Access to capital is essential for Fintech companies looking to embark on rapid growth. However, the available traditional fundraising methods have lots of drawbacks that hinder Fintech companies from realizing their full potential.

Most of the traditional fundraising methods rely on middlemen, who end up making the process too expensive. Also, the process involves a lot of paperwork, which ends up slowing down the whole process.

The rapid evolution being witnessed in the cryptocurrency and blockchain arena has stepped up the efforts of removing intermediaries from most business transactions. The invention of blockchain-based fundraising methods like Security Token Offerings (STOs) has completely revolutionized the way fintech startups and companies engage their customers in raising funds.

Security Token Offerings have stood out among the blockchain-based fundraising methods and offered great competition to methods such as the Initial public offerings which are quite expensive due to reliance on middlemen.

Security Token Offerings within the Fintech industry

Security Token Offerings (STOs) issue security tokens, which are digital financial products that experts and analysts believe could replace the way everything is conducted in the future. Despite being secure and highly liquid (making them easier to buy and sell), they have also provided a better opportunity for transparency and oversight among investors, businesses and regulators.

Security tokens have provided an avenue for digitizing almost anything in the world. A host of industries, among them the real estate industry, and the capital markets, among many others, have seized the opportunity by tokenizing their assets and offering them as security tokens.

Security tokens can easily be offered through smart contracts or STOs.

While STOs allow the Fintech startups and companies to net serious investors, the investors also benefit since the STOs makes it easier for them to monitor the performance of their portfolios. STOs are also easily regulated since the security tokens have an added layer that makes them able to comply with regulations.

Investors who purchase security tokens through STOs are entitled to a given stake, voting entitlements or dividends in the company.

Some of the STOs that have stolen the show recently include that of AssetBlock, a real estate investment firm that has embarked on tokenizing about $60 million worth of exclusive hotels in partnership with a luxury hotel asset manager, for investors to cash in.

There is also another case in Manchester, UK, where a luxury residential development it tokenizing about $25 million worth of assets on Tezos blockchain, with a plan to tokenize over $600 million real estate within the United Kingdom.

Comparing STOs to other blockchain-based fundraising methods

STOs are among several other models for fundraising blockchain projects, among them Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs). Among the three, STOs have stood out after gaining prominence following the regulatory issues facing ICOs.

Initially, ICOs were the go-to fundraising option since they were very simple to orchestrate and required no regulations at all. However, scammers noticed the loophole and started issuing fake ICOs to milk vulnerable investors, thus making investors keep off from them or at least be very careful when participating in one.

The fall away of ICOs saw the invention of the IEOs, which are safer compared to the ICOs. However, most IEOs do not offer security tokens due to the strict restriction that goes with offering security tokens. In the US for example, if an IEO offers security tokens, the IEO should be issued through a registered/regulated securities exchange and the company behind the IEO should disclose adequate information about its business, the token sale as well as the terms of the token sale.

Therefore, though IEOs solved the issue of safety with ICOs, it hasn’t been able to attend to the need of the evolving trend among most Fintech companies to use security tokens instead of using utility tokens. Security tokens are best issued through STOs.

As a result, Fintech companies and startups are opting to run STOs even though they are more involving compared to the ICOs and IEOs. And since the STO landscape is persistently evolving, companies are forced to constantly conduct in-depth market research to thoroughly understand the anticipations of their target audience.

 

Initial Exchange Offerings (IEOs), which were introduced following the decline of Initial Coin Offerings (ICOs) popularity among blockchain startups and investors, have gone on to become a force to reckon with within the blockchain crowdfunding industry. IEOs are said to be more trustworthy compared to the ICOs.

IEOs are much safer compared to the ICOs and at the same time much easier to run compared to the STOs, which are the safest.

Some of the things that make IEOs a darling among blockchain token issuers and investors are:

  1. Trust

The fact that IEOs are issued on exchanges brings a sense of centralization in IEOs. This in return has brought trust among investors since they see exchanges as secure platforms due to the regulations that they have to adhere to offer their services.

  1. Efficient token listing after the token sale

Contrary to the ICOs where the issuers (the team behind the blockchain project) would be responsible for approaching exchanges to have their tokens listed, Tokens issued through IEOS are easily listed by the same exchange that issued them.

Therefore, investors are guaranteed that it shall not take long before they start selling the purchased tokens on the exchange.

