STO Marketing Strategy: How to Launch and Market Security Token Offering?

Security Token Offerings (STO) are emerging as a compelling alternative to traditional fundraising methods. Unlike Initial Coin Offerings (ICO), STOs are backed by real-world assets, offering a regulated and secure pathway for both startups and established companies to raise capital. However, launching and marketing an STO presents unique challenges and opportunities.  This blog will delve into effective STO marketing strategies that align with regulatory standards and attract the right investors. From understanding the legal framework to employing innovative digital marketing techniques, we will guide you through every step necessary to successfully launch and market your security token offering.

Key Takeaways

• STOs offer a regulated and secure way to raise capital through tokenized digital securities.
• Security tokens represent ownership in real-world assets like real estate, equity, or commodities.
• STOs are more cost-effective and efficient than traditional IPOs, reducing legal fees and paperwork.
• Tokenization allows for increased asset liquidity, fractional ownership, and 24/7 trading access.
• STOs are subject to strict regulations, making them a safer alternative to ICOs.
• BloxBytes can assist with the entire STO process, from legal compliance to marketing.

What is a Security Token? 

A security token typically signifies ownership in a tangible asset or a business. It is recognized as a security token when it complies with federal regulations and its value is linked to tradable assets or business ventures. These tokens can be issued by either governments or companies, serving a similar function to stocks or bonds. Unlike utility tokens, which do not confer ownership rights, security tokens represent legal ownership of assets like company shares, real estate, or vehicles. In essence, they are digital contracts that document ownership shares in valuable properties, recorded on a blockchain. This technology ensures that ownership records are maintained transparently. Tokenization of securities helps startups that are launching initial coin offerings (ICOs) or initial exchange offerings (IEOs) by improving the liquidity of their assets and attracting additional investors. Additional advantages include reduced costs for issuing tokens, greater market efficiency, the ability to own parts of assets (fractional ownership), and easier access to assets that have been converted into digital form.

Uses of Security Tokens 

Startups and businesses looking to distribute shares to investors can now use security tokens as a modern solution. Security tokens are built on blockchain technology, making them transparent, easily divisible, fast to process, and continuously available.

Transparency 

Transactions on public ledgers are open for scrutiny despite the anonymity of the participants. Anyone can view and audit the details of transactions, the management of tokens, and the records of ownership and issuance anytime.

Divisibility 

High-value assets like artwork and real estate can be broken down into smaller, more affordable portions for investors through asset tokenization. For instance, a sculpture valued at $8 million can be divided into 8,000 shares, each priced at $1,000. This process makes these valuable assets more accessible to a broader range of investors.

Speed in Settlement 

Traditionally, the transfer of assets can be slow due to lengthy settlement and clearing times. Blockchain automates these processes, allowing for the quick reassignment of ownership, often almost instantly.

Continuous Operation 

Unlike traditional financial markets, which operate during set hours and close on weekends, digital asset markets operate 24/7, offering constant access without any downtime.

Types of Security Tokens 

Here’s a straightforward explanation of the different types of security tokens found in the market:

Equity Tokens 

These tokens reflect ownership in an underlying asset, like company stock. Holders of equity tokens might receive dividends and have voting rights, depending on the terms outlined in the contract, which are similar to those associated with traditional shares.

Debt Tokens 

Debt tokens are similar to receiving interest on a loan. They are comparable to having an interest-bearing loan given to an individual or business. There are two kinds of debt tokens: those with a fixed interest rate (stable debt tokens) and those with a fluctuating interest rate (variable debt tokens).

Asset-backed Tokens 

Asset-backed tokens are digital tokens that represent ownership of real-world assets on the blockchain. These assets can range from real estate and company shares to commodities and even precious items like diamonds, providing digital ownership rights over physical or intellectual property.

Utility Tokens 

Utility tokens are used by companies, startups, and project teams to gather funds for developing blockchain-related projects. These tokens can later be used to buy products or services from the issuer of the cryptocurrency.

What is a Security Token Offering (STO)? 

