Security Token Offering 101

All you need to know to launch your own digital asset

The Emergence of Tokenization

The emergence of blockchain and distributed ledger technologies opened the floodgates for tokenizations of assets. Over the last couple of years, assets across different industries, including financial, real estate and luxury goods have been tokenized to provide fractional ownership, liquidity, and instant settlement among other benefits. Those assets are labeled as security tokens. Before diving deeper into the subject, including use cases and launching a security token product, let’s cover some basics first.

What’s a Security Token?

A token usually represents a programmable asset or access rights, managed by a smart contract and an underlying distributed ledger. A security token is defined as a token distributed in exchange for investment and marketed with an expectation of a return/profit. Each token is stored on a blockchain – e.g. Ethereum.

Security Token Use Cases

It’s safe to say that the concept of security tokens is way beyond the experimentation stage, with solid business use cases picking up speed across a variety of industries. In fact, billions of dollars worth of assets have been tokenized in the last couple of years alone.

security token offering platform

 

Here are just some of the industries that digital securities are already disrupting:

• Real Estate
• Financial Instruments
• Equity Shares
• Luxury Goods
• Investment Funds
• Intellectual Property

Launching a Security Token

Say that you have а deep industry knowledge and are ready to launch your tokenized assets which could disrupt that industry. What exactly is needed to create and distribute that digital asset? Two things: a robust investment platform and a solid regulatory framework in place. Since we’re experts in blockchain technology, we will only talk about the former.

Ideally, a security token offering platform boasts certain must-have components such as bulletproof token smart contracts, user wallets, investment dashboards, a KYC mechanism, and payment integrations for onboarding investors with fiat, among other features.

When building digital assets, entrepreneurs usually face a choice between using a plug and play STO platform (there are several on the market) and developing their own custom platform.

Plug and Play Security Token Offering Platforms vs. Custom Solutions

Let’s take a quick look at using an already existing security token offering platform to launch an offering versus the idea of developing a proprietary platform. Both have their advantages.

Existing platforms pros:

• Easy to set up
• Don’t have to build it from the ground up
• Usually cheaper

Custom solution pros:

• Fully customizeable features
• No third-party platform risk
• Data and IP ownership
• Tailored to brand identity

LimeChain’s Approach

At LimeChain we have quite some experience building digital asset investment platforms over the last couple of years in the real estate, financial, luxury and movie industries. Our approach is entirely based on building a tailor-made platform for the specific use case. With that being said, there are certain features/components that we see as must-haves for every use case. Those are:

• Token and Distribution Smart Contracts internally audited and with 100% unit test coverage
• Multisig Master Wallet for funds storage
• Smart user wallets with a password and mnemonic recovery
• KYC/AML verification
• Secure login with 2FA verification
• Seamless fiat onboarding
• User (investment) dashboard
• Robust admin panel

Depending on the use case, we often develop additional features that add extra value to both the digital asset issuer and the user/investor. Such features could be:

• Distribution of Dividends
• Continuous Security Offering (more info on that here)
• Voting/Governance Mechanisms
• Secondary Market

To sum up, it’s safe to say that digital assets are here to stay. Assets across different industries are being tokenized as we speak, attracting billions of dollars in investments and the trend is just picking up speed. With blockchain technology becoming more and more mature, expect for industries such as Real Estate, Financial Services, Luxury Goods, and others to be completely blown away by tokenization as it provides benefits to stakeholders across the board. Whether it is an instant settlement, transparency, liquidity, or fractional ownership, it’s quite clear that digital securities are soon going to be the new status quo.

If you want to learn how to create your digital assets with a tailored STO platform or just want to talk about your great idea and how we can make it real, do not hesitate to contact us.

 

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Blog author Zhivko

ABOUT THE AUTHOR

Zhivko Todorov
Business Development
Zhivko spent a few years in venture capital, supporting early-stage ventures in the Netherlands and Bulgaria before being taken away by the blockchain community. At LimeChain, Zhivko is part of the business team, supporting new dApps and constantly exploring innovative organisational models like DAOs and Continuous Organizations.