  1. Ease of raising funds

Since IEOs are issued through exchanges that already have registered users, the IEO issuers are guaranteed that they shall get a vast customer base without much advertising as is the case with ICOs.

Also, the IEO issuers do not have to worry about things like AML/KYC. The exchange platform issuing the tokens takes care of that.

  1. Speed of sale

We cannot forget to mention that due to the large influx of ready investors in exchanges, IEOs take a very short time to hit their targets. There have been cases where it has only taken a few seconds for the target to be hit.

  1. Protection from regulatory consequences

Contrary to ICOs where the startups or companies behind the ICOs are the ones responsible for the legal obligations of the token issuing, Exchange platforms have well organized legal frameworks that deal with the legal consequences of the IEO.

However, there are some legal compliances that the startup or company behind the IEO should adhere to and it at times requires the help of an IEO consultancy or advisory firm to maneuver these regulations. Some exchanges go the extra mile of providing legal advice to startups.

Initial Exchange Offerings (IEOs) regulations

Having evolved from ICOs, which have no provision for legal compliance, IEOs still face the challenge of fitting in the various legal provisions within the various state regulatory authorities.

Of essence, the Team behind an IEO must work diligently to ensure that they developed the right kind of a token. In most cases, IEOs are not after security tokens unless the development team ants the token to be a security token. Therefore, the development team must work within the given regulations to ensure that the token that they develop does not fall under securities. To do so, it is advisable to consult with a reputable IEO advisory firm like Gravitas International so that they can guide you through the legal handles within your country and region. Besides passing the legal handles within your locality, it will also be paramount to adhere to the legal obligations within the countries or regions within which your target audience is.

In some countries like the USA, if the token being issued falls under securities, then the startup or team behind the IEO must look for a securities exchange to list the IEO. Besides, the startup or company behind the IEO shall be subjected to the registration requirements of offerings that fall under the securities laws. If the tokens are securities, the company or startup shall be required to make some important disclosures about its business, the terms of token offering, itself and also about the digital asset it is offering.

If the token does not fall under securities, the startup or company offering the IEO only has to look for a registered exchange where the IEO can be issued. In countries like the USA, such exchanges are normally registered as brokers and must be registered with the SEC and be members of FINRA.

With blockchain security tokens garnering interest throughout the world, Autorité des Marchés Financiers (AMF), the French regulator has seen an opportunity that the rest of the European nations should not miss. The AMF recommends that the European nations should create a European digital lab or sandbox that should enable the nations to ease the legal regulations governing security tokens.

Security tokens are known to be the most regulated digital products in the cryptocurrency and blockchain industry. The reason being that the security tokens fall under securities, although they are digital tokens. Therefore, they are subject to the regulations that govern both the cryptocurrencies or digital assets and those that govern securities.

Other countries like China have also suggested allowing security token offerings under a sandbox mechanism.

AMF’s legal review on security tokens

The French regulator recognizes that security tokens have gained a lot of interest across the world. Both incumbents and blockchain ecosystems seem to gracefully embrace security tokens. The IMF looks at tokenization as an accepted step towards the automation of most financial/trade processes.

The French regulator explored two legal facets in its report on security tokens. The first facet deals with the issue and sale of the security tokens. The second deals with the inclusion of security tokens in investment funds.

Normally, there are no regulatory impediments when it comes to including security tokens as investment funds, either in France or any other European nation. The only thing that asset managers that deal with security tokens should do is to apply for a license with the AMF.

The main issue lies with the issue and sale of the security tokens, especially through Security Token Offerings (STOs). For the case of centralized Distributed Ledger Technology (DLT) platforms there are no challenges since the involved parties can comply with the already set licensing requirements.

However, when it comes to decentralized blockchain projects it is quite challenging for the token issuers and sellers since it is difficult to identify a manager. Concerning this, the AMF suggested an outlined a proposal where parties can list buy and sell orders without requiring the endorsement under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID 2 Directive), which has been in effect since November 2007 among European Union nations.

AMF’s suggestion on the issue and sale of security tokens

Currently, the legislation of a security token issue and sale requires a central securities depository.

AMF suggests that the creation of a sandbox or digital lab would allow regulators in the various counties in the European Union to wave certain regulatory requirements. However, it suggests that this should be done as a trade-off.

According to the AMF’s suggestion, the applicant can only be given a waiver or exemption if they are compliant with key regulatory ethics giving the regulators a higher oversight role.

