Mass Adoption of STO Part Two: Standardization

Part One Recap

In Part One of series on security token mass adoption, we discussed how crucial it is for security tokens to provide utility to both companies and investors alike.


Companies need ways to streamline the costs of administering their equity. Investors need the ability to sell their risk to other investors with appetite. In the middle of all these needs sits the security token and the utilities it offers to all parties.


Unless we as an industry implement standardized processes to make security token infrastructures scalable, these utility gains will remain theoretical.

Scalability Ultimately Requires Standardization.

At the moment, these standards are being defined. Unfortunately, Token Issuance Platforms shoulder this challenge almost singularly. Because the life of every token starts with the Token Issuance Platform, the onus is on them to propose standards such as ERC1400.

 

Ultimately, different companies who want to launch an STO need to have a uniform experience as they interact with various players in the ecosystem: from token issuance platform all the way to secondary liquidity provider and beyond.

Cost Reduction is an Early Priority

This level of standardization is also likely to drive reductions in cost across the board. The current issue that we foresee in this industry is that of high upfront costs, upwards of $100,000 for token issuance and legal compliance services alone.


In fact, from our conversations with lawyers in the space, we understand that a company could pay up to $10,000 per jurisdiction that they intend to comply with on securities regulation.


Ideally, the legal documents and proceedings required will be standardized and tailored specifically for STOs. The goal is to have the legal frameworks established so that each STO can go through a battle-tested process rather than have to reinvent it every time.


If we can build these standard frameworks, successive STOs will become cheaper and cheaper to launch. Only by driving costs down can we make STO a viable option for the companies that stand to benefit most from this novel fundraising mechanism. Of course the early high costs will still have to be born by the STO pioneers that are launching in Q4 2018 / Q1 2019.

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