Steemit Crypto Academy Contest / S6W6 - Security Token Offerings STO

Asalam Alikum! I hope all Steemians are doing well. I pray that you enjoy your life to full with your friends, family, and loved one. Today I'm here to participate in the Season 6 Week 6 contest by SteemCryptoAcademy. The topic decided by the team is "Security Token Offerings STO". I will share all of my knowledge of this topic with the community members.

Security Token Offerings (STO) is a new form of increasing capital but through blockchain and cryptocurrency. It is similar to Initial Coin Offerings ICO in which a token or coin act as investment. But in STO, a security token represents a contract or ownership of real-world assets such as bonds, funds, stocks, and REIT. It is the most innovative way of blending security tokens, digital tokens and traditional equity.

In STOs, a startup company raise funds by issuing digital tokens by complying with government regulations. These type of tokens require large-scale regulations which are not required for ICO and is the reason they are not available or traded on regular exchanges. They differ from ICO as they are holding monetary value of real-world assets.

Let's take an example for better understanding of STO working. In traditional startup or running business investments, we buy a stock of a company and it's ownership information is then written on a digital certificate such as PDF. But in STO, the process is same just it differ in recording of ownership information where information is recorded on the blockchain because it is irreversible and almost impossible to change and the certificate is issued as a token.

STO is the digital representation of real-world assets which help tokenization of business assets. These tokens came after the ICO bubble burst in 2018 that dropped the market cap by $750 billion. They were created to be fully regulated by appropriate authorities. The STO is different from IPO as issuers can now build a company or deploy already established business with smart contracts. These smart contracts are legal contract in two parties and is stored on the blockchain where public can see it.

STO is ready to drive the next wave in the blockchain and cryptocurrency. It has many benefits that will let people adopt cryptocurrencies and blockchain in future. STO has positively impact financial market and the world of cryptocurrency. They have changed the way of investment and issuing digital certificates. Below are the benefits of STO that could further change the cryptocurrency and financial markets.

STO will add credibility to the crypto projects because people will be aware that the project is registered with the Securities and Exchange Commission (SEC) and whether the funds are raised using STO or not. It will make the investors relax that their money is safe and in right project.

If a project is fund raised through STO, it will have to go through the government regulations which result in attention of the investors. As more projects come with proper regulations, people will start believing on cryptocurrency even more. The FUDs and scams will be more less.

Because of regulations, credibility, trust, and reliability, the traditional investors will move to cryptocurrency. It will reduce the stigma around cryptocurrency and will attractive the investors to trade in secure environment. As more traditional investors will come to crypto, it will increase the capital in the market.

No only in crypto but STO will also affect other financial markets. It will encourage people to launch more new startups because now they will not rely on raising funds from accredited investors only.

In ICO, the investor was given the utility token which acts as an IOU, but in STO the real actual ownership of the real-world assets will be given to the investors that build trust.

STOs are much more cheaper than the traditional investing. The reason is they eliminates the intermediate and the paperwork and as they are programmable by nature, it impacts more on the low fees. Second is STOs are very low risk investment model than ICO because of regulations involved. The projects have to meet SEC requirements of transparency in the United States for people to believe them.

These are some of the positive impacts that STO has and will have on the cryptocurrency and financial world. The investors, startups, and businesses will involve more in cryptocurrency and thus increase the capital.

The major differences between STO and ICO is the regulations and the assets backed by real-world assets. The Initial Coin Offerings (ICO) were designed in a way that they raise funds in an unregulated environment and Security Token Offerings (STO) are designed to raise funds in regulated environment. The reason why STO came is because the frauds in the ICOs due to it's not secure nature. The new ICOs take the money of investors and run away and there is no clue about them that help to find them. But in STO, each project will go under the regulations of SEC around transparency.

Initial Public Offering (IPO) is the issuing of shares certificate on traditional market. In other words, it is the offering of shares of a private company or business to public when they want to raise funds. While Initial Exchange Offering (IEO) is the token or digital asset sale through a well established crypto exchange. It is usually available for only exchange's users and it helps to raise capital for startups or businesses. The IEO projects are directly allowed to list on an exchange of high liquid market. The best thing is it let the exchange users buy the new token and the project team to raise some capital as new tokens are always the attention point of exchange users.

There are four types of Security Token Offering (STO) i.e. Utility tokens, Asset-backed tokens, Equity tokens, and Debt tokens. The explanation for each of the security token is below:

A utility token is a token with value in use of the system. It helps startup, companies, and businesses to raise funds for their development of blockchain project. They can be exchanged or used to purchase other tokens, cryptocurrencies or goods and services.

