO continues to allow them to purchase the security tokens of your STO.