Firstly, What Is A STO?
In order to understand why market research, education, and user experience will play a crucial role in the success of your STO, let’s first understand what an STO is (and isn’t) and the benefits it can deliver to investors and users.
An STO, or a Security Token Offering is similar to the initial coin offering (ICO) in that the asset is delivered in the form of a digital blockchain-based token. Unlike the ICO however, the STO actually represents an investment contract between the issuer and the investor. The contract can take on the form of investment assets such as stocks, bonds, funds, and trusts. So, the STO is designed to be primarily asset backed, while the ICO has no collateral assigned to represent the value of the investment.
Because STOs are a new technology as much as a new investment opportunity, they have more inherent functionality and programmability. As mentioned above, a security token can be programmed to contain the contractual code binding the two parties in an agreement. Perhaps the principal value of security tokens however, is the use of distributed ledgers or blockchains for the immutable and transparent tracking of trades and ownership. Platforms like Polymath have employed new asset technology standards (in the form of smart contracts) to provide an updated, smarter, more secure user experience.
While the STO investor’s user experience is still in its infancy, the benefits that a digital security asset provides to both the issuer and the investor have a number of valuable advantages. Let’s take a look.
Understanding the Benefits of STO vs. IPO
STO benefits have not entirely matured and many of the features delivering said benefits are in a beta development phase. That said, there are some clear advantages that both investors and businesses will experience by delivering their assets digitally and on a blockchain. You’ll find that when launching your STO that clearly communicating the right benefits will be crucial in the success of your fundraising. We’ve broken out our top 5 STO advantages from our user benefit and product development perspective.
- Access To Wealth
- Market Uptime
Simply put, blockchains are better ledgers for openly and securely auditing; when, how much, and between whom these digital assets move. Because transparency to the blockchain/ledger is available to all, it reduces the previously centralized cost of checking and rechecking that balances are accurate, honest, and importantly that no double-spending has occurred.
Blockchain assets (tokens, or smart contracts), unlike traditional money, stocks, or bonds, can be programmed to interact with owners in particular ways. For example, blockchain assets can contain important KYC/AML constraints that permit only accredited investors to own and trade the asset. Currently, this security is managed by centralized databases, brokers and service providers.
Access To Wealth
STOs represent an access to wealth that is commonly controlled and enjoyed by individuals who are already wealthy and in wealthier nations like the US. STOs are the optimal technology for democratizing the ability to invest and grow wealth, globally.
IPOs are expensive because they require you to use institutions like investment banks for underwriting and centralized exchanges for access to investors and trading ability. STOs on the other hand can be delivered directly to the investor from the company and programmatically contain their underwriting in code, eliminating the need for expensive legal services and banks.
Velocity, availability, and volume are three important characteristics of a healthy market. While STOs don’t solve liquidity problems for traders (a common misconception), they do provide a better experience for a global participation, never needing a global centralized authority to operate. STOs traded on a blockchain make 24/7/365 trading a reality.
Market Research Is Important, Again
Knowing now that the STO can reach a MUCH wider audience than IPOs, the possible profile of an investor is much larger. The audience is also brand new and still being uncovered. This means that market research will quickly become a priority for those looking to reach investors with their STO.
ICOs or initial coin offerings heavily relied on bespoke communities of enthusiasts and not the broader public. They were insiders already. ICO launchers used influencers and public figures in order to gain access to select online communities and once in, they were able to strike deals with “whale” investor groups. This will not work quite the same way with the regulatory requirements of STOs. BUT! There will still be uniqueness, smarts, and strategy in how this new audience is reached.
This means that in order to compete for the broader investor audience directly, you need to be smarter as well as craftier. Secondary (quantitative) market research, primary (qualitative) market research, and creative strategies are again becoming the necessary skills and to reach this audience. An additional consideration, as we explore below, will be incorporating verticals and market/token issuance platforms to access investors. These practices allow for any business to understand their “4 Ps” of marketing: Place, Product, Promotion, and Price (or price point)
As STOs are simply a better financial instrument, not only blockchain startups will be using them to raise money. We’re already working with a number of traditional firms looking to migrate to the future of finance, not the “future of sovereignty.”
1st Movers Must Also Invest In Education
Education is always an important consideration during every innovation and change. As product designers, we know that education and customer support are equally as important features as any other. For an STO offerer, both platforms and businesses, the need for tailored education is extra important. Why?
- They may desire to understand the foundational value propositions of the blockchain and holding full ownership of their asset without the help of a third party
- If your new investor wants to also hold cryptocurrency or a blockchain asset for the 1st time, you must teach them how! It could be the difference between an investment made and a high bounce rate
- They are entering a fast-growing ecosystem that will expose them to things like exchanges without the assistance of a broker in some cases. It’s not just the asset’s value they need to be concerned with, but also how they manage the purchase, custodianship, AND trading of that asset on their own
The Investor User Experience Is Hands-On
Depending on whether you choose to manage the entire user experience at your domain/website, or if you choose to partner with an exchange platform to deliver the experience with your asset, you should deliver an experience that is specific to your brand, asset’s functionality, and user’s familiarity. Whoa, that’s a lot more than I was considering at first… Bottom line is that your investors will be more involved than ever before because they have more control than ever before. That requires us to design a user experience that respects these needs in a whole new way. Let’s break down 2 important user experience affecting considerations:
Your Brand Experience: Depending on your brand experience, you may want to be delivering a more “white glove” and high-touch experience for your investor. Such a prestigious experience will require heightened amounts of human support and thus outlets to access those resources at the ready, baked into your interface and UX. If your brand has a more decentralized and autonomous set of values, you need to design a much more advanced toolset and perhaps more education resources to catch users that need a little more hand holding.
Your Asset Experience: Depending on the financial structure of your asset, your user experience and functionality will be greatly affected. For example: dividend paying bond or debt assets vs. stock or equity assets will have a very different relationship and interactions with your investor. While one is going up and down in value depending almost wholly on the market’s valuation at that time (equity or stock asset), the other will be interacting with the investor regularly, perhaps delivering dividend payouts and returns on their investment (bonds or debt assets). This bond or debt asset will require a much more robust toolset and user experience in order to offer the full benefits to your investor, while also making sure that they are managing their various options with reinvestment reasonably. Throw the blockchain on top of that and you’ll need to provide ledger transparency, just for starters!
STOs are exciting on a number of fronts. As our team has begun consulting, producing market research, designing solutions, and working alongside exchange platforms, we’ve been able to get a close up perspective of those value propositions from both perspectives. While at the surface STOs appear to be the least exciting of the blockchain technology innovations, we have dug deep and found otherwise. The problems being solved and the laws being changed are exciting.
The opportunity to evolve financial technology is only the beginning and STOs are a huge part of that change. Granting greater access to investment opportunities will challenge the currently disproportionate distribution of wealth. That also means that the user experience with money and investments will be rapidly changing, with a whole new user profiles coming on board. With many millennials today never stepping foot inside a physical bank to experience their money, is it so hard to believe that investing is the next stage of the financial institution to be evolved?
Lastly, we’ve found that market research, education/communication design, and user experience are still of the utmost importance. As stated previously “clearly communicating the right value will be crucial in the success of your fundraising” – this means that understanding your audience will drastically improve the success of your messaging strategy and say the things that trigger an investment. Your user/investor is a larger market mix of traditional, blockchain technology, and cryptocurrency investors – and while the reach can be larger (and should be), you need to research who they really are and can be. This technology is new and they’ll need to learn how to use it. The opportunity to create powerful and meaningful brands in this new finance space is immense.