Earlier on, the AMF had released a working document that sought to inspire the European Commission to create a European digital lab that can deal with the financial services around security tokens.

The French regulator is set to release several other papers in support of its security token research in the coming days or months. Most importantly, the regulator recommends that the use of intermediaries in an age where blockchain technology is available is outdated. The AMF would, therefore, like to see the use of more technologically oriented approaches which gives public adoption of blockchain technology a green light.

Regulation authorities in different countries, including the SEC in the US, are doing all they can to ensure that they keep up with the rapidly evolving digital asset industry. One of the recent developments, the Initial Exchange Offering (IEO), has been gathering a lot of momentum since its invention.

IEOs are similar to the Initial Coin Offering (ICO). They are initial offerings of tokens by startups or companies that seek to raise capital.

IEOs evolved from the ICOs. The only thing that the IEOs have done is taking the coin offering process to cryptocurrency exchanges where the exchanges offer the coins/tokens on behalf of the startups or companies. In exchange, the companies or startups behind the IEO pay a small fee to the exchange platform.

IEO issuers have taunted IEOs to be highly secure by arguing that the IEOs are thoroughly vetted by the exchanges before being allowed to run on their platforms. However, the US Security Exchange Commission (SEC) issued a warning in January 2020 saying that some of the exchanges issuing IEOs are not registered with it and yet they are enticing investors with the propaganda that the IEOs they are offering are secure.

Though IEOs are known to be among the most secure coin offerings that investors can invest in, unregulated exchanges are taking that advantage to give investors false promises of high returns. Investors should be wary that IEOs can be conducted in violation of the federal securities laws making them lack most of the investor protections that are associated with the registered exchanges.

As such, there are certain issues that both IEO issuers and investors should take into account when issuing and investing in IEOs in the USA. These include:

Is the IEO offering security tokens?

Since IEOs are built on top of the ICO framework, they mostly do not deal with securities. However, the startup or company issuing the IEO should be well advised by its legal advisors to ensure the tokens they are issuing do not fall under securities (that is if they do not want to issue securities).

However, there is still a probability that an IEO could involve the sale/offering of security tokens. In so doing, the IEO becomes subject to the registration requirements that apply to offerings that fall under the federal securities laws.

If the IEO is a securities offering, the company or startup offering the IEO should among other things provide important disclosures about its project/business, the digital asset being offered and the terms of the offering.

On this issue, IEO issuers could approach IEO advisory firms for directions on how to best formulate the IEO.

Is the platform issuing the IEO a securities exchange?

If the IEO issues security tokens, the exchange platform on which the IEO is being run should be registered with the SEC as a securities exchange. Or alternatively, the exchange should have applied to operate under exemptions; for instance, it could apply to operate as an alternative trading system (ATS).

The regulations that govern the registered national securities exchanges and ATS are aimed at protecting investors from fraudulent or manipulative trading practices that exchanges may indulge in.

If the exchange offering the IEO is a broker, is it registered with the SEC?

Most trading platforms opt to operate as brokers rather than securities exchanges.

The exchanges operating as brokers in the US are required to register with the SEC as members of the Financial Industry Regulatory Authority (FINRA), an independent, non-governmental organization that comes up with and imposes the rules governing registered brokers and broker-dealer firms in the US. Additionally, they should only run IEOs that issue utility tokens but not security tokens.

FINRA members are subject to regulatory requirements that aim at safeguarding investors by ensuring that the brokers and broker-dealer firms act in a manner consistent with SEC’s customer protection standards.

Though ICOs and STOs are great fundraising methods that startups can use in raising funds for their projects, it is paramount to asses the risks involved.

Launching ICOs/STO requires quite an amount of investment and therefore requires due diligence to ensure that that money is used for the right cause.

Besides, the sole purpose of the ICO or STO is to raise funds for your project. So, one should assess whether the ICO/STO shall be able to meet its target.

What to consider when doing ICO/STO risk assessment

In assessing your ICO/STO, you should consider the following:

  1. Market assessment

It is good to keep in mind that the market shall play a very great role in the success of your ICO/STO and your project.

Before launching your ICO/STO, it is good to assess the market to find out if your project shall be accepted and even adopted by a significant number of people. If a lot of people like your project, they shall be ready to invest in it. However, if people don’t find the project to be worth it, they will not be interested in investing in it and your ICO/STO could end up being a total failure.

