Issuers

A Security Token Offering (STO) is a type of cryptocurrency fundraising where a company issues digital tokens that are considered securities and are subject to federal securities regulations. These tokens represent ownership, debt, or rights in the issuing company.

STOs provide companies access to a broader pool of investors compared to traditional financing methods. They also offer more regulatory compliance and investor protections than the unregulated ICO model. STOs can provide greater liquidity for investors through the use of secondary trading platforms.

STOs must comply with relevant securities laws and regulations, such as registering the offering with the SEC or qualifying for an exemption like Regulation A+ or Regulation D. Issuers must also comply with KYC/AML requirements, accredited investor checks, and ongoing disclosure obligations.

The main differences are that STOs are subject to securities regulations, while ICOs operate in a largely unregulated space. STOs offer investors ownership or debt rights, while ICOs typically provide utility tokens without securities status.

Established companies with strong business models and a clear use case for tokenization tend to be the best candidates. Startups can also consider STOs, but may face higher regulatory hurdles.

The main steps include:

1. Determining if an STO is the right financing method
2. Selecting the appropriate securities exemption
3. Developing the token economics and smart contract
4. Completing legal/regulatory compliance
5. Marketing the offering to potential investors

Key steps include being transparent about risks, adhering to all securities regulations, utilizing reputable service providers, and providing clear ongoing disclosures to investors.