If you are planning to raise through traditional funds by following the 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, buy-back rights etc.with an underlying asset. The advantages of tokenization are numerous such as fractionalization of assets, increased liquidity and low fees thereby increasing the market efficiency.
The list given below is the requirements to create your own STO.
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, is more fairly priced 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 LP shares, voting rights, dividends, profit shares will benefit through the tokenization process. Due to blockchain and smart contract, there is an automated compliance, reduction in operational costs and layered shared rights. This enables an 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 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 which 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, a blockchain based crypto-bonds will eliminate the middlemen.
There are two types of STOs :
- Registered STOs
- Exempt STOs
Registered STOs
If you register your STOs with regulatory compliance will give most rights to your token holders. The process involves reviews of the forms and provisions are placed for feedback and then registered effectively. These are the basic process for any IPOs.
Benefits of Registrations :
- Accredited and Unaccredited Investors can participate
- Marketing of Offerings
- Immediately Tradeable and Liquid
- 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
- Raising capital without restrictions
- Can be sold to accredited investors through a publicly available website
- Exemptions from covered securities
This is just the beginning of our blog series on the checklist for starting STOs. Blockchain App Factoryis a pioneer in a providing end to end services. We provide security tokens on your own blockchain, legal consulting and STO marketing to build your brand.