As part of the broad solicitation associated with SocialFlow’s Universal Attention Token (UAT), I’ve met with investors ranging from individuals to family offices to hedge funds to crypto specialists. And a common thread across all the conversations is “What’s my path to liquidity?"
Unlike Initial Coin Offerings (ICOs) that in most cases operate with little or no regulatory scrutiny, Security Token Offerings (STOs) such as SocialFlow’s are intended to be compliant with securities laws. Offering liquidity, in a manner that complies with applicable securities laws, is perhaps the most important challenge facing issuers of security tokens.
Companies who have launched or are pursuing the launch of SEC-compliant trading platforms for security tokens include names such as Open Finance Network, StartEngine, Templum, and TZero. SocialFlow has engaged in conversations with a number of these platforms, and while we as yet have no specific announcement to make, we’re encouraged by the progress they’re making.
The process for listing on a security token exchange varies by platform, and in many cases is still fluid. But it is starting to coalesce into some general steps:
1. Issue. Properly issue the security tokens. This may involve working with a trusted issuance partner, such as Polymath, TokenSoft, or Securitize, and developing a token to an appropriate standard (typically ERC20).
2. Control. Build processes and controls—using smart contracts and more traditional processes—to comply with appropriate regulatory lockup periods.
3. Comply. Submit documentation associated with a compliance review, to make sure that the underlying company is properly incorporated, that it meets the standards of the exchange and that the tokens map to the company’s capitalization structure.
4. Contract. Execute the listing agreement, setting the terms and requirements associated with listing on the exchange.
5. Market. Generate news and business results, develop a market-making program, and achieve liquidity.
A successful listing would allow investors to trade out of their positions once their lockup periods (12 months in a Reg D offer) expire. That is a marked contrast with the normal lack of liquidity in traditional investments in venture capital funds or in venture-backed companies (often 7 to 10 years). Real liquidity, quicker settlement, and easier compliance are all objectives of these platforms. Trading fees may be on the high side initially, though it seems obvious that increased competition will allow some companies to compete based on price.
You can learn more at www.sociaflow.com/uat or contact email@example.com. Or, initiate your investment by clicking the "Invest Now" button at the top of our StartEngine page.
We look forward to continuing the conversation with you, as there is much more to come!
Jim Anderson | CEO | SocialFlow