Security Token Regulations Demystified

ICO: A failed experiment

Fundraising is often a long and challenging process that includes developing a solid product-market fit, endlessly pitching venture capital funds, and setting up a legal framework. Blockchain startups, however, have found themselves in a very different situation in early 2017.

STO: A modern take on traditional fundraising

As the industry matured, serious projects started to look into other ways of fundraising.

How to structure an STO?

In the legal world, there are easy cases, complicated cases, and then there is international securities law. It is a fascinating but incredibly confusing field, and its practitioners are the most respected and highest-paid lawyers.

STO regulations in the United States

The SEC is one of the world’s most heavy-handed regulators. The rules are draconian, and the fines are excruciating. Yet, perhaps counterintuitively, the United States should be on the radar of every project planning an STO for three reasons.

STO regulations in offshore jurisdictions

All that glitters is not gold. Conducting an STO in an offshore jurisdiction like the Cayman Islands or the British Virgin Islands comes with considerable limitations — and a few undeniable advantages. Projects need to weigh carefully if the end result is positive.

STO regulations in the EU

The European Union is not generally known as going light on regulation. Securities are indeed tightly controlled, both on the EU level and on the level of the member states. The good news is, rules are not nearly as strict as you might think.

STO regulations in Asia

You might be surprised we have not mentioned Asia so far — there is a reason for that. Security Token Offering is banned in China and South Korea. Japan and Taiwan are experimenting with STO-friendly legislation, but both are way behind the US and the EU.

The first steps to launch an STO

If you are an early-stage startup with a world-changing idea, a viable roadmap, and a solid business plan, it’s time to raise funds! As you’ve seen, offering tokenized securities is a fantastic opportunity, but the road is winding, it is full of traps, and mistakes can be quite costly.

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Otonomos helps doers and investors in the crypto and blockchain community around the world form, fund and govern their legal entities, both offchain and onchain