To ensure that your project fits in the market, you should ensure that it tackles a solution to something crucial in society. Your solution must also be viable and unique. Remember, you also have other competitors and you have to prove to the people that your project is better than the rest.

Besides, you must be able to identify your target group. You must clearly distinguish the people that you want your project to help. This ensures that your marketing strategies are trained towards this group. And the wider the target group, the higher the likelihood of finding more investors. To identify a target group, you should ask yourself what services your project intends to offer; and who is best suited for those services.

  1. Regulatory risk assessment

This is very critical in launching an ICO/STO.

You have to understand what is required of you depending on the regulations that are set within the region or country where you want to run your fundraising. Failure to adhere to those regulations could cost you a lot and could even result in your ICO/STO or project being put on hold by the regulatory authorities.

Since at times those laws and regulations are quite intricate, like when launching an STO, it is good to involve an ICO or STO advisory firm to help you maneuver those regulatory issues.

Legal liabilities can be very costly to your company or startup especially if you are involved in court cases. Also, once it goes public that your project is on trial at the courts, people/investors will tend to become extra cautious and it may hamper the rate at which people find it worthy to invest in the project even if you manage to handle the cases.

Why do an ICO/STO risk assessment?

  • Preparing yourself for eventualities in future

Countries and regions are still struggling with regulation cryptocurrencies and blockchain technology. As a result, most of the countries are still formulating laws and regulations to govern anything related to blockchain technology.

Therefore, your antennas should be up all the time to ensure that your blockchain project adheres to all the laws; even those that were just released. The best way to do this is by looking for a competent advisory firm like Gravitas International that will be concerned with the regulatory issues.

A good advisory firm will help you maneuver the current legal matters and also prepare you for legal issues that may come up in the future.

  • Ensuring that you ICO/STO does not violate any laws/regulation

There is nothing that can be bad like finding yourself on the wrong side of the law.

Risk assessment ensures that you are on the right side of the law.

  • Estimating the success of your ICO/STO

Carrying out a risk assessment, enables you to find out your weak points and helps you to come up with ways of improving to ensure maximum success of your ICO/STO.

It also enables your team to identify risks and develop plans and contingencies to mitigate risks for your investors. This instills confidence in the investors.

Compared to other forms of crowdfunding, Initial Coin Offering (ICO) offers a more democratic approach. It gives tech startups and firms the ability to net-in a wide range of investors.

The beauty of it is that ICOs have no limitations on who should invest or how much one should invest. There are basically no regulations or laws that define how ICOs should be conducted. All the powers of the token sale are usually at the hands of the issuers and third parties, like ICO advisors, helping in the ICO.

By allowing any investor to invest any amount of money into the ICOs, the issuers are able to raise the required capital faster owing to the fact that investors flock to get a share of the ICO tokens.

However, the lack of a provision for regulations has also become a disadvantage to the ICOs. Crooks found the loophole and started airing fake ICOs targeting vulnerable investors. Compared to other fundraising methods like Security Token Offering (STO) and Initial Exchange Offering (IEO) that have provisions for regulations, ICOs simply had no provision for regulations.

Between 2016 and 2018, a collective of over $10 billion was raised by startups through ICOs. An example of a successful ICO was that of Ethereum (ETH). Ethereum issued ETH tokens whose value appreciated as the project rose to become the second-ranked cryptocurrency.

But Ponzi Schemes and doggy projects started using ICOs to defraud investors making investors more cautious. This cost ICOs greatly. In 2019, ICOs hardly raised $1 billion.

Finding genuine ICOs

Even with the current trend, tech-startups are still conducting ICOs. Therefore, it is still very possible for investors to find genuine ICOs.

However, due to the high cases of Ponzi schemes and scammers using ICOs, it has become increasingly difficult to identify a genuine ICO. It requires a thorough investigation into a project to verify if it is fake or something worth investing in. In this case, ICO advisory companies like Gravitas International comes in handy in helping to identify genuine ICOs.

ICO advisory companies have become the best platforms where investors can get genuine ICOs. The advisors play a key role in managing how startups run their ICOs and they are therefore able to identify if a project is a scam or legit. And no ICO advisory company can advertise and run a scam because that would place its reputation on the line.

