1. Check out security token platforms
The first great source of information about STOs are platforms and exchanges on which a security token can be issued or traded. Leading platforms include: Securitize, Open Finance and Polymath in the USA, as well as GBX, Blocktrade or OWN in the EU. All of these create exceptional content, and some of them publicly share listing requirements for token standards and/or projects. These platforms are built by expert teams and advisors that unite blockchain knowledge, finance know-how, and compliance insights. As these STO platforms are essentially building the infrastructure for the future security token market and can be seen as "gatekeepers", they do not only know about specific requirements - they actually define these requirements for STO companies.
Open Finance has published a Security Token Listing Framework, is offering great insights in their Whitepaper, and created their own smart securities standard. Securitize is most likely the current leading STO issuance platform. It gives good insights in their Whitepaper, and they provide a nice overview of the STO process in this hypothetical case study. In order to receive first-hand insights about STOs, you do not always need to go through very technical papers. Some platforms, like OWN also share great content on their blog or discuss it seriously with Youtubers.
As you can imagine, there are many more platforms, and most of them create very good educational content. Securitize's CEO expected earlier this year that 10-15 platforms will enable security token trading by the end of 2019. Based on our own analysis, and the current development of many more issuance platforms and exchanges, we share this positive outlook. We want to add that trading will mostly be enabled on single platforms and not across different platforms which has a negative impact on liquidity - and will require future adjustments.
2. Get information directly from regulators
If you engage in an ICO or STO, it makes sense to talk to your national regulator to be on the safe side. Since the first period of unregulated ICOs, much time has passed and regulators have started overseeing the market and intervening when they see reason (they intervened in the Rise ICO in Germany for example). The first acceptances of STOs by regulators such as BAFIN in Germany, the FCA in the UK, the SEC in the US or FINMA in Switzerland took some time due to these token offerings differentiating from traditional securities offerings, though more and more are now being accepted.
Regulators expect companies to approach them and will guide them through relatively clear, formal processes towards a successful offering. In fact, regulators offer initial briefings to discuss requirements & expected schedules for new security issuances which can clear up many issues before starting the prospectus process. The time taken for the prospectus process will depend on whether there is already an accepted, valid prospectus, or a completely new one has to be written by the issuer and accepted by the regulator. After the creation of a prospectus or "small prospectus" and the inclusion of all necessary information and references, regulators are able to do the examination within a few weeks.
The legal examination of an STO can be examined by the regulator within a few weeks. The legal process of a securities offering can be accomplished within 2 months but it is recommended to plan at least with 6 months - including discussions with the regulator.
Regulators usually have an extensive online presence and share current legislation for markets, companies and consumers, their opinions on legislation, as well as guides on how to obtain certain authorization and licenses. You will receive good information about which kind of regulations you have to be aware of, and which rules you have to follow regarding the disclosure of information with the regulator and public.
3. Go through successful (STO) prospectus documents
Who knows the legal process better than the companies that achieved a successful IPO or STO? Thousands of companies have already conducted a public offering after talking to regulators & publishing a prospectus. These documents always share similarities, and you can learn a lot from the careful wording, and make good use of certain exemptions. Regulators have (almost) the same requirements, so these documents should be very helpful. Companies which had their STO prospectus approved should have already made use of various exemptions and excluded certain (technological) risks through careful wording.
The following documents are exemplary for both STO and IPO documents (Dropbox). They include various financial instruments issued through a full prospectus or exemptions in different countries.
- SEC approved Dropbox prospectus
- Bafin approved Bitbond prospectus
- Bafin approved Neufund offering memorandum
- SEC approved Spice VC offering memorandum
- SEC approved tZero private placement offering
- FMA approved Crowdlitoken prospectus
In order to find relevant companies & STO documents, it can help to check websites which list many STOs, such as STOcheck.com and to look through databases such as EDGAR (Electronic Data Gathering, Analysis, and Retrieval system) in the US where companies are required by law to file forms. These files are then disclosed to the public.
4. Reports, Showcases & Pitch decks
In recent years, many in-depth ICO & STO reports have been shared. Often, highly interested parties join forces, build up knowledge, and share it in a very comprehensive way through reports. These reports usually have a specific focus such as: "Market development & ecosystem players", "Tech report", "Regulatory overview", or provide insights into how to do an STO. The common factor is the authors have been investigating these topics for at least a couple of months. Consequently, they collect wide and varied experiences, and helpful documents which they package in an easy to read report or slide deck most often.
Some of the STO reports and pitch decks we recently looked at includes the following:
- ICO/STO market development report by PWC
- General crypto assets report by Deloitte
- Security Token market analysis by Chain Partners
- Good STO WhiteDeck by Security Token network & affiliates
- Up-to-date market research by Kepler Finance
- Comprehensive STO Report by Newtown Partners
5. Participate in open forums, associations & working groups
There are plenty of opportunities to meet your peers and discuss security tokens. Many associations such as: INATBA, the EU Blockchain Observatory Forum and Blockchain4Europe discuss security tokens in addition to national or international blockchain-focused associations including the Blockchain Token Association. Token issuance platforms and STO exchanges also collaborate in working groups with their partners to define certain interoperability standards and move closer to a shared infrastructure. Besides these organized groups, many different blockchain communities also discuss security tokens in general chats in Bitcointalk, Discord or Telegram, and tech proposals & discussions on Github. Small, specific Security Token groups can easily be found on these platforms.
The results from these working groups are often publicly shared including the published statement on token regulation with a focus on token sales by the German Blockchain Bundesverband Finance Working Group, or the extensive Security Token Status report we wrote with 30+ of our ecosystem members. These groups design a data gathering process, gather the data, analyze, interpret, and build models while sharing only their subjective findings and fragments of all the collected raw data. Therefore, it is recommended not only to read the documents, but to join and actively participate in different working groups in order to stay up-to-date with the market, tech and legislative developments.
While less small blockchain projects exhibit at conferences now compared to 2017 and early 2018, security token infrastructure projects showcase their offerings. Many talks are about the enablement of a liquid security token market and what is needed to further advance this industry. Join the discussion, collaborate, and let us know how we can help you!