You found a token issuer, you decided to launch an STO, now comes the difficult part, recruiting investors.
The good news is the marketplace for security tokens is in its infancy and less clustered than regular utility tokens.
When it comes to marketing there are several channels which you should consider:
Google Adwords – Pay only per click. Advertise under keywords that are specific to the industry.
Reddit – This resource is quite popular in the cryptocurrency space. You can sponsor a sub-reddit which caters to cryptocurrency or even security tokens.
STO Listing Platforms – List yourself on all channels which provide information to investors. You can begin with being listed on our token page.
Conferences – The more specific to tokenized securities the better, as most conferences still cater nearly exclusively to utility tokens. When it comes to marketing at conferences not all ad spends are the same. Your best option is to be invited on a discussion panel, or fireside chat. The second-best option is to pitch, just make sure you are not pitching on the second half of the last day, as you may be pitching to an empty room. Many expensive options such as sponsoring a party, lunch, etc. may not be worthwhile based on your budget.
Enlist companies that specialize in marketing security tokens. Below are some options:
|BX3 Capital||www.bx3.io||261 Madison Avenue New York, NY 10016|
|Priority token LLP||www.ptoken.io||Suite 6, 5 Percy Street, London, Fitzrovia, W1T 1DG, United Kingdom|
Lastly, you can also choose to recruit STO Advisors.
INDX Security Token Offering Goes Live, Bringing Masternode Investing to the Masses
INDX is a blockchain FinTech, based in London, England. Founded in 2017, the team at INDX have developed a service which provides investors access to Proof-of-Stake yields form Masternodes, Staking and DPoS.
Above all, the goal of INDX is to provide qualified, self-accredited and limited numbers of non-accredited investors access to a passive income stream. As a result, sheltering participants from the volatility associated with the blockchain industry
The original idea behind INDX is to capitalize on new opportunities made possible through masternodes. A masternode is the underpinning of the increasingly popular proof-of-stake (POS) protocols, and similar hybrids. While proof-of-work (POW) continues to go out of style due to its perceived inefficiencies, POS becomes more attractive.
Proof-of-work protocols require miners to put in work, for the chance at being rewarded with tokens. This comes in the form of solving complex equations. In contrast, proof-of-stake protocol require users to ‘stake’ tokens as collateral. For protocols that utilize masternodes, if thresholds requiring a certain amount of tokens to be staked are met, the user may qualify for hosting a masternode.
The duties of a masternode go beyond simply staking tokens however. For instance, a masternode is responsible for verifying transactions, governing the network, all while hosting a complete copy of that project’s blockchain. The host of a masternode is in return, compensated with a steady return of the protocol’s native token.
Various companies within the industry utilize masternodes, with more popping up all the time. As previously stated, this is seen with companies utilizing POS or similar hybrids. Here are a few examples of companies that work in this way.
The Appeals of Passive Income
Passive streams are typically low-key, no-fuss, investments, which provide steady income streams. They require less management than active investments, and work towards bringing in income 24/7. They achieve this primarily through strategic diversification. Diversification plays an important role in any portfolio. It allows for investing risks to be mitigated through exposure to a variety of channels, when properly applied.
Actively trading cryptocurrencies can be highly lucrative. This however comes increased risk through exposure to the industry’s proven volatility. To shelter one’s self from these risks, many turn to passive streams of income.
While there are various schools of thought as to which is better (active vs passive), most agree that a successful portfolio will make use of both plans of action to some extent.
Capitalizing on the Opportunity
Now that we know what a masternode is, and the benefits of passive income streams, how will INDX take advantage of these opportunities?
INDX has created a fund, which will strategically invest in a variety of masternodes. Since creating a single masternode requires a significant amount of capital, and technical proficiency – meaning they are often out of reach for single investors – this a tricky endeavour. To raise the capital needed to host various masternodes, INDX is hosting a security token offering beginning July 1st, 2019.
This token generation event will see the company create, sell, and issue security tokens to accredited investors. These security tokens will provide holders with a proportionate share of dividends garnered from proceeds of the masternode investment fund.
