How to Write an STO White Paper: A Step-by-Step Guide (Part I)
Utsav Jaiswal
Updated
STO whitepaper
The cryptocommunity’s collectively rising interest in STOs is leading to an increasing demand for STO white paper writers. Due to the similarities with securities offerings, STO white papers must follow certain guidelines to stay on the right side of the law. While there are multiple ways of checking all the boxes, the following guidelines are the simplest way to achieve them.
An STO white paper is the biggest and the most important marketing document of the product and if done wrong, can kill your product before it even begins.
Given the general absence of regulations surrounding cryptocurrency-based products, it becomes very important for the STO white paper to conform to a non-leading and non-speculative language.
I have witnessed first-hand ICO companies offer $100 for writing an ICO white paper.
Dude! Good Luck for your $100 million ICO building a token based PaaS ecosystem. Also, skip!!
I mean, yes, there exist cheap knockoffs of the latest iPhones and the Galaxy Note devices, but do you buy them? If you cannot differentiate between a cheap knockoff and the real thing, conducting an ICO should be the least of your worries.
Thankfully, Security Token Offerings (STOs) are the worthy answers from the crypto-community to the challenge thrown by the regulatory authorities.
An STO is simply an ICO that consulted a real lawyer before proceeding with the token sale offering.
Look at Tezos with its securities class action lawsuit in the USA. While Tezos and its ridiculously named token — Tezzies might be right in spirit and intent, they quite possibly did not worry much about legal due diligence as much as they have to now.
Legal compliance is not a luxury but a requirement.
In a perfectly rational world, there would have been no need for another acronym — STO when the existing acronym — ICO encompassed both, tokenized assets, as well as, tokenized platform access.
The Emergence of STOs
However, we are where we are due to our decisions and actions.
Another deluge of cryptocurrency writers will begin adding STO white paper development as a skill and begin offering it at $100 a piece. The problem does not lie in cheap alternatives. It lies in the potential ramifications that can arise from the usage of that cheap alternative.
Some things are expensive not due to inflation but the actual value that they represent.
My intention behind writing this article is to help white paper writers find a decent template for developing an STO white paper.
It will also benefit STO companies have some semblance of auditability when outsourcing the writing of your STO white paper to cheaper writers.
A Few Global Rules for Writing an Sto White Paper:
Breakdown the content into several smaller sections to increase readability. However, do not add more than two headings on one page.
Keep the executive summary short. If you go over 300-450 words, you’re doing it wrong.
The key audience of your white paper is the crypto-investor. Add a token sales summary sheet with all the token sale related details in a neat table just after the executive summary.
Avoid repeating even one sentence. I repeat, do not plagiarize your own content, in the same white paper.
Last, but not the least, focus on your solution and not Blockchain. DLTs are a part of the solution. They are not the solution.
Sections of an STO White Paper:
An STO white paper must have the following 6 sections to ensure completeness of the documentation:
Legal Disclaimers
Industry Overview
Product Details
Technical Architecture
Tokenomics and Token Offering Details
Business Model
Team Members and Advisory
While the order of these six building blocks of an STO white paper can be altered, I feel that this ordering follows a natural flow and enables the reader to see a cohesive story.
Legal Disclaimers in an STO White Paper
Also known as Forward-Looking Statements, the Legal Disclaimers are provided by a law firm/agency after a review of the complete STO white paper by them. It should include the following items:
(Source: Josoft Technologies)
Clauses on Expectation of Profit — Since STOs allow an expectation of profit, the legal vetting of the product must include what is the expectation of profit, how will it be delivered, and how much risk is involved.
Allowed Countries — Due to their equity-like nature and their governance via laws which cover equities, the Security Token Offering will have one or more countries excluded from the STO if a particular country is allowed. For example, the PATRIOT ACT of the USA does not allow American citizens to make investments in Libya, South Sudan, and a few other notified countries. Thus, an STO which can be invested in by the nationals of Libya cannot have Americans participating in the STO. This information must be a part of the STO White Paper.
Rights and Benefits associated with Token Ownership — In an STO, the token architecture can be designed to provide voting rights, rights to dividends, and even ownership of the asset backing the token.
