Cryptocurrencies are currently on everyone’s lips, and interest in tokenized financial products is also high. STO (Security Token Offerings) are a new and innovative form of these. In the following blog post, we have summarized the most important insights from our whitepaper “Success Factors for STO”. The whitepaper is part of a series titled “STO 101: Anatomy and Context of Security Token Offerings”. More information on this series can be found here.
Crypto is in: Not least thanks to the pandemic, blockchain-based investments are in vogue. STOs, digital assets based on blockchain, are also increasingly becoming the focus of interest for crypto-loving investors. Still, there is much need for information in the still young sector. We asked tokenization experts about what exactly makes a Security Token Offering successful. The following five main factors can be derived from this.
Quality of the Asset
As innovative as the technology may be, an STO is still an investment. Investors will only subscribe to this product if it seems attractive enough for them. Therefore, the same factors for attractiveness are decisive for STO as for traditional financial products. In other words, the same factors should be considered when selecting the underlying asset as for traditional financial products. For example, if the asset is a real estate project, location is critical. If an STO is aimed more at retail investors, a classic, easy-to-understand product should be chosen.
Speaking of understandable: An investor is more likely to decide in favor of an investment if he understands the key points and has confidence in the success. Therefore, communication must be as transparent as possible, both in the preparation and in the implementation of an STO. This creates understanding and trust among the respective target group. According to the white paper, this includes a professionally designed prospectus, an experienced team, and a well-thought-out business model. It also requires a good marketing strategy to build a strong network. After all, volume can only be generated through a community. Marketing is generally more important in the STO market than in the traditional financial sector. Much more education is needed to convince investors of the model and build trust in STO.
Simple Investment Process
The user-friendliness of the systems and applications also plays a major role. The investment process should be as intuitive and simple as possible for the investor. This means that every click that is not absolutely necessary should be omitted, as it lowers the conversion rate and thus also reduces the success of the STO.
Current market developments
External influences can also determine whether an STO is well received by investors or not. Therefore, it is worthwhile to keep an eye on current developments. The development of the crypto market can also have an impact on the placement success of an STO. If more investors enter this market and make profits, it can be assumed that they will then also be more willing to invest in STOs.
Ultimately, it makes sense to also involve the ecosystem partners in defining the parameters of the STO — the corporate form, token structure, jurisdiction, minimum investment amount, interest rate, choice of blockchain, etc. The companies in the ecosystem specialize in different aspects of tokenization and can thus assist in the definition with their expertise.