The revelation of secrets in the evaluation of STO: Factors to consider in 2022

Security Token Offering

Crowdfunding had made capitalization easy and effective. It acts as a marketing tool and a capital pool to drive more engagement even before starting the business initiative. The digital form of crowdfunding leads to the introduction of ICO. A lack of trust revolved around investing in ICOs due to their increased frauds score.

Of all the ICOs introduced, only 40 percent of them are trusted and successful. Nearly, 30% failed during funding operations and the other 16% failed after funding. Some 13% of them became unresponsive.

In this case, the emergence of STO is really a gift for those traders and angel investors. The investments in STO are completely different when compared to ICOs. They are an update to the ICO in all dimensions.

I can sense the doubts still lurking on the trustability of STO.

In this blog, there are some secrets to reveal while evaluating STO. Yes, there are some factors that you should consider while doing so.

Why STO? Significance of STOs

STO differ from their predecessor due to its effective infrastructure.

Ownership of tokens — STO comes with an ownership tag. If an individual or a startup wants to invest in STO, they have to reveal their ownership. This can be possible through smart contracts. Yes, the tokens work on the smart contract principle to improve trust and reliability.

Regulation parameters — STO is regulated. They may be in the form of general solicitation or as restricted securities. General solicitation-based securities allow the public to trade with minimal requirements. Whereas the restricted securities allow only eligible traders with certain criteria to invest.

Categories of STOs:

There are three main categories of tokens available in the crypto market.

Equity tokens — These can be unofficially called shareholder tokens as it allows all the token holders to have equity rights. They can vote and can get dividends based on the share they hold.

Reserve Asset Tokens — It involves asset trading. The asset can be anything varying between gold, physical asset, or anything. The trader will buy a share of the asset in tokens for the exchange of cryptocurrencies.

Debt token — This is completely different from the other two. This is a repurchase token that comes with a debt promissory note. Once the crowdfunding target is attained, the tokens need to be returned and the dividends will be shared with the investors. Also, the investor will experience other benefits.

Factors to consider before evaluating STO:

1. Understanding the market

If you are about to start your STO, you should understand the market concept. You have to know the base of the market and the business demand before starting your own STO. Only then you can create trust among the investors to make them invest in your tokens.

But considering the scalability, You need to define the chain link of your business requirement and analyze the parameters that you can do with the investment.

Pinpoint your pain points and herald on addressing these points in your report. This is one of the traction points that can make your STO pitch and your business successful.

If you are about to invest in an STO, you should do a background check on the industry. Do a SWOT analysis on the industry and try to predict the value of the product that the industry is aiming to build on. This will provide you with an outlook on whether to invest in their STO or not.

2. Type of security

We have previously discussed the categories of security, but this is the type of security that we are talking about right now.

They may be either new security or a new channel or an already existing security.

If it is a new security token, then the dividends are paid effectively to the investors and the rights of the shareholders exist for the investors on the right side.

But, there are cases where the security is not a newly formed one based on the asset. But it is an already existing asset that is wrapped as a new token and introduced again into the arena. This kind of Security token is mainly concentrated to improve liquidity. So, it is wise to choose the former over the latter. The latter does have some dividend rights, but they do not encourage the entire shareholder principles and might come with certain restrictions.

3. Smart contract-based evaluations

We all know that STOs differ from fraudulent ICOs because of the presence of assets and regulations. These are possible due to the presence of smart contracts. But the fact is we cannot blindly believe that the presence of a smart contract will make an industry trustable.

SO, before investing in STO, you have to analyze the smart contracts too. Because sometimes that is where the complexity lies. You have to make sure that the smart contract is used in the production and capital management phase. If yes, then you can invest your hard-earned cryptocurrency in it. If the answer is no, then you should get away from investing in the particular STO.

Because the smart contract which goes through production is audited and maintained in the ledger. So, it is crucial to investigate the smart contract before investing in the security tokens.

4. Reliable and trusted community

Certain industries that were new to this blockchain and digital crowdfunding platform got themselves involved in this STO. so, an industry with a lack of knowledge in these technologies is a bane to the investors’ time and cryptos. So, you have to choose a reliable STO community and then invest in it.

5. The legal outlook

Just introducing an STO with a smart contract is not a difficult task to do for any industry. But the reliability of the contract can be analyzed only by identifying the legal aspect. Legality is not a narrow concept. What if the particular industry has its operations in a low tax area, but their physical office is present somewhere in well-developed cities like New York? So, it is more important to do a legal check on the industry by giving a thorough check on their background and their physical presence. Legality does not end here. You have to check whether they are operating in a country where cryptos and digital crowdfunding are legalized.

6. Identifying the team

Corporate governance is a huge concept. But here, to identify the reliability of the team, checking the governance mechanism is more essential. You cannot simply invest in an industry that has the worst governance credentials. If you put your cryptos in that kind of industry, you will lose for sure. So, you need to check the credibility of the team that is managing the STO software. They should be vibrant, enthusiastic, and technically sound.

Concluding words

STO scripts and STO software help the industry to crowdfunding capital for further business endeavors. But the line of faith and trust is what the investors expect. From the above evaluation points, we come to know about the strategy to get ourselves involved in a trusted STO platform and earn dividends and profits.



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MathiBharathi Mariselvan

MathiBharathi Mariselvan

Blockchain Entrepreneur and investor. Cryptoprenuer to be precise. Guiding Crypto enthusiasts and CEOs. You know what, Blockchain is a revolution.