A Security Token Offering (STO) involves the sale of security tokens on specialized exchanges. These offerings enable the trading of financial assets through tokenized digital securities, with all transactions recorded and verified on a blockchain or public ledger. STOs are seen as a safer alternative to initial coin offerings (ICOs), which are more prone to fraud. Since security tokens are considered securities, STOs must comply with regulations, providing investors with a legitimate and secure investment opportunity. In comparison, ICOs gained massive popularity in 2017 as a fundraising method for crypto projects. They allowed startups to raise funds by offering tokens or coins to investors. However, due to the lack of regulations, ICOs were often targets for scams, fraudulent sales, and airdrop schemes.

How Does an STO Work? 

Like ICOs, Security Token Offerings (STOs) allow startups to raise funds for crypto projects and new business ventures. Due to the challenges of obtaining funding from traditional venture capitalists, alternatives like STOs have gained popularity. STOs are legal and regulated, making them a secure option for companies to obtain necessary funding. Another key feature of security tokens is crypto-fractionalization, where real-world assets are secured through tokenization or securitization. For example, global real estate assets are valued at around $326.5 trillion, and the total world market capitalization is about $91 trillion. In theory, these assets can be tokenized. Tokenization simplifies the trading of securities while reducing administrative costs. Additionally, paperwork can be significantly reduced or eliminated when securitization is used in equity markets. Security tokens usually represent the following types of assets:

• Real Estate: Like Real Estate Investment Trusts (REITs), real estate equity can be tokenized into security tokens.
• Capital Markets: Companies can tokenize their shares, allowing token holders to benefit from voting rights, dividends, or both.
• Commodities: Commodities can also be divided into tokens, which can be offered during an STO.
• Equity Funds: Equity funds can tokenize their shares, and token holders are entitled to a share of the fund’s profits.

It’s important to note that security token offerings represent the same types of securities available on traditional investment platforms. Tokenization doesn’t change the nature of these securities – it simply offers a new way to invest in them.

Factors to Consider Before Launching an STO 

Here are key factors to think about before launching a Security Token Offering (STO):

What is being tokenized? 

Security tokens can represent various assets, such as physical properties, equity stakes, or debt. The type of asset being tokenized impacts its legal requirements and investor appeal. Therefore, it’s crucial to carefully consider the type of asset or interest before launching an STO.

Jurisdiction of the token 

The location where the token is incorporated greatly affects the STO’s structure. Selecting the appropriate jurisdiction is important and depends on factors like:

• The location of the physical asset
• Local security regulations and laws
• How the interest is classified
• The origin of the founders, especially for tax reasons
• The marketing strategies that will be effective in that region

Corporate structure and governance 

Having a sound corporate structure is essential before launching an STO. For instance, if the tokens represent traditional equity securities, the issuance must be approved in the issuer’s corporate documents. Additionally, legal limits might apply, such as restrictions on the number of token holders. In the U.S., most tokenized securities can only have up to 99 investors within the country.

AML and KYC compliance 

Most countries enforce Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, which apply to financial businesses, including security token issuers. These rules ensure that the funds invested in STOs are legally obtained.

Tokenization platform 

Choosing the right online tokenization platform is another key consideration. Platforms like Securitize, Tokensoft, and Token IQ each offer different approaches. Factors to consider include platform fees, post-launch support, and the commission on funds raised. It’s also important to evaluate the platform’s success in previous token launches, how it manages KYC and AML checks, and its approach to secondary trading.

How to Launch an STO?

Here are few of the essential steps you should know about launching an STO.

Phase 1: Preparation 

Before launching a Security Token Offering (STO), you need to develop a strong and well-thought-out idea to attract potential investors. It’s important to seek legal advice at this stage to ensure compliance with regulations and consult experts to determine how your token can gain value. The value of a token typically depends on its role, purpose, and features. Defining the token’s role will shape its purpose, and from there, you can tailor its features to align with your business goals. Make sure to refine these details before moving forward with the STO launch.

Phase 2: Pre-STO 

Even before the official launch, it’s essential to introduce your STO to the market. This is when your marketing strategy takes effect. Utilize crypto community forums and websites that list STOs and ICOs to spread the word. Provide key information, such as:

• Your white paper
• Token structure
• Team credentials
• Milestones

Choose a reputable cryptocurrency exchange as your partner—one that performs thorough due diligence. This will help weed out fraudsters and ensure compliance with KYC and AML regulations. It’s also necessary to have custodians for the collateral assets behind the security tokens. Third-party organizations like Special Purpose Vehicles (SPVs) or Trust Companies typically handle this. Well-known custodians include Coinbase and Prime Trust. Once these elements are in place, you can move forward with creating and marketing your token. The platform you select will guide the token creation process, so it’s vital to thoroughly research your options.

