Security Token Offerings (STOs) are still in their early days. The number of successful and compliant STOs that have been carried out is still quite low and their regulation, for the most part, remains a work in progress.
That said, this young fundraising mechanism seems to be full of potential and it’s worth looking at how it might develop in the near future. So far, STOs have been a largely American and European affair, having been carried out in places like the United States, Germany, Switzerland, and Malta. No true STO seems to have been carried out in Asia yet.
This might not be the case for long. While Singapore might not be as promising of an STO venue as once was thought, previously unconsidered locales like Thailand, Malaysia, and the Philippines are starting to show potential. In light of these recent and upcoming changes to crypto regulation in Asia, we thought it might be useful to create a checklist for companies who are considering carrying out an STO here.
In these early days of security token offerings, many people are putting them into the same box as ICOs. At the height of the ICO craze in 2017-18, it was possible to hold a utility token sale first and incorporate later. Regulation had to be kept in mind from the start, but if you intended to issue the token from a country that was more or less ‘liberal’ or indifferent in regards to crypto, you could generally stay safe pretty easily.
Security Token Offerings are completely different. It is almost universally the case that companies need to receive governmental approval in order to issues shares to the public. STOs that will eventually issue other types of securities, such as bonds, will similarly need to get permission.
It is for this reason that STO projects must incorporate in an advantageous jurisdiction. If you intend to do this in Asia, your best options look to be Thailand, Malaysia, and Cagayan (Philippines).
At least in theory, STOs and ICOs have very similar technical frameworks. The functions to be integrated into the smart contract itself, however, can be very different for security tokens compared to utility tokens.
At this early point in time, the various security token issuance platforms generally issue tokens that include various different functions. For example, PolyMath issues tokens in its own token standard, including functions that restrict transfer of tokens to whitelisted investors only.
Additional functions in the token smart contract can make it difficult for security token exchanges to list your token. When you decide on a token issuance platform for your Asian STO, make sure to find one that will create a token you can easily list on exchanges in Asia.
As you get started on your Asian STO project, it is essential to build a team of legal, marketing, sales, and technical experts that truly understand business conditions here.
Your compliance team should already have experience negotiating with Asian regulators. Your marketing and sales staff should have a deep understanding of local cultures throughout the continent, and language ability is a big plus. Your tech staff should be able to keep itself up to date in terms of the latest technologies and techniques.
If you intend to issue securities you must understand that you can’t sell them in the same way that you would sell a utility token. Like all securities, security tokens are highly regulated and can’t simply be advertised without permission from regulators.
Instead, focus your marketing strategies on the goal of building a presence for your company. Put your product first and make sure to illustrate how your project concept is innovative. Take a few pages from the book of companies that have succeeded in getting VC funding — STO fundraisers are not so different.
Finally, prepare to carry out an extensive roadshow. You will need to meet with investors personally. Since your STO focuses on the Asian market, make sure that you have team members who are familiar with local customs in the various countries you visit.
This time next year, STOs could be as big or bigger than ICOs were just a few months ago. Whether you are a potential issuer or a potential investor, one thing is for sure: now’s the time to get ready for the future of finance.
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