Security Tokens, January 2019 (VCs Perspective)
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A blockchain VCs perspective on the state of security tokens in the context of blockchain and RegTech.
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Security Tokens, January 2019 (VCs Perspective)
- 2. The Information in this presentation is not intended to be and does not constitute financial advice or any other advice, is general in nature and not specific to you. Before using this information to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence. None of the information in this presentation is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, Company, or fund. The presenter is not responsible for any investment decision made by you. You are responsible for your own investment research and investment decisions. DISCLAIMER
- 3. Taxonomy: Security • banknotes, bonds and debentures Debt Instruments • common stocks Equity • forwards, futures, options, and swaps Derivatives
- 4. Blockchains & Tokens • Do no recognize borders or jurisdictions • Tokens are non-native assets Open Source Networks • Standard Ethereum Token (ERC-20) • Non-Fungible Tokens (ERC-721) Standardized Protocols • Functions not (yet) available on blockchain Side-Chains
- 5. What problem do Security Tokens address? Compliance Cost Capital Formation
- 7. Public vs. Private Listings (2016-2017) Public Private $470b Raised Yearly Growth: 5.7% $55b Raised Yearly Growth: 88.8% 8.5
- 8. Utility Token Token required to operate a dApp Membership/Rights Token Consumption (token is “burned”)
- 9. From ICOs to STOs?
- 10. Swiss Financial Market Supervisory Authority Payment • bitcoin • Litecoin • Monero Utility • ether • EOS Assets • shares in companies • Provide dividends
- 11. State Laws – Example Wyoming •files a notice of intent with the secretary of state •no sold as financial investment •purpose if token is consumptive purpose •available at the time of sale •can be used at or near the time of sale for use for a consumptive purpose “Utility Token Bill” Token Exempt from Securities law
- 13. US Case Law
- 14. Rule of Thumb Loan •Convertible Notes •Are you getting it back? Donation •Foundations •Governance •Purpose Pre-Sale •“Crowdfunding” •“Utility Token” Equity •Selling a stake in common enterprise •Profit motive
- 15. U.S. Security Regulation Regulation A+ • Unrestricted to non-accredited investors • High cost, immediate liquidity, no lockup Regulation D • Restricted to accredited investors • Low cost, 6-to-12 month lockup Regulation S • Restricted to non-U.S. investors (with safeguards) • Low cost, 40-day+ lockup (int’l), 6-12 month (U.S. flowback) Regulation CF • Restricted to only ~$1MM in total raise • Low cost, 1-year lockup
- 16. Regulation A+ Restrictions •Required financial disclosures •Up to $20MM (tier 1) or $50MM (tier 2) Costs •SEC form filings - $45k to $55k •Audit - $2k+ •Transfer agents – 0.5% to 1% of funds Audience /Market •Non-accredited investors •Full solicitation on OTC and public exchanges
- 17. Regulation D Restrictions •Only Accredited Investors w/ KYC/AML/AI verification •U.S. solicitation only •6-12 month trading lockup Costs •SEC Form D filings – $12k - $30k •Compliance – $10k-$50k Audience /Market •Accredited investors •After lockups, ATS trading available •Private placement, none publicly traded
- 18. Regulation S Restrictions • Restricted to non-U.S. investors • Non-U.S solicitation only • 40 day trading lockup for non-U.S. traders • 1 year trading lockup for U.S. Costs • SEC Form filings – $10k - $30k • Compliance – $5k-30k Audience /Market • Strictly non-U.S. investors • ATS trading available within 40 days internationally, 6-12 months in the U.S.
- 19. Regulation CF Restrictions •Non-accredited investors can only invest up to 5% (or up to $2.2K) of their yearly income •Up to $1.07MM raised per year •Maximum of 1 year lockup Costs •State registration filings - $1k+ •Annual SEC filings – $2k-$5k per year •Portal/Marketing – up to 10% of funds raised Audience /Market •Heavy investment restrictions for non- accredited investors. •Generally traded on ATS or OTC exchanges after lockup
- 20. Reporting Requirements (US) •$10MM in assets + •2,000+ shareholders •500+ non-accredited shareholders Exchange Act Registration
- 23. “Token Issuers”
- 24. Compliance
- 25. Custody
- 26. Ethereum Improvement Proposals https://eips.ethereum.org EIP-1450. A compatible security token for issuing and trading SEC-compliant securities EIP1462. Base Security Token
Hinweis der Redaktion
- A security is a tradable financial asset. legal definition varies by jurisdiction In some jurisdictions the term specifically excludes financial instruments: -They can be cash (currency), evidence of an ownership interest in an entity (share), or a contractual right to receive or deliver cash (bond). debenture is a medium to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.
- Tokens can remove friction
- Remove fricition
- Remove fricition
- Utility ICOs: These tokens do not qualify as securities only if their sole purpose is to confer digital access rights to an application or service and if the utility token can already be used in this way at the point of issue. If a utility token functions solely or partially as an investment in economic terms, FINMA will treat such tokens as securities (i.e. in the same way as asset tokens). Asset tokens represent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives.
- Wyoming's state legislature passed legislation defining utility tokens as a new asset class and exempting them from securities regulations Utility Token Bill" was signed into law. The Bill exempts "Utility Tokens" from the state’s securities laws provided the issued token and its issuer meet the following requirements: (i) The developer or seller of the token, or the registered agent of the developer or seller, files a notice of intent with the secretary of state[;] (ii) The purpose of the token is for a consumptive purpose, which shall only be exchangeable for, or provided for the receipt of, goods, services or content, including rights of access to goods, services or content; and (iii) The developer or seller of the token did not sell the token to the initial buyer as a financial investment. Under the statute, the part (iii) requirement is only met if: (A) The developer or seller did not market the token as a financial investment; and (B) At least one (1) of the following is true: (I) The developer or seller of the token reasonably believed that it sold the token to the initial buyer for a consumptive purpose; (II) The token has a consumptive purpose that is available at the time of sale and can be used at or near the time of sale for use for a consumptive purpose; III) If the token does not have a consumptive purpose available at the time of sale, the initial buyer of the token is prevented from reselling the token until the token is available for use for a consumptive purpose; or (IV) The developer or seller takes other reasonable precautions to prevent buyers from purchasing the token as a financial investment.
- Wikipedia: A security token is a physical device used to gain access to an electronically restricted resource. The token is used in addition to or in place of a password.
- The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. If that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value.
- More than 200 centralized exchanges already
- More than 200 centralized exchanges already
- More than 200 centralized exchanges already
- More than 200 centralized exchanges already
- More than 200 centralized exchanges already
- Exchange Act Registration Even if your company does not have an effective registration statement for a public offering, it could still be required to file a registration statement and become a reporting company under Section 12 of the Exchange Act if: it has more than $10 million in total assets and a class of equity securities, like common stock, that is held of record by either (1) 2,000 or more persons or (2) 500 or more persons who are not accredited investors or it lists the securities on a U.S. exchange
- US: Regulated alternative trading system (ATS)