Security Tokens Series (5 part series — Part 4)

Blockchain is one of the most promising technologies of our time. It supports crypto assets such as utility tokens and security tokens that present a tremendous opportunity to transform the financial services marketplace.

While most people are familiar with utility tokens, security tokens are a relatively new concept. Unlike utility tokens which are merely used to access a service, security tokens represent assets defined by ownership. The holders of these securities are entitled to several rights some of which include profit share rights, dividends, equity, buy back rights and voting rights.

Nonetheless, most startups conducting initial coin offerings tend to avoid having their tokens classified as securities. Possibly due to the “demanding” regulatory frameworks associated with the issuing process. This includes; Regulation A+, Regulation D, Regulation S and Regulation Crowdfunding.

While it’s true that the process can be a little bit engaging, many benefits come with issuing a security token. Tokenizing securities increases the liquidity of the underlying assets which in turn makes the securities more attractive to investors. Tokenizing securities also have other benefits such as fractionalization of larger assets, increased market efficiency and lower issuance fees.

In this post, we shall explore top security issuance platforms that your organization may consider in your next ICO. We shall further provide a step by step guide to enable you to launch your security token:

Issuance platforms

Polymath

This is a Blockchain protocol that enables the issuance and distribution of token-based securities that are compliant with SEC regulations. The protocol streamlines the process of launching financial products on Blockchain by embedding financial security requirements into the design of new security tokens.

Polymath also avails a platform that facilitates the trade of security tokens authentication of investors, connecting with legal counselors, and accessing a developers’ marketplace. The system is powered by Poly, an ERC20 token that also acts as the primary economic unit that makes the legal, developer and authentication services possible.

Polymath is under the management of Trevor Koverko (CEO & co-founder). Trevor is a Blockchain speaker, entrepreneur and cryptocurrency investor. Some of the notable advisors of this platform are Patrick Byre (CEO at Overstock), Stephen Neryoff (Alchemist Ventures), and Anthony Diiorio (CEO at JAXX & Ethereum co-founder).

Harbor

This is an open source platform that allows traditional investment classes to seamlessly transition onto the Blockchain. Harbor employs a standardized process to streamline regulatory steps and make sure that companies migrating their assets to the Blockchain network comply with legal requirements.

The platform offers a private placement ICO through a Reg D-compliant private sale. Their operational framework incorporates standard requirements such as tax rules, accreditation status, reporting information and KYC/AML into every new token that is launched through the system.

The top management of this platform includes: David Sacks as the CEO (former COO of Paypal, CEO of Zenefits & Founder of Yammer), Bob Remeika as the CTO (also VP Zenefits & Engineer at Yammer) and Arisa Amano as the CPO (also VP Zenefits & Marketing at Yammer).

Securitize

Securitize is a regulatory compliant cloud service solution for the tokenization of securities that facilitates the tokenization of companies, funds, and a number of other entities.

Some of the services that the company provides include ensuring that the issuers and their legal teams abide by the regulatory requirements as well as streamlining investor registration in accordance with KYC/AML authorization. The platform also customizes smart contracts to match the unique need of the issuers.

Already, Securitize has secured commitments from companies running ICOs in the range of $ 500 million. They include; 22X Fund, CryptoOracle, Lottery.com, and Kairos.com.

Securitize top management includes; Carlos Domingo as the CEO (also a managing partner at Spice VC, previously CEO at Telefonica R&D), Jamie Finn as the president (Previously EVP Business Development Aki, AT&T, Telefonica Kontera) and Shay Finkelstein as the CTO ( also CTO at SPiCE VC).

Swarm Fund

Swarm fund uses SR20 protocol, a cryptographic standard for security tokens, to tokenize real-world assets. Once an object has been tokenized, it becomes an asset that can be managed, governed and traded easily on the swarm network.

Cryptocurrencies such as SWM, BTC, and ETH can be invested into real-world assets in exchange for an SR20 token. Individuals holding the RS20 tokens are entitled to ownership and governance rights, the ability to trade the tokens in a legally compliant manner, and legally enforceable right to any revenues generated by the assets.