To maximize revenue generated through the fund, INDX makes use of an advanced algorithm that routinely re-balances, and invests, in the best performing masternodes in the market.
In this scenario, not only do the protocols, themselves, benefit through network participation, and the increased security brought through masternodes, but the investors will benefit greatly as well. More specifically, this plan allows for accredited investors to gain access to rewards which are not only passive and steady, but typically out of reach due to the cost of hosting a masternode.
The Finer Points
INDX will be making 83.33% of their security tokens available through their STO. These tokens are SRC-20 based assets, which will be sold at $0.30 each, with an intent to raise up to $15,000,000.
Of the funds generated, 90% will be funneled into the masternode portfolio, while the remaining 10% will go towards a liquidity pool.
Of the revenue generated through hosting masternodes, 50% will be reinvested into the fund, while the remaining 50% will be split proportionately among token holders. These dividends will be paid out on a regular quarterly schedule, and can be received as BTC, ETH, or USDC, with future support coming for FIAT.
In addition to receiving dividends, the INDX tokens, themselves, are expected to rise in value, as the net-asset-value of the fund grows in time.
Based off of their ongoing trial portfolio, INDX has indicated that investors can expect within the neighbourhood of 44% annual returns.
As this event will see the distribution of security tokens, it is important to note that INDX is doing so in compliance with industry regulations. Consequently, only qualified, self-accredited or a limited number of non-accredited investors are eligible to take part in the STO at this time, as the event is proceeding under Regulation D.
Token holders should note that there are a variety of ways that security tokens can be structured. Those distributed by INDX do not represent equity share in the company; They simply represent the rights to a proportionate share of 50% of the revenue generated through the masternode investment fund.
Iconic Lab – Due Diligence
While INDX has generated support through multiple early investors, they have made the due diligence report from one of their main backers available for perusing. This would be Iconic Lab – a decentralized venture capital group.
A due diligence report is essentially an audit performed by a potential investor on a company. This audit overlooks aspects of the company, including, not only finances, but the overall mission and ‘gameplan’ for getting there.
INDX has a core team comprised of 5 individuals, with the team at large totaling 18. Here is a brief look at those holding ‘C’ level positions within the company.
The immediate future for INDX revolves around the completion of their STO. However, the months that follow this event are as busy as ever. Here is how the whole of 2019 breaks down for INDX.
Q2 – Pre-sale
Q3 – Token Sale (July 1st) Portfolio Funds Deployed
Q4 – Dividend Distribution Listing & Exchange
In Association With
Very few, if any, companies have hosted an STO on their own without the help of various specialists. There are simply no companies that possess all of the licensures and software necessary to do so.
To facilitate their own STO, INDX has turned to various industry specialists. For example, here are a few of their partners, and the roles that they will play in the process.
Swarm – Issuance platform
Coinbase Custody – Harbouring of funds
Lloyds of London – Insurance provider
INDX breaks down an investors options into three steps.
- An investor will purchase INDX tokens to gain access to the passive income derived from masternode revenue.
- Investors continue holding INDX as its inherent value rises along with the funds NAV.
- Holders can sell/trade their INDX tokens, gaining access to immediate liquidity.
Step 3 stands out as one of the main draws towards the nascent digital securities sector, is the promise of increased liquidity. Only trading of these tokens on secondary exchanges will provide this liquidity.
INDX recognizes this, and has already announced various alliances with exchanges that will support their token in the coming months.
- Open Finance Network – Integration confirmed
- London Block Exchange – signed ‘strategic alliance’, to host INDX Token upon LBX exchange launch
- Archax – intended future support
- Airswap – intended future support
- SharesPost – intended future support
The Best Countries to Launch Your Security Token
Security token offerings (STOs) are now commonplace in the cryptomarket. This unique fundraising strategy gives companies the ability to easily monitor, distribute, and regulate their campaign utilizing blockchain technology. STOs combine the best features of ICOs with the stringent regulations found in particular markets.