The intervention by IEOs

In late 2018, Initial Exchange Offering (IEO) was invented to incorporate regulation in ICOs. An IEO is an ICO that is run on a cryptocurrency exchange. The exchange helps in verifying the projects, thus ensuring that investors (who are usually the exchanges’ users) are shielded from Ponzi schemes.

IEOs approach brought a sense of regulation to the chaotic market. It shifted the power of token sale from the hands of the issuers to exchanges which are regulated by regulatory authorities.

In 2019, over $3 billion was raised through IEOs and the trend seems to gather momentum in 2020.

Security Token Offering (STO) has become one of the most appreciated methods of raising funds for blockchain projects and startups. However, it is strictly regulated since it falls under financial securities. Therefore, any person, company or organization thinking of conducting an STO in any part of the world must first be aware of the regulations they need to adhere to.

The regulatory requirements set for STOs are primarily set to educate and protect investors.

Due to the seriousness and complexities involved in most regulations, individuals, firms or companies looking to tokenize their assets or equity for sale to investors through STOs are advised to hire an STO advisor like Gravitas international to develop successful strategies and identify the various regulatory requirements for the specific region they want to operate in.

It is worth noting that different countries have different rules for STOs.

In this article, we shall look at STOs rules and regulations in some of the counties around the world where STOs have gathered momentum over the past few years.

1. STOs regulation in the USA

In the United States of America, digital currencies are regulated by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC)

The CFTC in 2015 classified cryptocurrencies as commodities, which meant they were to be included under the Commodity Exchange Act.

SEC, on the other hand, has set in place several rules meant to deal with anti-fraud, and registration issues of digital currencies. Through the Howey Test, the SEC can tell if the token used to raise funds falls under securities.

There are three types of regulations that any STO issuer eyeing the USA market should be conversant with. These are Regulation D, Regulation A+, and Regulation S.

  • Regulation D

This specifies how some certain token offerings can avoid the SEC registration after filling a form known as “Form D” once the securities are sold.

The issuers, however, must stick to Rule 504, Rule 506 (b), and Rule 506 (c).

Rule 504 does not set any limitations to investors while Rule 506 (b) and Rule 506 (c) allow accredited investors in the US to take part but does not put any limit on the fundraising.

This regulation, however, has limitations on resale.

This regulation also allows the STO issuers to advertise their projects.

  • Regulation A+

STO issuers who want permission to issue SEC approved securities to non- accredited investors should work under this regulation. However, the regulation states that the maximum amount of investment by investors cannot exceed $50 million.

This regulation does not have any resale limitations.

However, it is more expensive and takes more time to register with this regulation.

  • Regulation S

This regulation shed light on how the securities act registration for security offering that shall take place outside the US should be carried out.

Whenever a security offering is being carried out outside the US, the issuer must follow the security regulations of the respective countries where the offering is being carried out.

This regulation comprises of Rule 901, Rule 902, Rule 903, Rule 904, and Rule 905 of the 1993 Act.

2. STOs Regulation in Europe

In Europe, STO issuers must create a prospect and also meet the security regulation of their respective local regulatory authorities. However, there are some exemptions for the European Union, which include:

  • The qualified investors’ exemption – STO issuers can freely request accredited investors to invest.
  • The limited network exemption – STO issuers can sell their securities to 150 people in any European member state freely.
  • The large investment exemption.
  • The nominal value exemption- if the value of each of the securities is worth 100,000 euros, then issuers can sell the securities without any need for registration.
  • The limited amount exemption – issuers can sell securities of up to 5 million euros without the need for a prospectus.

Regulation of STOs in France

In France, any activities involving financial instruments must be regulated.

The French Treasury came up with a new legislative framework for token issuance after the Financial Markets Authority identified that lack of ICO regulations was a risk.

This was added to the Title V of the French Monetary and Financial Code (CMF) as a new chapter titled “Intermediaries in Miscellaneous Property and Token Issuers.”

The second chapter of the Title V gives the specifications of the tokens that can be registered, or transferred. As a token issuer in France, you must conform to the requirements and conditions under article L. 550-8.

Regulation of STOs in Switzerland

In Switzerland, token issuers must ensure that their tokens comply with Swiss laws. The Financial Market Supervisory Authority ensures that it examines every token sale.

But, in a nutshell, Switzerland is considered to be one of the friendliest states when it comes to token issuance.

STOs regulation in Malta

STO issuers in Malta should ensure that they comply with the Malta Digital Innovation Authority Act, Innovative Technological Arrangement and Services Act and the Virtual Financial Asset Act.

