How to Launch a Security Token Offering Platform: Comparing Custom STOs vs Ready-Made Options

At the core of this transformation are security tokens — digital assets that represent real-world assets like real estate, stocks, or bonds, but with the added benefits of blockchain technology.

STOs provide a regulatory-compliant way to issue and trade these tokens, merging the traditional financial markets with the efficiency and transparency of blockchain.

This article explores the essentials of launching STO platforms, comparing custom-built versus ready-made options. We will also discuss PixelPlex real-life projects, including Real Estate STO and Resorts STO, showcasing the successes and learning curves encountered by our clients.

What is a security token offering?

A security token offering (STO) is a type of fundraising activity where investors are provided with digital tokens that represent ownership or a share in an underlying asset, such as real estate, a company, or earnings.

These tokens are blockchain-based, combining the legal frameworks of traditional securities with the technological benefits of digital currencies, thereby offering a secure, transparent, and regulatory-compliant way to raise capital and invest in assets.

Imagine you’re investing in a piece of valuable real estate, for example, the Empire State Building.

Instead of going through traditional channels, which might be complex and exclusive, an STO allows you to buy digital tokens representing a share of this property. Recorded on blockchain, these tokens offer transparency and ease of transfer, much like buying shares of a company but in a digital assets world.

How does STO work?

Security token offerings are a modern way for startups and new ventures to raise capital. Unlike traditional fundraising methods, STOs are fully regulated and legal, providing a safer environment for both companies seeking funding and investors looking to put their money into promising projects.

The magic of STOs lies in their ability to tokenize real-world assets, including real estate, capital markets, commodities, and equity funds, breaking them down into digital shares that can be easily traded. This process, also known as fractionalization, enables investors to buy a small, affordable portion rather than buying a whole property.

This way security token offerings provide a new, streamlined way to invest, providing benefits like voting rights and dividends (for tokenized shares), or a share in the profits (for tokenized equity funds), all while maintaining compliance with regulatory standards.

What to consider before launching an STO platform?

Launching an STO platform involves several key considerations to ensure its success and compliance with regulatory requirements.

Here are some important factors to think about in advance:

Tokenization of assets

As previously discussed, security tokens can embody diverse assets and interests, from physical assets to equity and shares. The type of asset tokenized affects its legal aspects and attractiveness to investors. Thus, it’s vital to clearly define the asset’s specific interest before launching an STO.

Regulatory compliance

Explore the legal framework governing security token offerings in your jurisdiction. Compliance with securities laws is crucial to operate legally and avoid potential fines or legal issues. This includes knowing which regulatory bodies have authority over your activities (e.g., SEC in the United States) and what registrations or exemptions you need to operate.

Tokenization platform

Selecting the right tokenization platform is another critical factor.

The platform should support the specific functionalities required by your asset type, including smart contracts for automating transactions, dividends, or voting rights. Aspects such as transaction speed, blockchain infrastructure, and compatibility with regulatory standards should be taken into account to ensure the platform facilitates a smooth and compliant STO.

KYC/AML procedures

Today, most countries enforce anti-money laundering (AML) and know-your-customer (KYC) regulations that financial entities, including security token issuers, must adhere to.

KYC involves verifying the identities of your investors, ensuring they are who they claim to be while AML measures help prevent financial crimes such as money laundering. Together, these procedures allow for safeguarding your platform against illicit activities, build trust with investors, and guarantee compliance with global regulations.

Market and liquidity

Consider in advance how your tokens will be traded and what markets they will access. Creating or ensuring access to a secondary market for the tokens can significantly enhance their attractiveness by providing liquidity to investors.

How to launch an STO platform step by step

When building your own STO platform, consider the following four steps.

Step 1. Preparation

During this step, you need to determine a token’s value and think about how you will engage with investors.

This stage also involves consulting with legal advisors to navigate the regulatory landscape effectively and building a team of experts. This team should not only have technical proficiency in blockchain development and tokenization but also have expertise in legal compliance and marketing to ensure a comprehensive approach to your STO launch.

Step 2. Pre-STO

After setting the groundwork in preparation, the next step is to focus on token creation and build a marketing strategy.

Token creation involves defining the characteristics of your tokens, such as their type (e.g., equity, debt, or asset-backed), total supply, pricing, and the rights they confer to holders (e.g., voting rights, dividends). Utilizing smart contracts, you can automate these features and ensure they are embedded within the token’s design.

