Security Token Offering – The initial offer of coins or ICO at the dawn of its appearance caused an eruption from discussions in the financial technology industry. Being a method for collecting investments used by start-ups to develop and develop innovative ideas related to blockchain technology or distributed ledger technology (DLT). The ICO went down in history, prompting changes in funding methods, but despite this, they were heavily criticized for legal uncertainty and a low level of security. Nevertheless, the popularity of ICO does not fade, and today there are many entrepreneurs and enterprises wishing to register a company under ICO or obtain a license for ICO.
The main feature of ICO, and its bottleneck, is that it is not assumed what type of token is offered: security token — having the properties of a security paper; or utility token — which is used to get services or products on issuer platform. And since, because of this confusion in definitions and properties, entrepreneurs who have registered ICO-firms face many problems, the number of companies and start-ups that are trying to find financing methods that imply a higher degree of certainty and security for investors is increasing.
STO or Security Token Offerings – security tokens offer
Obviously, the main feature of STO is that, unlike ICO, they are engaged in the release of tokens from the first day of their existence, which are considered solely as securities. These digital assets are subject to the same rules as securities and for issue they must meet registration requirements accordingly.
Registering a STO-company for a consumer means that he can acquire property rights, which allow him to receive income from the work of companies, interest on profits, dividends, etc., and sometimes the right to vote.There is an opinion that security tokens are advanced financial instruments, since they are: liquid, safe, accessible via the Internet and practically do not change their properties. Such features and properties allow investors to acquire tokens for minimal investments. In this case, you can compare the purchase of security tokens with the purchase of digital shares.
Private or public offers of security tokens provide interaction with investors without prejudice to regulatory authorities. It turns out that if you register a company under STO , the institution will embody the advantages of ICO, while losing its disadvantages.
Definition of security tokens
So far, the international community has not reached a consensus on what should be called security tokens . However, according to MiFID II Financial Instrument Markets Directive 2014/65, transferable securities mean those classes of securities that are offered in the capital market, with the exception of payment instruments such as:
- Shares of companies and other securities equivalent to shares, as well as depositary receipts for shares;
- Bonds or other forms of securitized debts, including depositary receipts for such securities;
- Other securities, giving the right to buy or sell any other transferable securities.
On obligations
According to the EU Brochure Regulation, the public offering of securities should be carried out only after a preliminary publication of a brochure with information about STO (except for proposals subject to the Regulation’s exception), the format of which must be approved by the relevant body, in accordance with a specific procedure. At the same time, it should be noted that the proposals that were subject to exemptions, and were exempted from the EU requirement to publish a brochure, should conduct activities in accordance with the national requirements of the country where the STO is held.
Exceptions to the Regulation on the public offer of securities:
- The total amount of remuneration is less than € 1 million in the EU or EEA (the total amount of the offer in the EU or EEA within 12 months);
- The nominal value of the offer is at least € 1 million, and the minimum cost of sale is € 100,000 per unit;
- The offer is addressed only to qualified investors, or personally less than 150 physical. or jur. persons in a Member State of the EU or EEA who are not qualified investors, or
- to investors who purchase securities of at least € 100,000 each, for each individual offer.
It is also worth noting that in each EU member state different threshold values are applied, since they can set thresholds between € 1 million and € 8 million at their discretion. The threshold value is set depending on the size of the local financial market.
However, regardless of exceptions, when the offer of securities in Europe is launched on a regulated market, the brochure must be approved and published.
Listing security tokens in the secondary markets
Individual EU member states are already cooperating with exchanges in an effort to create an infrastructure that would allow trade in security tokens on the basis of a state-regulated stock security tokens . And so that they are allowed to trade in secondary markets, an appropriate infrastructure should be built that would give a real opportunity to trade, in compliance with the requirements of KYC and AML.
It is important to mention here that decisions are being studied on the subject of centralized verification of information from one or another token, by embedding codes in them at the time of issue that would guarantee that they can be sold only in accordance with the requirements.
Secondary trading of security tokens should be controlled by the regulator, which created the conditions in which a willing company could obtain a license for a crypto-exchange . In fact, this solution will only enhance the security of the sale of security tokens, since such exchanges will have to comply with KYC requirements and be protected from hacker attacks.Comments and CommentsSTO can be called a logical continuation of ICO , and the future of the industry, perhaps also because it is a narrow-profile procedure and is not related to food tokens, for example, to pay for laundry or personal services. This status attracts a large number of serious investors who are accustomed to working in comfortable conditions with reliable people. Despite the strict conditions and requirements, the issuer has sufficient space for work and flexibility, with the possibility of properly structuring the future of the enterprise. Issuing security tokens through STO can also help unlock many illiquid assets. From shares in art painting or copyright, to real estate, ships and renewable energy sources .
In addition, it should be understood that what we have the opportunity to observe now is not static. The market will be transformed and adapted to take full advantage of token security , while creating a secure environment with a fully compatible infrastructure. Already, it can be argued that the future is behind STO, it can change the current financial world for the better , since security tokens are the result of the fusion of modern blockchain technology and legislation that existed previously.
We also draw your attention to the fact that IQ Decision UK experts are ready to conduct a comprehensive consultation on the subject of the article, as well as provide full legal support for an investment project , register a STO company in Europe or obtain a license for STO .
