Stratis has developed a platform for primary security token offering (STO)

David Kemp

The platform is fully compliant with regulatory requirements, including those of the US Securities and Exchange Commission (SEC).

What is STO

The initial security-token offering allows the company to issue its securities based on blockchain.  From technical point of view, STO is very similar to ICO. Though, legally it is an IPO based on blockchain.

Nowadays, many companies being beginners in technology sector are looking for ways of attracting investments. They often do that through crowdfunding activities, such as ICOs. This is easier from a regulatory point of view since ICOs does not require all various approvals required for an IPO.

Moreover, the initial token generation event or TGE (initial utility token offering) allows raising funds specifically for start-ups, i.e. companies that often do not even have MVP.

MVP - minimum viable product. It is the initial version of a software with some basic functionality.

STO allows companies to conduct IPOs on blockchain, reducing the number of intermediaries and thus the cost of the procedure itself. From a legal point of view, an IPO and an STO are very similar, as they require permits from various regulatory authorities. However, unlike an IPO, an STO allows getting away from banks intermediation.

Security token holders receive significantly greater privileges, compared to the holders of utility tokens. In particular, they can count on dividends and company shares, while the token owners are formally just first users of the product. Utility tokens allow using all blockchain functionality, but in addition to this (as well as a chance to profitably sell such tokens in the future in case their value increases), they have no rights.

The difference between STO and ICO

The primary coins supply or token generation event (which is basically the same thing, though the latter is a correct term from modern legislation side, since cryptocurrency is still illegal in many countries) is the simplest form of crowdfunding, allowing start-up technological companies getting the necessary funds for project development.

There is no TGE or ICO regulation as such. Although in order to sell tokens in certain jurisdictions, the project founders have to obtain permission from local regulators. However, it is much easier to obtain it than to obtain a permit to work with securities. A utility token is inherently nothing more than a user's pass to the system, something like a subscription that allows using services.

In contrast, STO requires a full range of regulatory approvals, and this list is no different from IPO approvals. In essence, securitized tokens are shares or securities.

The difference between an STO and an ICO also lies in the security, prospects and guarantees given by the projects. From the very beginning of the concept, the initial token offering market has faced a huge number of various projects aiming raising funds, but not provide with any product.

Scammers found it easier to deceive potential investors due to the lack of actual regulation. They could just create a business card with a future project, involve some marketing experts and provide with a wallet. Afterwards the trustworthy users could transfer their bitcoin and ethereum to them.

Speaking of STO, such activities are not being possible. Not only investors, but also regulators are closely watching the company's performance. Market experts are confident that STOs could gain greater turnover in the future. As well they believe STOs will gradually minimize the importance of TGE. However, the latter will still exist because of the fact that projects with utility tokens continue to appear.

Features of Stratis platform STO

The system is based on a previously existing ICO platform. Both events have similar principals from technical point of view. According to that the existing solution which was developed for emissions within TGE is perfect for creating the system aiming at conducting an STO.

The only difference is that for the initial security token offering, customers need to provide all the supporting documentation from the regulator. The platform is fully compliant with anti-money laundering regulations.

KYC, Know Your Customer. Clients’ disclosure policy.  Clients must provide documents, proving their id and place of residence.

AML, Anti Money Laundering. Nowadays it is a mandatory rule for everyone who runs an online business. It requires users to provide information about their sources of income.

Here are some features of the platform:

  1. Real-time pricing. The platform does accept tokens, as well as fiat currencies. Even more – the issued digital security’s cost is transmitted from various trading platforms.
  2. Tokens issue based on user ID. This way the system follows KYC and AML rules.
  3. Increased security level. The system uses deterministic wallets instead of autonomous smart contracts. That provides with a higher security level.