The tokens that are designed to be backed by real-world assets such as stocks, shares, bonds, and REIT are called Asset-backed Tokens. Not only the above assets but real world diamonds and real estate are also example of it. These type of assets give user the ownership of a real object in digital form.

A token that shows underlying asset's ownership like of a company stock is known as Equity Token. It give power of voting rights, dividends or even both to the owner of the asset. The Equity token is different from traditional stock that it's method of recording the ownership is different. The Equity token's record is put on the blockchain while the traditional stock record is put on the database and then records are printed on a paper certificate.

The tokens that accrue interest and are equal to the interest rate. These tokens act as short term loans given to the company by the investors. The company will return it with the interest mean little more amount. Their contract is recorded on the blockchain network that acts as a security for the debt. Debt Tokens price is dictated by two factors i.e. risk involved and dividend. Moreover, there are two types of Debt tokens i.e. stable debt token in which interest rate is stable and second is variable debt token that shows variable interest rate.

STO is the highly secure and reliable than ICO, IPO, and IEO. The reason is they are backed by real-world assets and the project has to go through strict regulations of SEC for security, transparency, and trust. These type of tokens must follow the federal laws which if not comply, must face serious consequences such as project potential derailment and penalties.

STO is not easy for most of the businesses because of tough regulations, complexities, legal and tax nature. Due to these things, most businesses go with ICO but as the trust of people is shifting towards more secure platforms and projects, it is becoming necessary for businesses and startup companies to move towards STO projects. The major impact of security was when ICO bubble burst in 2018 and at that time STO was introduced. The projects and startups are more trustworthy, reliable, and secure if they raise funds and capital through STO.

If you have decided to participate in it, you need to have complete knowledge about it's process and what things to consider and how to launch an STO. Below is detail on things to know before launching an STO:

It is important to know what is being tokenized. As security token offering represents real-world assets and interests such as equity and debt, the asset type that is being tokenized will require legal documents as well as holds levels of appeal. It is also important to decide the type of interest before launching an STO.

It is necessary to have right jurisdiction of the token that follows assets' location, laws and regulations of that area, interest classification being tokenized, marketing strategies, and founders' location for tax purposes.

There must be proper corporate structure and governance before launching an STO. The issuance must be authorized on issuers' corporate documents. There are other laws and regulations that must be properly followed. If it is in USA, the allowed limit for the investors is 99.

It is important to have AML and KYC because most of the countries now have Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. Both of these are implemented on all businesses in those countries so try to focus on them.

Last thing to consider is choosing the right platform and the recommended ones are Securitize, Token IQ, Harbor, Swarm, and TrustToken. There are many other platforms like Tokensoft and Polymath but best ones are mentioned above. You must decide which platform suits you because all of them have different approach. The funds raised percentage, support post-launch and partner price are the things you need to look before choosing a platform.

You must have a solid project with strong idea that engage investors. In this step, it is recommended or you can say necessary to take legal advice for laws and regulations from an expert. You must consult an expert for how token will gain value. In general, the value of all tokens are based on features, purpose, and what role it will play. It is good start to first decide these things and then dive into second step.

It is important to introduce your STO to the market before it's launch. It means you have to do the marketing and advertisement to maximum crypto forums, communities, and websites. You need to prepare proper whitepaper, token structure, milestones, and team's information. It is necessary to choose the right exchange with which you are partnering because your token creation process will mostly rely on it. So do proper research and then choose good exchange. I have mentioned few above you can do research on them according to your STO project.

This is the most crucial part of an STO launch where you run a crowd sale. It is the time when your company will sell it's tokens to the public in order to raise funds for the startup project. You need to publish your website's selling portion during this step. Make sure to highlight selling buttons and sections. If the right buttons are not highlighted, it will make difficult for the investors to do the KYC and AML and purchase the tokens. So try to focus on these sections of your website. Further, you must give proper real-time support to the investors because they may need help during this process.

The last step is about after crowd sale is over. Now it's time to build you product and application on blockchain. Make app's interface user-friendly, secure, and strong. It is important that the product you are building will support your newly-launched security token. So hire those developers who have complete knowledge and experience in blockchain and STO development. If you can afford a team of developers than go for it because it will benefit you for sure.

During the product development, it is good to engage with the investors. You can provide a roadmap on your website that shows what is going on with the product. It will gain more trust of the investors and they will be excited to see the product. After you launch your product, give proper technical support to your investors because they will ask solution for the issues they face if any. You can hire a team for technical support that will be live 24/7 on social media pages, email contact, and on website live chat support.

This is all from me for the "Steemit Crypto Academy Contest / S6W6 - Security Token Offerings STO". I invite @samminator, @ranartblog, @hunzlakhan, and @theentertainer to participate in this contest.