Privacy Policy of the Token Sales Event — This informs the reader about the scope and usage of the user data stored within the systems of the STO. Privacy policy gained importance since the emergence of GDPR and an STO white paper must at least provide a link to the privacy policy of the company.
How to Write about the Industry in an STO White Paper
For example, an STO of equity ownership belongs to the finance and investments sector.
Industry Overview is a crucial section and was often skipped by the ICOs of 2018. Investors (contributors in the case of ICOs) come from diverse backgrounds and do not know about the ins and outs of the industry. Thus, industry overview adds a wealth of information to the STO white paper for the benefit of the readers.
(Source: The BreakOut)
In this case, Industry Overview must talk about the following areas to achieve completeness:
History of the Industry (1 Page) — Brings the readers up to speed with the developments, innovations, and inventions over the past and how the innovation has slowed down. Present a balanced picture and try to pinpoint the problem to a specific area. For example, if you’re writing a white paper for an STO that is looking to solve the problems of supply chain management in an industry then talk about the intermediaries who slow down the process and consume a lot of the value created.
Constraints of the Stakeholders (1-2 Pages per stakeholder) — An STO addresses the problems of more than one stakeholder and affect the existing method of the functioning of the stakeholders. Since the proposed solution will involve a learning curve and is liable to be disliked by the stakeholders, it is imperative that the STO white paper lists the existing problems to remind the stakeholders of the need to innovate and improve.
Emerging Trends in the Industry (2 Pages) — Every STO white paper must be wholesome. Let’s be honest, Blockchain is never the only way to solve a problem. It is only one of the several ways that you/your client has chosen to employ to address the problem. This section will enable you to present an assessment of the other solutions that can solve the problem and present how your Blockchain-based solution is the best fit.
Market Potential (2 Pages) — There can be no product without a viable market potential. Product/market fit is not just a buzzword, it is a key requirement for the business to be successful. Try to present facts via charts, graphs, and infographics to present the existing market size, the future market size, and your scalability plas.
Do keep in mind to not go over 10-12 pages while writing the industry overview section. If you go over, it will make the reader go through 10-15 minutes of reading time without even getting introduced to the project.
A good STO white paper straddles the fine line between an academic textbook and an advertisement material.
How to Write about the Product in the STO White Paper
This section should be the meatiest and the most cohesive piece of the white paper. By meatiest, it does not mean that it should have the most number of pages (for the record, it will be the Technical Architecture Section), but should be the mechanism that ties all the loose ends created during the industry overview section and present the chosen solution as the only emerging common theme in a natural manner.
(Source: reference.com)
For example, if you are writing a white paper for an STO that offers a solution for tokenizing a real estate plot, you will write about the constraints of the builders, buyers, and the regulatory authorities.
In the Product Description section, you must write how your solution addresses these problems. This section must be divided into the following sections to allow easy readability and provide natural reading breaks to maintain reader interest:
Solution Overview (1 Page) — This section must include a brief overview of the product being built. There is a high likelihood that the solution itself would be comprised of several modules that communicate with each other to become a complete unit. For example, a cryptocurrency exchange can have a portfolio, a wallet, and an algorithmic trading module that are all connected to each other in the backend but presented as different screens on the front end. Your solution section must contain a small paragraph on each of the modules and a simple diagram that shows the connection of all the modules.
Solution Details (5-10 Pages) — Depending on the complexity of your solution, this section can reach a length of up to 10 pages which should be the maximum limit. If you’re going overboard, you are not succinct enough in your description and will make the reader begin skimming. That is a dangerous territory to be in. If your reader does it once, he/she is likely to do it again. Thus, this section must include details about your solution, neatly offer it as a sucker-punch to the problems enumerated in the problem sections above. To ensure that if the content in this section does not drive home the point that it is the only pertinent solution for all of the problems plaguing the industry, try depicting it as an infographic. For example, if you are building a tokenized offering of a solar-powered plant, your solution details must include how:
People can buy/sell your tokens (Platform details)
How will the solar-powered plant be built
How you will prevent misuse
Details of the front end components (Mobile/Desktop Apps)
This completes the non-technical and non-financial side of our guide to developing a complete and cohesive STO White Paper. The details about creating the remaining sections can be found in second part of the 2-Part guide.
