The concept of ‘Security Tokens’ has been a subject of debate and controversy since they came to prominence . How have they changed since they were first introduced, and where might they be heading next?
Futures, and “All Coins are Securities”
This was around Winter 2017 – 2018. The same time when the Securities and Exchange Commission (SEC) in the USA began focusing their attention on this new and previously unregulated form of cash. Before many other national, government authorities worldwide decided to follow suit.
It was also around the same time when the first ‘bitcoin futures’ contracts were launched and sold by enterprising new and existing firms – with the SEC ruling creating a significant space for traditional investment and old-money to pour into the market.
The opening of crypto-futures arguably exacerbated the pressure on cryptocurrencies which resulted from prying government eyes.
The Two Tokens: Securities & Utilities
Since those early days of regulation in the West, cryptocurrencies have eventually dichotomized into: ‘security tokens’ and ‘utility tokens’.
The definitions used by coin creators and the communities can be flexible, with many fundraisers opting to class their coins as ‘utilities’ to avoid potential additional legal / administrative repercussions – however the most commonly accepted definition is that:
- ‘Securities’ are asset backed tokens (AKA fungible, often equivalent to a real-world asset).
- ‘Utilities’ are functional assets within the blockchain project in question’s eco-system whose value is based in more abstract terms.
At present, the SEC has declared few tokens as being officially classed as utilities rather than securities and are thus not subject to laws pertinent to traditional securities. Two of these are Bitcoin and Ethereum.
Independent Standards Agencies?
Some companies, such as Luxembourg based Tokeny were able to establish their headquarters in a pro-crypto country in the first place, regardless of their seasoned – international leaders.
This team includes CEO and founder Luc Falempin: supported by a diverse team of executives coming from traditional financial services, as well as global roles in software and IT service companies like IBM and Syniverse.
Tokeny hails itself as “The end-to-end platform to issue, manage and trade Utility and Security tokens” significantly cutting down on needs for otherwise unneccessary intermediaries.
The organisation advertises its proprietary approval program entitled SICOP (AKA The Sustainable Initial Coin Offering Protocol): a standards and regulation process for ICOs and STOs which is independent of government intervention.
Havens: Not Just for Taxes, But Cryptos Too!
This is in addition to the role which many international ‘crypto-havens’ play as independent advocates of cryptocurrencies on the world stage. One example is the ways in which such financially liberal (and often nation-state) countries play in facilitating innovation and business migration from stricter countries.
DSTOQ made its way to the news recently in-part due to being ‘the first fully-licensed cryptocurrency’ – as issued by the tax-haven government of Vanuatu. Also notable was the recent and unexpected surprise public reveal / launch of the company itself and MVP.
The company’s decision to acquire official legislative backing through the ‘Commonwealth of Nations’ member country is a means of bypassing the strict legislation put in place by agencies such as the USA’s SEC.
It also prevents them from allowing investment from citizens of the USA; meaning that they are focusing their efforts in Europe to begin with. A decision which potentially reflects a smaller-scale crypto-flight from the USA – as seen with China.
Binance conversely has been noted for their relocation and international expansion outside of their native China: with various regional offices across South-East Asia, including Japan.
Blue-Chip Big Dogs
World-class asset management firms such as BlackRock, Morgan Stanley and Goldman Sachs have been admitting interest repeatedly in potentially implementing crypto investments into their business roadmaps. The same can be said for market leaders in other sectors, such as tech giants like IBM.
According to Sonali Basak of Bloomberg,
“Wall Street’s money managers are in an arms race for technology that will help them gain market share,”
This only further proves the importance of opening as many methods for investment to traditional / old-money as possible.
It also reveals the forthcoming generation of standard creators / bearers as potentially being those current market leaders who are successful in adapting blockchain to the needs of themselves and the general customers and users.
These companies’ likelihood of dominating the discussion would come due to their economic and industry influence and experience, putting potential independent attempts to waste.
Governments and Securities
The SEC has been fickle with their outlook on various cryptocurrencies – starting their public announcements with an aggressive tone regarding all tokens as-of-then being unregulated.
They backed up their bark with a series of bites which came in the form of crackdown operations against crypto companies in the country which had been suspected of carrying out fraudulent actions.
On a positive note, the government financial authority has also been establishing strong relationships with various blockchain companies who are willing to play ball with the recently created, developing ground rules.
This move hasn’t convinced everybody – and US based or US citizen targeted ICO fundraising campaigns are all-but-strictly forbidden under current rulings.
Featured image from Shutterstock.
Last modified: March 4, 2021 3:34 PM