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“STO Development: How to develop an STO” – Content:
- STO Token Features
- Types of Security Tokens
- How do you develop an STO?
- “STO Development: How to develop a STO” – Conclusion
STO Token Features
Unfortunately, an ERC20 token does not meet the requirements of a regulatory secured token. Features like gas prices, bottlenecks, and protocol concepts have to be built-in. To overcome these problems, you need to implement tailor-made scalable blockchain solutions and smart contracts. You can implement these requirements for example with Ethereum, Hyperledger, or Stella.
You have to implement these features to an ERC20 token:
Legal conformity
The security tokens issued must be embedded in a Smart Contract. The regulatory requirements must be coded in this contract. These include the legal framework for fundraising, rules for investor qualification, and transaction restrictions for the transfer.
Global participation
Security Tokens can be traded across borders but must comply with the securities rules. Therefore security tokens and secondary trading with conditionality must be developed on a Smart Contract.
Transparency
Security Tokens lay on top of a blockchain and are therefore visible to everyone. This transparent ecosystem of the crypto market falls under the scope of government regulation. The process of transfer agents is automated so that entrepreneurs can raise funds in an easier and cheaper way.
Value replacement
With STOs you can re-issue tokens to investors. But what happens if an investor loses his keys? Therefore, the wallet for the STO must be compatible with the legal requirements. This means that investors can reclaim their lost valuables.
Type of Security Tokens
There are different STO types you can choose between. In the following, we show you the 3 most important token types.
Equity Token
With this STO, each token is covered by one share. This means that with the security token you have the same rights as shareholders with one share. This means that you have voting rights and dividends.
Asset Token
Asset tokens are the best-known type of STOs. Behind every security token is a real asset such as gold, real estate, or other valuables. These tokens are interesting because there is an asset behind the digital asset. This reserve makes the STO a regulatory compliant asset.
Debt Token
If you do not want to have a stock or asset behind a security token, there is also the possibility of debt tokens. Behind this token is the promise of repayment. This means that there is a credit behind the security. This enables you to generate debt capital quickly and easily.
How do you develop an STO?
STOs have the potential to significantly change the way we fundraise or invest money. But how do you develop an STO? We show you the most important steps.
Step 1: Find collateral
In the first step, it is important to find out which securities you want to have digitized. To do this, you need to carry out a careful due diligence check. Afterward, all important parameters for the asset are determined.
Step 2: Legal examination
Next, you need to check the case law on valuables. This means, for example, checking your credit rating and all other parameters.
Step 3: Set up a organisation
If securities or valuables are converted into security tokens, it is advisable to set up a special purpose company. These will also become SPV/SPE and are useful if you want to trade with the tokens.
Step 4: Select decentralised platform
As a 4th step, you should consider on which blockchain platform your token is developed. The best ones are Ethereum, Hyperledger or Stellar. However, you should be careful with Ethereum with the ERC20 token, as high gas prices, network congestion, and protocol changes are not an ideal solution for your STO.
Step 5: Audit
Now you still have to have your valuables checked by an auditing company. They will then suggest a value per security token and at what price it should be issued.
Step 6: Create dashboard
Once you have created the token and all the rules have been set with your smart contract, you need to provide an investor management dashboard for the issuer and fund management for the investors. The dashboards must include the KYC/AML, verification by accredited investors and voting rights. This is particularly important for investors and project owners.
Step 7: Security Token Offering (STO)
Now you can offer your Security Token to investors within the framework of a Security Token Offering (STO). These correspond to the legal requirements of a legally compliant investment. And since your smart contract guarantees the automation of the legal requirements, you do not need any third-party providers.
Step 8: Listing security tokens
Once the STO process is completed, you need to note your security tokens on the coin exchange. Then investors can trade your token on the secondary market. They can also be traded over the counter (OTC), where accredited investors can trade directly with the token owners.
“STO Development: How to develop a STO” – Conclusion:
Developing an STO is not really complicated if you followe all the important steps. At the beginning you should decide which features your STO should have. Then it is important to determine what kind of security token you want to develop. When you are clear about this, you can develop your STO. To do this, you need to decide what kind of security you want to digitise, do a legal check and then set up a organisation. Then you need to select a decentralised platform, do an audit, create a dashboard, perform the STO and list it on the coin exchange. If you follow all the steps, you will be able to create an STO.
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