Investment tokens: cryptocurrencies that are only available to selected

A quick guide to security tokens for those who do not have enough bitcoin, ether and other popular cryptocurrencies.

Today, with the ICO, or primary placement of coins, life of almost any cryptocurrency begins, which hopes to repeat the success of Bitcoin (Bitcoin). Last year, almost 6 billion dollars was attracted with this financing method.

In most cases, the issuer at the time of ICO does not have any product yet - only a document with its description. But at the same time, all these companies declare that coins or tokens are not securities, as they will be used in future business. It turned out that regulators have a different opinion, so in the US, some cryptocurrency startups now call their digital coins investment tokens (or security tokens), believing that they can use the exceptions prescribed in US securities laws. (Investment tokens can still be found under the name tokenized security.)

What is an investment token

This is a virtual currency unit like Bitcoin and its competitors. But if Bitcoin is highly volatile, and its price depends mainly on the emotional mood of market participants, investment tokens are declared to be tied to real assets - company capital, real estate, or debt obligations.

Thus, the issuers of such tokens recognize that they are subject to the legislation on securities, but make up the documents so as to fall under the exceptions set out in the American law on the regulation of securities from 1933 year.

Why startups issue investment tokens

In this way, they hope to avoid the need to fulfill the requirements for registering securities, the implementation of which is very expensive, and in addition, they are trying to avoid the excessive attention of officials and escape from the uncertainty that the ICO procedure is currently undergoing.

The US Securities and Exchange Commission began large-scale ICO checks, suspecting that in some cases tokens should be treated as securities and in others it is just a matter of fraud. Some companies that raised funds through the ICO mechanism may be forced to return money to investors, pay a fine, or do both.

Thus, investment tokens sellers hope that the additional efforts made during the preparation stage will save them from future troubles.

How it works

Take for example the venture fund Spice VC. He planned to attract 100 million dollars, and said that in the framework of pre-sale tokens undertakes obligations in the amount of 40 million dollars. He acted in accordance with:

  • the provisions of Regulation 506c Regulation D of the Securities and Exchange Commission - which sets out the conditions under which offers of securities are exempt from the usual rules of registration;
  • the provisions of Section 3 (c) (1) of the Investment Company Act of 1940, which allows private foundations to be out of SEC regulation.

This meant that Spice VC was supposed to offer securities to a circle of no more than 99 potential investors previously registered on the company's website. In this case, it was necessary to make sure that they are sufficiently well-off, to provide evidence of their identification, and they, in turn, are not entitled to sell tokens for a certain time.

In addition, issuers who use exceptions to the law must verify that buyers do not launder money, as well as publish information about their work on a regular basis after the sale.

Why not all cryptocurrency issuers do this? Because if an ICO is open to one and all, you can raise a lot more money.

Where an investor can buy investment tokens

Most well-known exchanges are concerned about the reaction of regulators and do not sell such tokens yet. In this regard, a new wave of companies such as Templum, Polymath and tZero appeared, issuing tokens and planning to open their exchanges. Some of them are already running, others are just being developed.

Own project Spice VC is a platform called Securitize, which “allows you to tokenize assets in order to then trade tokens and increase their liquidity”. And Circle Internet Finance Ltd. - it is a startup that allows people to make instant money transfers - recently, as part of an attempt to enter the market of trading in digital assets, bought the Poloniex exchange.

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