Swarm fund focuses on a number of areas including agriculture, renewable, real estate, crypto hedge funds, tech companies, impact investments, infrastructure among others.

The top management of this platform includes; Philipp Pieper as the CEO, Timo Lehes as the CIO and Chris Eberle as the COO. Some of the notable advisors of this platform include Chris Kitze(Chairman at Alphabit Digital Currency Fund), David Drake (Founder & Chairman at LDJ Capital) , and Anthony Di Iorio (CEO & Founder at Jaxx).

How to Create Your Own Security Token

Now that you know the platforms you can ride on for your security offering, let’s delve into how you can create your own security token. For the purpose of illustrations, we shall use Polymath (and by any chance, this not an endorsement for Polymath).

Fund your Metamask account

Before you can begin the process of building your own security token, you will require a funded Metamask account. You can download your Metamask chrome extension here and to load your account with some Ethereum funds go here and choose you easiest option.

Next, head over to https://polymath-issuer.netlify.com/ and click “Issue Your Security Token” to get started…

Creating your account

Next, set up your account with polymath by keying in your name and preferred email address. Go through the privacy policy page before accepting it then click ‘Create Account.’

To proceed with the process, you need to now click ‘sign’ on Metamask. This process signs up your email address with your wallet address. The goal here is to enable your wallet address to be the key to accessing your account from that moment going forward.

Register your token symbol

Next, decide on your token name and symbol and click ‘RESERVE TOKEN SYMBOL.’ This step allows you to secure your token symbol so that no other issuer on the Polymath platform can use the same token symbol.

As you can see in our example below, we decided to name our token “Proof of Concept “and the symbol is “POC”.

After you reserve the symbol, you have a 15 day window period to consult with your advisors and lawyers. A pop up requiring you to ensure that you are satisfied with the choices you have made will be displayed on the page, confirm and submit the reservation of the token symbol.

Once you submit your reservation of the token symbol. The polymath platform will send information about your token offering to your email. To receive this information, you will first need to verify your email via the email verification page. The page appears in your mailbox immediately.

Once you confirm your email, simply follow the link to see your transaction details.

Choosing your providers

In this step, you decide on the partners who will help you on the STO journey. You get a chance to build your dream team by selecting the right marketing team, KYC/AML providers and advisory and legal team.

While the portal will not send notification emails to your chosen service providers while still running on testnet, it will send you a sample copy of the email that would otherwise be sent to them.

Then click on the ‘Create your token now’ button. You will see a pop-up requesting you to ensure that you have received satisfactory advice from a legal advisor before proceeding.

Creating your own token

You can now add any additional information such a legend or link to a website in the blank space.

Next, Click the Metamask submit button to successfully create the issuance of your token. A copy of the transaction details will also be sent to your inbox.

Setting up your offering details

The final step of the remaining features of your offering involves clicking on ‘SET UP YOUR OFFERING DETAILS.’

In a capped STO, you sell a specific number of tokens at a predetermined price per token. After the limit is reached, you cannot sell any more tokens. You can now finalize the details of your STO by clicking ‘SELECT AND CONFIGURE STO.’

You should also set up other details for the offering. Such details include the start and end date or time, whether you will accept payments in POLY or ETH or both, and the rate at which you will value your token at. After you have filled all the categories click ‘Confirm and Launch STO.’ You will see a page like the one shown below on your display.

Whitelisting your investors

This is the final step. You need to create a whitelist for your future investors so that they can buy tokens in your STO. The whitelist enables investors to participate in your STO. It can be updated before, during and after the STO. When you submit the approved investors you will see them added to the whitelist in a table view.

When the investors send POLY or ETH tokens to your STO contract, they will receive your STO issued tokens in return.

Final word

In this guide, we have covered; why your company should consider tokenized securities, the top platforms you can use to launch your security and further illustrated by providing a simple guide you can use to launch your security tokens.

If you have any concerns, feel free to leave a comment below.