Phase 3: Launching the STO 

At this stage, you will run a crowd sale—the key moment in your STO. This is when you sell your tokens to the public to raise funds. Publish the token sale section on your website, making it prominent and easy to navigate. Investors should be able to register, complete KYC and AML checks, and purchase tokens smoothly. You can also work with STO launch services for added support. Make sure your community support system is ready to assist investors. Provide timely responses to questions on crypto forums, social media, and other platforms. Quick replies can make the difference between a successful sale and a missed opportunity. Include a hotline or a ticket submission system on your website, so investors can reach out for help when needed.

Phase 4: Post-STO 

Once the crowd sale is over, it’s time to build your product. Develop an application on the blockchain that is user-friendly, reliable, and secure. It’s important that the product supports your newly launched security token. Hire developers who specialize in blockchain and STO development to ensure success. Throughout this stage, keep your investors informed about progress. They will want updates on how the business plan is being executed to meet their expectations. After launching your product, set up a dedicated technical support team to address any customer issues promptly. Ensure your support team is available 24/7 via chat, social media, your website, or other channels to provide assistance.

Advantages of STO 

Security Token Offerings (STOs) are considered safer and less risky compared to Initial Coin Offerings (ICOs), primarily because they are subject to strict regulations. Since security tokens are tied to real-world assets, investors can more easily determine if the token’s price is fair in relation to the market value. STOs are also more cost-efficient than traditional fundraising methods like Initial Public Offerings (IPOs). Smart contracts eliminate the need for costly legal services, while the blockchain streamlines processes by reducing paperwork and speeding up transaction times. Additionally, STOs make investment opportunities accessible to beginner investors who might otherwise be excluded, thanks to crypto-fractionalization. Trading can occur 24/7, offering investors increased convenience and liquidity.

Disadvantages of STO 

One of the benefits of STOs—regulation—can also be a significant challenge. The strict regulations governing STO platforms can make the administrative process more complex. Platforms must continuously adapt to changing regulations related to Anti-Money Laundering (AML), Know Your Customer (KYC) compliance, exchange approvals, and tracking ownership to ensure legal compliance. In some regions, regulations may restrict who is allowed to invest in STOs, such as limiting investors to residents or citizens of specific areas. This can reduce the overall pool of investors, limiting opportunities for both issuers and investors.

Partner with BloxBytes for a Successful STO Launch

Looking to launch a Security Token Offering (STO) but unsure where to start? BloxBytes is here to help. With our expert team of blockchain professionals, we guide you through every step of the process, from legal compliance and token creation to choosing the right platform. But we don’t stop there. BloxBytes also provides comprehensive marketing services to ensure your STO reaches the right audience, maximizing investor interest and participation. Whether it’s developing a tailored strategy, leveraging crypto forums, or managing investor relations, BloxBytes has the experience and resources to make your STO a success from start to finish. Let us take care of the complexities, so you can focus on growing your business.

Conclusion

Security Token Offerings (STOs) have emerged as a powerful and regulated alternative to traditional fundraising methods like IPOs and ICOs. With the added benefits of transparency, security, and cost-efficiency, STOs offer a promising pathway for companies looking to raise capital while providing investors with safe and legitimate opportunities. 

Frequently Ask Questions

What is an STO? 

A Security Token Offering (STO) is a regulated fundraising method where security tokens, representing real-world assets like stocks or real estate, are sold to investors through blockchain technology.

What are Security Tokens? 

Security tokens are digital representations of ownership in real-world assets, such as equity, debt, or physical assets, that are traded on blockchain platforms under regulatory guidelines.

How can BloxBytes assist in launching an STO? 

BloxBytes offers end-to-end STO services, helping businesses with legal compliance, token creation, and platform selection. Additionally, we provide marketing strategies to promote your STO, ensuring it reaches the right audience and generates investor interest, making your STO launch smooth and successful.

What are the main advantages of launching an STO? 

STOs offer several advantages, including enhanced security through regulatory compliance, cost-effectiveness due to reduced legal and administrative fees, 24/7 trading, and greater accessibility to investors through crypto-fractionalization. STOs also allow investors to easily verify the token’s value since it is tied to real-world assets.