Authorities in Malta are required to first look into the technology behind any project to deduce if it is feasible or not.

3. STOs Regulation in Asia

Asia has grown to become one of the best places for blockchain and cryptocurrency startups.

STOs regulation in Singapore

In Singapore, any STO issuer must first submit a prospectus and register with the Monetary Authority of Singapore (MAS) unless they qualify for the exemptions in the “A Guide to Digital Token Offerings”.

The MAS is mandated to regulate digital token issuance that falls under the capital market products under the Securities and Futures Act (SFA). To determine if the token issuance falls under the capital markets, MAS examines the structure and characteristics of the digital token.

STOs regulation in South Korea

In 2017, the Financial Services Commission in South Korea announced that token sales are illegal in South Korea.

STOs regulation in China

China was the first to ban the sale of tokens in its country in 2017 before South Korea followed suit.

Nevertheless, we could see an ease on the STO stand by the Chinese authorities in future when they come up with STO regulations.

4. STOs Regulation in the Middle East

In the Middle East, the two most countries of interest are Israel and the United Arab Emirates.

STOs regulation in Israel

After forming a committee in 2017 to examine if the Israeli securities laws were applicable in tokens sales, the Israel Securities Authority (ISA) planned to be evaluating token sales on a case by case basis.

According to the ISA, security tokens are cryptocurrencies thus giving the holder of the token entity to the cash flows and ownership rights in the future.

STOs regulation in the United Arab Emirates

UAE Securities and Commodities Regulator plans to recognize tokens as securities, which are governed by the Dubai International Financial Services Authority (DFSA) in Dubai and Abu Dhabi Global Market’s Financial Services Regulatory Authority (FSRA) in Abu Dhabi.

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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

 

  1. Creating the Token

When creating the security token, you can add a link to a file containing any additional information on the token.

  1. 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.

  1. 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.

Coinbase, a US-based cryptocurrency exchange, is set to join the league of cryptocurrency exchanges with IEO Launchpads soon. Kayvon Pirestani, the head of Coinbase institutional sales in Asia, revealed that the exchange was currently exploring a number of capital-formation tools including an IEO Launchpad.

According to the head of sales, an Initial Exchange Offering (IEO) Platform is a great opportunity and Coinbase is carefully exploring it. Though also hinted at developing a Security Token Offering (STO) platform, the IEO platform seems to have stolen the show and it could be the first to be launched.

However, Pirestani careful to say that he could make a formal announcement on the development yet. Nevertheless, the revelation is already an indicator that the IEO platform could be coming within the next few months.

If successful, Coinbase shall join its peers, the likes of Binance, KuCoin Bitfinex, Probit and OKEx. This would greatly enhance Coibase’s revenue and reputation, which is already high at the moment following years of great cryptocurrency exchange services.

A strategic choice for the US Market

Coinbase’s move to launch an IEO Launchpad could be viewed as a strategic move considering the trouble that US investors are going through trying to invest in ICOs. In the US, ICOs are either classified as stocks or securities depending on whether the tokens meet the Howey Test or not. And being a US-based exchange, it stands to benefit the most from US clients who wish to use IEOs instead of ICOs to solicit funds for their blockchain projects.

Compared to ICOs, IEOs offer a better investment opportunity for investors since they are not very much sought after by the regulatory authorities, especially the SEC. The only hectic part is getting an exchange to allow to host the IEO. Once the token sale is allowed to be offered on the exchange platform, authorities do not come looking for the IEO. The exchange is the one responsible for scrutinizing the IEO token sale.

Exchanges scrutinize the IEO token sale issuers to ensure that they are not scams. They also evaluate the project to see whether it will be of any economic value to the exchange.

Source of revenue

In addition to creating an opportunity for investors, IEOs also come in handy in attracting users to register with crypto exchanges. For investors to cash in on any IEO, they have to first register with the exchange running the IEO.

Therefore, if a promising project chooses a certain crypto exchange to run its IEO, the exchange can be sure that new users will sign up with it for them to be able to invest in the IEO.

The new users who sign up with the exchange start trading the IEO tokens once they become tradable and in the process pay commissions as they trade, which adds up to the exchange’s source of revenue.

On the other hand, IEO issuers also pay a certain amount of fee to the exchange running their IEO so as to be allowed to issue their tokens through the exchange’s IEO Launchpad.