IS TOKEN SALE FOR YOU? FACTORS TO CONSIDER
Although ICOs and STOs became highly popular, they are not suitable for every business. Any token sale, no matter whether it offers a utility or security token, entails fundraising through the issuing of a digital token as a mechanism to buy an issuer’s product, but not any product may be effectively tokenized. Consequently, not any business could benefit from a sale of token – some may lose much more than they gain. If your token does not offer real, unique utility closely tied to your product, it will not generate decent demand and will be subjected to the highly volatile crypto-market, exposing you to high levels of economic risk.
Another essential aspect to consider is regulatory implications that may render your token sale overly burdensome and subject you to serious legal consequences. Establishing the necessary legal framework and staying compliant with multiple rules and regulations is not an easy task given all the uncertainties and complications of current laws. It is also pretty expensive. Depending on your budget and economic goals, the costs of staying compliant may exceed your potential profits turning the token sale into a useless struggle.
If, after weighing all the cons and pros, you decide that the token sale is your way to go, your next step would be to set up a comprehensive strategy that should cover a number of important components:
Corporate structure: you will need to decide what type of entity or entities you need to set up in order to effectively serve your business model, to minimize your legal and economic risks, and to provide you with the most efficient tax regime.
Jurisdiction: you will also have to find out what is the best jurisdiction for your entity. For the same purpose of obtaining the maximally favorable economic and legal conditions particularly for your business, it is important to set your entity in a jurisdiction that is not only crypto-friendly, but also meets other specific factors, such as location of your team and production, type of your particular product or services, permits/licensing requirements, and many other factors.
Token Structure: you will have to determine whether your token is at risk of being considered a security by the Security and Exchange Commission in the United States or similar regulators in other jurisdictions where you plan to offer your token. This determination is the cornerstone of the entire process as the legal procedure for selling a utility token is very different from the procedure for offering a security token. The latter is much more complicated and requires registration with the SEC and other regulators.
Licensing requirements: depending on the product or services that you offer through your tokens, you might be required to obtain specific licenses or permits from various government agencies. This part of the strategy is frequently overlooked at the initial stage subjecting companies to unexpected expenses and significant delays.
Marketing strategy: marketing plays an essential role in the success of your token sale and planning a winning strategy to market your project from the very beginning is absolutely crucial. You may change and improve your product, but it is extremely difficult to change the public perception if you get a bad first impression. Besides that, most people believe that marketing is only about getting a brand recognition, while in fact it involves some other important aspects, including legal. An example of how the marketing campaign may affect the legal status of your token is the Munchee case, where the MUN tokens were designed as utility, but the way they were represented, described and marketed turned it into a security.
Post-sale strategy: most companies under-evaluate this stage of the process putting all of their energy into the preparation part. However, lack of an effective implementation strategy may lead to the failure of the entire project even after the successful sale. To avoid that, you need a clear plan for all case scenarios. What is going to happen if you do not reach a soft cap? How will you portion the funds? What is your plan for dealing with unanticipated setbacks as well as with high competition? All of these and many other elements should be thought through at the very beginning.
All in all, the decision to run a token sale, whether you have a startup or want to tokenize an existing business, is not an easy one and will require extensive consultations and consideration of many aspects, including, among others, technological, economic, and legal considerations. And here comes my most important advice – once the decision is made, be sure to surround yourself with real professionals in each of the areas discussed in this article.