By creating a robust marketing strategy and a comprehensive whitepaper you will outline the value proposition of your STO and attract potential investors. The whitepaper should detail:

• project’s vision
• nature of the token offering
• legal structure
• technology used
• how the raised funds will be used

Step 3. STO launch

Launching your STO involves initiating the crowdsale, where you sell security tokens to investors through a transparent and automated process, leveraging smart contracts to ensure compliance and ease.

To provide transparency and accessibility, make sure to prominently display essential details on your STO website, including whitepaper, token details, and participation guidelines.

Simultaneously, establish robust community support services to address investor inquiries, offer technical assistance, and maintain clear communication.

Step 4. Post-STO

Once your STO website is live, boost awareness of your STO platform through targeted marketing efforts. Leverage strategies like social media marketing and affiliate marketing to increase visibility and attract potential investors to your platform.

Also make sure to maintain ongoing communication with your investors, regularly updating them on development progress and key milestones to keep them informed and engaged.

Comparing custom STO development vs ready-made options

If you’re choosing between custom STO development and ready-made options, start with evaluating the following aspects: specific needs, timeline, and costs.

Custom development offers tailored solutions that precisely fit your project’s requirements, providing unique features and a competitive edge. This approach allows for flexibility and scalability but requires a significant investment in time and resources.

On the other hand, ready-made STO platforms create a quicker and more cost-effective route to the market thanks to pre-built functionalities and compliance frameworks. However, these platforms may lack customization and may not fully align with your unique project visions.

Top platforms for launching STO campaigns

Some of the most efficient STO platforms on the market include T-REX by Tokeny, STO Core by PixelPlex, Polymath, Securitize, and Tokensoft.

Let’s explore the advantages and unique features of each.

T-REX by Tokeny

Designed by Tokeny Solutions, the T-REX platform enables users to create, manage, and transfer security tokens, facilitating seamless interactions between issuers and investors.

The platform offers a suite of features, including mechanisms for token recovery, streamlined investor onboarding, robust compliance enforcement, detailed reporting, and various other useful functionalities. It also gives the flexibility for users to incorporate their preferred KYC/AML providers.

Key features

• ERC-3643 token standard
• Investor onboarding functionality and investor portal
• Flexible KYC/AML integration
• Token recovery mechanism to prevent access loss and security breaches

STO Core by PixelPlex

STO Core offers ready-made modules that enable users to create various types of tokens, such as security tokens, utility tokens, and stablecoins. It also facilitates the setup of marketplaces, token management, and staking functionality through an intuitive UI builder.

The platform is unique in allowing the creation of both security and utility tokens and provides extensive customization to meet specific needs.

The PixelPlex team provides direct support for swift customizations, such as marketplace deployment, core customization, or integrations with crypto wallets, payment gateways, multi-factor authentication (MFA), KYC procedures, e-signatures, and analytics tools.

Key features

• Creation and management of security tokens, utility tokens, and stablecoins through the UI builder
• Multi-standard support, encompassing ERC-20, ERC-3643, ERC-1400, NFTs, Bitcoin NFTs, as well as custom standard creation upon request
• Incorporated security mechanisms: two-factor authentication and trusted custodian
• Built-in minimum funding or refund goals
• Modularity and adaptability
• AML/KYC/CFT support
• Legit crypto market and dApps access
• Direct user-investor communication

Polymath

Powered by Ethereum, Polymath helps businesses simplify the security token offering process. It connects project creators with essential resources for legal, regulatory, and technical needs, offering a solution for the entire lifecycle of a security token, such as issuance, governance, compliance, and secondary trading.

It introduces the ST-20 token standard to guarantee regulatory compliance, focusing on features such as transfer restrictions to verified participants.

Key features

• ST-20 token standard to ensure compliance with regulations
• Modular and customizable
• Seamlessly integrates with a broad ecosystem, including custodians, broker-dealers, legal firms, cap table management providers, and token sale platforms
• AML/KYC support
• Allows issuers to set rules around who can hold their token

Securitize

Securitize offers a comprehensive tokenization service, with more than 400,000 investors and users already on board. This platform assists both emerging startups and established private companies in capital raising and enhancing liquidity potential.