Aside from the benefits achieved by companies that use an STO strategy, there are also many reasons why an investor would seek out this type of investment. For one, STOs are far more transparent than an ICO. Companies involved in STOs must reveal sensitive company information including their address, upper management, and financials.
This information further protects investors from the ramped scamming that occurs in the ICO markets. One report published by the Statis Group showed that as much as 80-percent of the ICOs conducted in 2017 turned out to be scams. It’s exactly this fraudulent activity that led to the development of security tokens.
Now that security tokens are more popular, many countries want to host STO related businesses. In order to entice these businesses onto their shores, government officials are ready to make some serious concessions. Below are the best countries to launch your security token.
The island country of Malta is one of the premier locations to launch your security token. The country embraced blockchain technology from the start. The Maltese Prime Minister, Joseph Muscat, issued a public statement this year in which he acknowledged both the fears of regulators “and the fact” that this technology is quickly changing industries across the globe.
Maltese officials are serious about their desire to be the leading blockchain country in the world. In the same statement, the Prime Minister stressed the importance of heading the digitization of the economy. He went as far as to state – “we must be the one that others copy.”
Malta is home to some of the largest security token projects currently in the works. In September the Malta Stock Exchange (MSX) announced a partnership with Binance, the world largest exchange by volume. Binance seeks to create a new security token platform in the country in the coming months.
Lithuania made some significant headway last year towards their goal of becoming EU’s security token capital. The country introduced security token friendly regulations. The country’s Minister of Finance issued broad security token regulations that covered the taxation, accounting, issuance, and compliance.
Blockchain companies send their project to a supervisor of financial markets and their office well send back a reply regarding the status of your token. Basically, Lithuanian officials do their version of the Howie Test to your project and give you a solid answer prior to your firm moving forward on their project.
Since Lithuania is a member of the EU, they gained a huge advantage by legalizing and regulating STOs in their country. Government officials hope to entice all of the EU to host their STOs in the country.
Switzerland has a long history as a financial safe haven. The country features low taxes and a crypto friendly environment. Switzerland was one of the first countries to adopt cryptocurrency regulations.
Switzerland has had a pro-crypto stance since 2014 when regulators released a report detailing the significance of cryptocurrencies. Interestingly, the report acknowledged cryptocurrencies handle the same tasks as money but stopped sort of labeling it legal tender due to the lack of an issuing country.
STOs submit their project to the Swiss Financial Market Supervisory Authority (FINMA). This regulatory body reviews each STO to confirm what designation the project falls under. Token labels include payment, utility, asset, and hybrid tokens.
Israel is home to numerous blockchain-based startups. The country leads the world in research & development according to a recent Bloomberg report. The report placed Israel in the number two spot, only behind South Korea in terms of innovators. Israel welcomed blockchain companies by cutting crypto taxes in half in October of this year.
According to a Cryptoslate report, Israel started 2018 with 88 blockchain startup in operation. In March 2018, Israel released an interim report which detailed the regulations for ICOs. The report was intended to strike a “balance between technological innovation and the protection of investors.”
The Israel Security Authority’s ex-head, Prof. Shmuel Hauser went as far as to recommend the country foster the creation of an international blockchain center on his retirement. This move ensures Israel remains a dominant force in the cryptomarket.
Canada continues to lead the North American crypto revolution. The Canadian Securities Exchange (CSE) announced in February plans to launch a new securities token platform. The platform is based on the Ethereum Blockchain.
Toronto, Canada is the birthplace of Ethereum and the city continues to be a strong hub for crypto activity. Additionally, the platform allows users to launch their own security token easily. This decision is consistent with Toronto’s desire to be an industry leader.
According to the press release, the new security token platform is designed to give companies an alternative to the ICO space. Kabuni Technologies is the first security token scheduled for launch on the platform. The company also filed a prospectus with the British Columbia Securities Commission (BSCE).
Dubai remains a powerful influence in the cryptomarket. The country was one of the first to issue a state-backed cryptocurrency back in October 2017. In February of this year, The Dubai Multi Commodities Centre (DMCC) began to facilitate a market in cryptocurrencies.
