STO 101

Security Token Offerings: Anatomy & Context

 

Based on the tremendous market potential of STOs and the numerous enquiries that reach us every day,

we decided to summarise the anatomy and context of successful Security Token Offerings in series of white papers

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Like no other technology before, the blockchain has drastically changed the financial industry and will continue to do so. While the largest applications of this technology – cryptocurrencies – have already become widespread, other uses, such as Security Token, are only on the verge of a breakthrough.

Nevertheless, the “Tokenisation of Everything” is advancing in leaps and bounds. One would be right to say that the advantages for issuers and investors clearly outweigh the disadvantages. Tokenisation, i.e. the packaging of tangible assets into digital units, and the associated fractionalisation of these assets offers unimagined possibilities. Whereas it used to be almost impossible to share paintings, vintage cars or licensing, usage and participation rights and make them investable and tradable for a large number of people, this can now be done very well and comprehensibly based on blockchain technology. 

Several studies show the huge potential of the tokenisation market. We have compared five independent studies (Valuates Report, Data Bridge Report, The Insight Partners, Markets&Markets and HSBC) and have taken the average of the different forecasts, which results in an estimated CAGR of 56.9% from 2020 to 2025 for the Security Token Market with a potential to reach 3’000 billion USD until 2025.

Sources:

Valuates Report (2021): Global Tokenization Market Size, Status and Forecast 2021-2027. Access Date: 27.04.2021; Data Bridge Report (2021): Global Tokenization Market – Industry Trends and Forecast to 2028. Access Date: 27.04.2021; Insight Markets (2020): Tokenization  to 2027. Access Date: 27.04.2021; Markets&Markets (2020): Tokenization Market by Component  – Global Forecast to 2025. Access Date: 27.04.2021; HSBC (2020): The 10x potential of tokenisation. Access Date: 27.04.2021

This huge potential is reflected on the one hand in the market forecasts for the transaction volume for Security Token, and on the other hand in the large number and variety of enquiries that we receive every day. We have noticed that there is a gap between the market potential and the concrete enquiries, which we want to close with our whitepaper series “Security Token Offerings: Anatomy and Context”.

Our white paper series is aimed at issuers/ companies that may want to conduct a Security Token Offering themselves, service partners in the field of tokenisation and investors interested in the blockchain industry.

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This series is aimed at

Issuers

Service Partners

Investors

Key Questions & Answers of the white paper series

STO Roadmap

What steps have to be taken into account when structuring a Security Token Offering?

Success Factors

What factors influence the success of a Security Token Offering?

Secondary Market

What is the current status of Security Token Offerings and their trading on the secondary market?

Institutional Investors

Can we expect more institutional investors enter the market? What are currently the barriers?

Mass Adoption

What conditions must be met to make Security Token Offerings suitable for the mass market?

Costs

What does it cost the investor to invest in an STO? What are the costs for issuers?

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Extracts

Tim Zölitz, Co-Founder of BLOCKCAP and member of the board of the Blockchain Association Schleswig-Holstein e.V.

 

The availability and quality of information about the token sale is elementary for the probability of success of an STO. Trust in the investment project can be built up by publishing information on the planned business purpose or the issuing conditions of the tokenised financial instrument, for example. The preservation of investor protection is attributed central importance here.

 

Extract from: “Putting information asymmetries into perspective” in the white paper “Success Factors of Security Token Offerings”.

Dr. Oliver Völkel, LL.M (Columbia), Founding Partner Stadler Völkel

 

By using the blockchain, rights that would otherwise be embodied in a physical document can be represented in a token on a blockchain. If rights such as the right to interest payments or the repayment of borrowed capital are tokenised, the tokens become transferable securities. The transfer of the token from one investor to another causes the transfer of the tokenised right.

 

Extract from: “The Path to successful Security Token Offerings” in the white paper “How to successfully structure STOs”.

 

Nicolas Weber, Head of Business Development Amazing Blocks AG

 

Although the crypto market and the tokenisation industry are different sectors, they correlate very strongly with each other, at least to date, as various studies have shown. This is due to the fact that security tokens have a different definition than the tokens and coins of the crypto market only from the legal side and their utility. With a market capitalisation of over 2 trillion dollars, the crypto market is currently significantly larger than the gradually growing STO market. This is mainly due to the fact that there are fewer legal hurdles here – especially when it comes to real assets, the scepticism is naturally even greater.

 

Extract from: “Probably the most important points are marketing and the network of an issuer” in the white paper “Success Factors of Security Token Offerings”.

Matthias von Hauff, CEO WEG Bank & ten31

 

Those who have earned a lot of money with cryptocurrencies will be more willing to invest in other blockchain-based financial products. The higher especially the reserve currency BTC rises, the higher the willingness to subscribe to an STO will be. Cryptocurrency prices and the STO market are related in the sense that someone who invests in cryptocurrencies usually has some blockchain affinity and might be interested in Security Token Offerings for that reason.

 

Extract from: “The higher especially the reserve currency BTC rises, the higher the willingness to subscribe to an STO will be” in the white paper “Success Factors of Security Token Offerings”.

 

 

Sven Wagenknecht, Editor-in-chief and Co-founder BTC-ECHO

 

There is much to suggest that this is not just an investment fad. Although the crypto market is particularly volatile and comparatively thinly capitalised, it also offers attractive characteristics for a well-diversified portfolio. In this way, cryptocurrencies can supplement the portfolio as a further asset class and thus adjust the investment parameters to the needs of the investors. In particular, the low correlation to traditional investment markets can be highlighted as an attractive feature.

 

Extract from: “Cryptocurrencies – Because it is a risk not to own any” in the white paper “Institutional Investors & Security Token Offerings”.

Kilian Peter Krings, Director of Business Development KlickOwn AG

 

STOs as such do not represent a new financial instrument, but are rather a digital version of existing financial instruments, such as shares or bonds. For me, the question is rather when a blockchain-based infrastructure, on which every security is represented by a token, will replace the old capital and even financial market infrastructure.

 

Extract from: “The biggest challenge for STO is to find their place in the capital market ecosystem” in the white paper “Success Factors of Security Token Offerings”.

Dr. Walter Späth, MSc (NTU), Founding Partner Dr. Späth & Partner

 

The financing model of Security Token Offerings (STOs), in which companies offer interested parties so-called “crypto-tokens” for purchase, is likely to develop into the financing and investment trend of the next few years.

 

Extract from: “Electronic securities/ Security Token Offerings (STOs): Legal requirements” in the white paper “How to successfully structure STOs”.

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How to successfully structure STOs

 

Topics:

 

  • How will the market for Security Token Offerings develop?
  • What steps have to be considered when initiating an STO?
  • What players in the STO ecosystem can assist?
  • What are the legal requirements for STO issuers?

Authors:

 

  • Dr. Walter Späth, MSc (NTU), Founding Partner Dr. Späth & Partner
  • Dr. Oliver Völkel, LL.M. (Columbia), Founding Partner Stadler Völkel
  • Martin Kreitmair, Managing Director Tangany 
  • Bernhard Thalhammer, Head of Issuer Relations area2invest & 21finance
  • Luc Falempin, CEO Tokeny