According to security tokenization industry experts, security tokens could experience exponential growth due to the rising demand. According to area2invest, a security token marketplace, this means that the market could surpass $3 billion by 2025. According to the Liechtenstein-based security marketplace, there is a 56.9% market compound annual growth rate.
Bernhard Thalhammer is the head of area2invest's issuer relations. He told Cointelegraph that he receives many requests every day from both blockchain and crypto companies as well as traditional businesses with very specific STO projects in mind.
Major institutions have already exposed their security tokenization efforts, including the European Investment Bank, Thailand’s Central Bank and the Union Bank of Philippines, in collaboration with Standard Chartered Ventures.
The first security token offering by crypto exchange INX was registered with the United States Securities and Exchange Commission. It brought in over $125 million from fundraising.
STOs are more popular in the blockchain industry than ever, but growth opportunities for security token markets may depend on traditional businesses that have less experience using tokenization technology.
Security tokenization may eventually replace traditional bond and stock issuance models, but the knowledge gap is a hindrance to market growth for STOs. The process of issuance security tokens is simpler than you might think. According to area2invest, it can be broken down into four steps. It could take 18-24 weeks to prepare for the token sale. Then, there is an investment period of between 15 and 52 weeks.
According to the report, the first phase of an STO is about designing the perfect model for a security token offering. Then it's time to create the plan to bring the token on the market. A potential issuer must answer questions regarding the investment idea. This includes details about the oncoming investment product, target investor, and funding volume.
Recent STOs have shown that digitization allows companies to be more flexible in terms of what securities they want to issue and who they target. The Exodus wallet, for example, completed an SEC-approved STO in April 2021. It offered its shares to professional and retail investors via its wallet. Another combination is also possible. The $11.3 million digital bond was issued by the Singapore-based DBS Bank in May. This is only available to professional investors.
Companies that are starting a security token offering business should also consider their distribution and marketing strategies, the entity performing the STO, market sentiment analysis, and the regulatory framework.
The issuer must define the project budget in order to determine the cost of holding an STO. Are the numbers justifiable? "As with all issuances, there are initial fixed cost, as is the case with STO e.g. The prospectus. Thalhammer added that there are also costs associated with funding volume."
Structure an STO
The issuer should now have a deeper conversation about the financial aspects and the plans for the security token offering. Token prices should reflect the true value of the company. The issuer should consult a corporate financial advisory to ensure that the soft and heavy caps are in line with the fundamentals.
A second question that will be raised in the second phase is what rights and obligations potential investors have. How security tokens should be structured so that all STO participants are protected.
It is crucial to find the best jurisdiction for token issuance. Also, ensure that the token offering is in compliance with all tax regulations. According to the report, it is highly recommended to hire a legal advisor to help you determine the best way to resolve any legal issues.