The DMCC is a member of the Global Blockchain Council. The project initially began as part of the Dubai Smart City initiative. Speaking on cryptocurrencies, the project’s director, Franco Bosoni, discussed how he could see a commodities-like future for these digital assets. Dubai is now in the middle of developing a robust framework for the security token commodity to operate within.
Security Tokens – A Smart Move
The countries exemplify the innovative spirit and their decision to position their markets in line with the digitization of the economy is sure to pay off. The security token market continues to expand and these countries are now seeing the benefits of their pro crypto stance. You should expect more countries months.
Recruiting STO Advisors
Launching an ICO is a complicated process, but launching an STO is even more perplexing. The reason is due to the additional legal compliance that is required, and the necessity to complete proper ongoing KYC and AML on investors.
Businesses, and start-ups should be focusing on what’s important, and that is the success of their business. Learning all of the ins and outs of launching an STO should not be the role that you play. It’s too complicated of a marketplace for beginners, and any accidental error or omission could end up costing the company far more in the future then had things just been done properly.
Below are some of the problems that you will encounter if your STO is not performed according to code.
- Exchanges will not list any STO which has potential legal issues. Even the loss of one exchange can dilute the future liquidity and value of your brand.
- The SEC or other government bodies can either slap you with a penalty or in a worst case scenario shut down your operations.
- Failure to KYC or AML properly could jeopardize future banking relationships, and could result in the confiscation of funds.
- You could appear to be unprofessional to those in the space.
- De-optimization of the potential raise amount.
These are a sample of the legal and financial reasons why you should outsource as much as possible. This is not factoring in the lost opportunity cost, of having your staff focusing on the technology of an STO versus running a business. Specialize in what you are good in, which is running your business, and outsource the rest.
It can be difficult to know where to start. The natural inclination is to seek out an advisor. The wrong approach to finding an advisor is by searching for “STO Advisor” on Google and using the first service that you find. This does not make someone an STO Advisor, it simply makes them someone who is good at search engine optimization.
You should become familiar with the tokenized securities industry. Learn who you can trust in the industry, and who is simply out to benefit themselves. Attend a few Security Token Conferences if you can. Mingle, network, but most importantly learn.
The crypto industry is full of conmen, but what’s more shocking is the high number of people who simply lack any type of business sense. Make sure that whoever you hire as an advisor has experience and is a credible name.
A valuable STO advisor will only sign on with your company if they believe in the project. You do not want an advisor who blindly advises anyone who contacts them. The reason for this is that the most valuable role of the advisor is as someone who introduces you to the right contacts. If an STO advisor attempts to connect junk projects with his existing network, that network will quickly learn to ignore the advisor. This is why the best advisors are very selective on who they work with.
The second most important role of an advisor is as a sounding board. Are you unsure on how the market will react to your business idea? If so, the advisor can be someone that you consult with. A good advisor will be honest with you if they feel that something will backfire and damage your reputation.
An advisor can also perform the following:
- Introduction to proper legal council
- Introduction to token issuers
- Introduction to potential investors
- Recommendations on jurisdictions to incorporate
- Optimization of whitepaper/business plan.
- Connecting at events to discuss project.
- Recommending changes to planned corporate structure.
How do you compensate an advisor? This can take the form of equity or tokens. It is important that the advisor is actually involved, and is simply not compensated for having his profile on the STOs website. Compensation can be as high as 3%, but this is a little high and it depends on the value of the project, it’s potential to scale, etc. If someone believes in your project they should be willing to be an advisor for 1 to 1.5% in equity or tokens.
What’s important is that you use someone who becomes a business partner. They have your success in mind, and due to this they will do their best in order to ensure your success. We also have a list of Security Token Advisors.
Additional Commentary: As a Co-Founder of Securities.io and BlockVentures I am occasionally approached regarding STO advising/consulting. I will only consider this after meeting with the founders, and being comfortable in the project.