The platform supports the entire lifecycle of an STO, from the initial issuance to trading on secondary markets. On Securitize, various capital-raising programs are available, including Regulation D, Regulation D + S, and Mini-IPO options.

Key features

• Utilizes its Digital Securities Protocol (DS-Protocol) that integrates crucial compliance and regulatory frameworks for straightforward security token issuance
• Provides diverse funding programs
• Guarantees compliance with the necessary legal regulations for a secure and lawful investment ecosystem
• Enables issuers to set rules regarding who can hold their token, the conditions under which it can be transferred, and other legal requirements

Tokensoft

Tokensoft is a tokenization platform that assists startups, funds, businesses, and investment banks in issuing digital assets, ensuring compliance with the necessary regulatory standards for digital assets and securities.

Known for maintaining the highest levels of regulation and compliance across different jurisdictions, Tokensoft has supported approximately 100 projects in executing large-scale token events, facilitating over $1 billion in fundraising.

Key features

• Supports a variety of token standards, including ERC-20 and ERC-1404
• Presents solutions for managing investor relations: KYC/AML screening, investor accreditation checks, and communication channels
• Provides access to secondary markets for enhanced liquidity
• Offers team assistance with custom development, reviewing launch plans, and supporting end users in completing compliance verifications

Case study: learning from PixelPlex experience in launching STOs

Our team at PixelPlex regularly helps clients in launching STO platforms and campaigns.

While these projects share many commonalities, each one necessitates a unique approach based on the client’s goals and requirements, the asset being tokenized, and other relevant factors.

Below, we’ll examine two examples of launching security token offering platforms: real estate and recreational assets.

Real estate STO

In our collaboration with the client, we embarked on a mission to develop an STO platform for real estate assets. This was driven by the desire to democratize access to housing markets through fractional ownership.

Recognizing the importance of security and scalability, we proposed leveraging the Polygon blockchain, renowned for its scalability, security, and low transaction fees.

As we delved deeper into the project, we mapped out the necessary functionality for efficient platform operation. These key modules included KYC/AML, essential for compliance and investor trust, as well as funds management for secure handling and tracking of investor funds. Native tokens were incorporated to enable fractional ownership and expand investment opportunities, while portfolio management allowed for efficient tracking and management of real estate investments.

Additionally, we ensured that investors had a voice in decision-making processes through the voting module and offered transparency and accountability through the reporting module. The wallet connect module streamlined token management and transactions, while the payment system facilitated secure and efficient payment processing for investments.

Together, these modules formed the backbone of the real estate STO platform, empowering investors and revolutionizing access to housing markets.

Resorts STO

Our client, an award-winning luxury retreat operating in Bali, wanted to raise funds in a secure and regulated manner. To fulfill this ambition, we devised a campaign transforming their real estate assets into Ethereum tokens, ensuring a seamless transition of shares into digital format.

The PixelPlex team created a platform that not only facilitated the digitization of shares into Ethereum security tokens but also anchored all investor data within a tamper-proof smart contract, which excludes any risk of fraud.

To further increase transparency and security, we introduced the KYC and AML verification methods to the Resorts STO platform’s protocol. This essential step verified the identities, residences, fund origins, and accreditation statuses of potential investors, maintaining the integrity of the investment process.

Moreover, we launched a dedicated STO landing page, serving both as a digital showcase of the campaign and a user-friendly portal for investor engagement. The page featured an Investment Calculator, providing immediate insights into the share allocation for given investment amounts.

We also designed an intuitive dashboard that outlined the equity sale’s steps, such as land acquisition and permit approvals. This provided investors with a transparent and easy-to-understand view of their investment status and dividend earnings, ensuring they had all the necessary information at their fingertips throughout their investment journey.

Summing up

Developing a security token offering (STO) platform embodies a strategic approach to digitizing assets on the blockchain, providing businesses with a regulated and secure pathway to raise capital.

There are different options for creating an STO launch platform, ranging from custom-built solutions, tailored to specific business needs and regulatory requirements, to ready-made platforms that offer speed and efficiency in deployment.

PixelPlex brings to the table comprehensive experience in STO development and STO launch services, with numerous successful projects that showcase our expertise. To ensure rapid development, we accumulated best practices and pre-built templates. We also established an R&D center to research the latest technologies and pilot innovative projects.

Contact us today to unlock the full potential of your assets and embark on a successful STO journey.