Are STO's the 'Next Big Thing' in Fintech ?
Updated: Aug 10, 2020
Companies wanting to go public through a conventional IPO (Initial Public Offering) route to raise involves a lot of hurdles and challenges of all sorts and is indeed very technical from the initial discussions for evaluation of the funds required and planning to float shares in the the typical stock exchange.
Obviously these functions are looked after by regulated companies who also act as underwriters to the issuer. The conventional route involves huge funds for the full plan execution, getting approvals and floating shares.
On the contrary STO ( Security Token Offering) is gaining quite a lot of popularity in these days mainly because of the overall ease of the steps involved helping avoiding bottlenecks and bureaucracy of the conventional systems.
These days the Tokenisation of Assets has started to disrupt the financial industry, but are we yet ready to accept and buy those tokens. From commodities to properties and many more assets could be tokenised. The way we are going to invest in future will radically change with the introduction of tokenisation. Security Tokens are traditional securities that can be sold and traded through blockchain integration and smart contracts
What kind of assets can be tokenized?
Investment Fund Real Estate
Commodities Fine Art
Issuance of a Security Tokens can be done by a company which deals in a particular asset. The token is backed by real supply of stock of a particular commodity in which the company which wants to issue security tokens deals in. STO - Security token offering can be used to
create a digital representation of an asset or lieu as a collateral
At Techspeedy we provide consulting and acting as a liaising partner from the initial stages of the project which will involve analysing the stock/asset in reserves through partner agencies, percentages of differences to the stock on daily basis and understanding the real business model of the company. Our team members and partners will collate the information about the background of the company and teams along with the business model and create the start up model Pitchdeck. These Pitchdecks will be used to for strategic relations with asset management companies, brokers, fund managers and would be partners
Advantages of Tokenisation
Faster and cheaper transactions
At Techspeedy our team of consultants have formulated six key areas needed to be focused upon for the successful issuance of your security tokens
BUSINESS MODEL - ECOSYSTEM
Creation of a business model is the key to any business plan followed by the creation of the preliminary design and the architecture of the token for example a typical security token could be backed by $XX million worth of physical supply of the commodity and adjusts its holdings according to the market supply and demand. The model comprises of the development plan of an online platform where users can redeem their coins for their respective commodity at discount/market prices. A sophisticated digital wallet built under the proposed technology to be used allows the holdings of token and BTC as well.
The business model has to be carefully planned by a team of professionals as it is the backbopne of the business. It could also involve identifying key partners, exchanges, trading platforms and other companies which will work simultaneously on the project.
The other important part of initial planning involves developing an in-house or outsourcing a proprietary online transaction clearing feature. Thus, Tokenholders can choose to redeem their coins for physical commodity or hold them in DEX
Partnering with Custodial license holders if needed specially for security assets and commodities for large holdings by institutional investors. Physical delivery & certificate of holding with chip or QR scan code having the holding information of the client along with complete Tokenomics of the project is the key at this step
PLATFORM CREATION AND INTEGRATION
The STO project will need Token issuance platform and smart contract assessment, key variables to add like minimum , maximum purchase, dates, values etc. Token Design is apparently the hardest & most important aspect is the architecture and design of the Token itself, with the right ''Proof of Concept''
Technology & platform Assessment is needed to be undertaken for issuance of tokens
Various platforms like Stellar, Polymath , Tzero and few more could be used for Securitisation of Tokens which the team at Techspeedy Ltd can assist is choosing the right platform and its development.
Further there is a need of a DEX enviornment and partner seller and reseller technology partnership with issuance platform for an extra support.
Not to forget the basics of having an amazing eye catching website, Whitepaper & Prospectus
Complete social media marketing on all platforms, blogging with seo rich articles by our experienced content curator helps to manage the brand and reach out to the large prospective clients.
Some other strategies we offer is reaching out to prospective VC's, Seed Funders, Family House investors, Partners, Brokers and build solid connections. Some press releases also helps if placed in a good ranking site for example Forbes, Bloomberg and similar others
Another thing to be considered is having secured wallets, The questions to ask is would you like it to be outsourced by the Dex provider to begin with or go with the development of your own based on your budget. One could consider developing own centralised vaults with private key for wallets held with the client. Custodial licensing and insurances of Vaults through appropriate licensing is also in its infancy currently
Complying with Anti-Money Laundering (AML) laws requires financial institutions (FIs) to
know not only who their customers are sending money to but who their customers are
receiving money from is of utmost importance if you are planning an STO. In some jurisdictions banks are able to trust the AML procedures of other licensed banks. In other jurisdictions each bank must do its own sanction checking of both the sender and the receiver. The Compliance Protocol handles all these scenarios inbuilt compliance (KYC/AML) integrated in the system after whitelisting just before sales
Stable coins would require appropriate compliance mechanism which can be programmed in
the smart contracts based on the compliance required by the jurisdiction we will follow
Security token offerings are regulated under separate regimes in few different jurisdictions which accepts legal status of your security issuance. This area again is of utmost importance and decide the pros and cons of each country currently offering the licensing
In the European Union Regulated by MiFID II the newly issued security tokens must fullfill
requirements of the Prospectus Directive and in Switzerland which is regulated by FINMA and subject to the same laws as traditional securities
Few more countries allows the issuance so choosing a legal partner is again a matter of choice who understands and are qualified to get approvals in the best costs and time possible.
Understanding and adopting the right on-chain governance model for an STO implies the undertaking bringing in trust in the public. Audit Trails to be conducted by a Regulated partner eg. Deloitte brings utmost faith in public along with investor confidence in your project.
On-Chain governance also plays a key role bringing in the overall transparency in the project
Issue of governance for the ownership of the Asset and inbuilt compliance (KYC/AML) integrated in the system is possible through technology partners Stable coins would require appropriate compliance mechanism which can be programmed in the smart contracts based on the compliance required by the jurisdiction of the project
This disclaimer informs readers that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual Sabi Radison