There is no doubt that Blockchain is one of the most auspicious forms of technology in existence today. This tech supports cryptocurrency assets such as Bitcoin, Ethereum, utility tokens, and most recently, security tokens.
The security and utility tokens are believed to be key players in bringing the much-anticipated change in the financial sector.
Utility tokens have been around for a much longer time and most people are quite familiar with them; however, security tokens came in somewhat recently.
While utility tokens are only used to gain access to certain services, security services constitute rights of ownership of certain assets. These rights may include rights to dividends, share rights, equity rights, voting rights, and so on.
However, the irony is that most startups avoid having their tokens being classified as ‘securities’ when performing an Initial Coin Offering (ICO). The reason, they say, is due to the airtight regulations relating to the issuance of securities.
As much as I hate to admit it, the process of issuing securities could be a bit engaging. However, there are numerous benefits that come with tokenizing securities such as increased underlying asset liquidity, which makes securities very attractive to potential investors. Other benefits include increased market efficiency, a lower issuing fee, and fractionating of bigger assets.
In this post, I will take you through a step-by-step process of how to launch a security token and how to start an STO.
Creating Your Security Token
In explaining this process, I will use Polymath – and this is not by any chance an endorsement of the platform. Polymath is one of the most trusted and secure platforms for creating security tokens. For this and other reasons, I felt that it would be a great platform to use in this review.
That said, let’s get started!
Deposit funds in your metamask account: The first step when creating your own security token is having funds in your Metamask account. If you don’t have Metamask installed on your computer, download its Google extension and set up your account. Next, deposit ETH into your account.
Creating your polymath account: After funding your Metamask account, proceed to https://polymath-issuer.netlify.com/ and select “Create Your Security Token” to proceed.
You will be required to enter your name and email address.
Read the policy privacy page carefully, then hit the “Create Account” button.
At this point, you will be required to sign into your Metamask account in order for you to proceed. The process integrates your wallet address with your email address, allowing you to login into your Polymath account using your wallet address as the key.
In case the process wasn’t so clear to you, don’t worry. Here’s a video to help you with that.
Registration of the token symbol: If you had not come up with the name of your token, you’ll need to choose one as well as your token symbol, then select “Reserve Token Symbol”. This procedure enables you to reserve your symbol to prevent anyone else from using it, the same way a business name is reserved.
For instance, you can name your token “Kind of a Big Deal” and set its symbol as “KDB”; easy, right?
After making the reservation of your symbol, a pop up will appear requiring you to verify all the information you have presented. Once you’re satisfied with everything, you can confirm and submit your reservation details.
You will have a period of 15 days to consult with your legal team to fine-tune the legal aspects of the process.
After submitting the token symbol reservation, information regarding your token offering will be emailed to you by the Polymath team.
However, before receiving the email, you’ll be required to verify your email address by clicking on a link that comes with the verification email.
Once the verification is done, you can view your account activities using the provided link.
Pick your service provider: This stage will require you to pick the team of professionals that you will be working with; this includes a legal team, KYC/AML providers, and a marketing team. The system will then send you a copy of the notification that will otherwise have been sent to your team members regarding the decision to work with you.
From your Polymath account, you will be required to proceed by clicking on the icon marked “Create your token now”.
A pop up message will then be displayed inquiring whether you have adequately consulted with your legal team prior to proceeding. If you have, you can proceed.
Start creating your own token: You will be provided with a blank area for adding a link to a website or a legend. Once that’s done, hit the Metamask submit button to create your token issuance. You will be emailed a copy of the transaction.
The next stage is quite critical and will show you how to start an STO.
Set up your security token offering: This is the final stage of a token offering and it involves setting up your offering details.
Proceed by clicking on the “Set up your Offering Details” icon.
If the STO is capped, you will set a predetermined price for a specific number of tokens to be sold and once the limit is reached, you will not be allowed to issue more tokens.
You can then conclude all the other details of your STO by selecting “Select and Configure STO”.
Be sure to configure other details of the offering including payment for the STO (whether you will accept payments in ETH or Poly or both), the starting and ending date and time, as well as the value of each of your tokens.
Once you’ve entered all the required details, proceed to click the “Confirm and Launch STO” button.
And we’re live…
You will now need to establish a whitelist for the future investors of your tokens. The whitelist can be created before, during, or after the STO and it will enable investors to participate in your STO.
After submitting the details of the investors, they will be added to your whitelist in a table format.
And when the investors send Ether or POLY to your STO, they will be issued with your security tokens in return.
I hope you are fired up with knowledge and you now understand how to launch a security token.
In conclusion, the security token offering process in itself is not complicated; however, you will be required to follow strict the US Securities and Exchange Commission (SEC) rules and regulations to successfully operate a security token. This is perhaps the most challenging part of this process but once done, you should be as good as started.