The Swiss ICO regulation governing Pool of Stake
After the pricing peaks reached by the crypto market in December and the following crashes that have happened so far this year, regulation has become one of the main topics in the blockchain ecosystem. Initial Coin Offerings (ICOs) have been the sector that has been hit the most by new regulation, and it is still in the crosshairs of important regulating bodies. ICOs have proven to be a great vehicle to raise capital from a big crowd instead of few venture capitalists. Several businesses with good ideas and solid business plans have raised capital through ICOs and developed great products or services. Sadly, several others have failed, or even worse, have scammed investors. The lax regulation and fast flow of capital has made it easy for bad actors to utilize this method to scam investors, but we should not be deterred by this. ICO regulation is starting to develop positively in many countries, and regulation is one of the main things that investors should look at before putting money into a project.
We strongly advise that investors revise the governing law for the project they are considering to invest in, which should always be specified on the whitepaper. Pool of Stake will be governed by the guidelines published by the Swiss Financial Market Supervisory Authority (FINMA). Our investors will benefit from the forward-thinking culture surrounding business, banking, and finance in Switzerland. Pool of Stake will be the first decentralized pool for Proof of Stake blockchains that will let different participants stake their coins together and share rewards without losing coin ownership or relying on third-parties. This innovative project will be governed by the Swiss ICO guidelines that guarantee investors clarity and security. In the following text, we will do an overview of the aforementioned guidelines and explain how they will apply on the PSK token and protect PSK investors.
The increased number of ICOs being planned or executed in Switzerland created a rise in enquiries regarding the applicability of current regulations and led the FINMA to publish new guidelines in February 18, 2018. The high demand for ICOs has urged regulators to provide clarity in what is already a very dynamic market. One of the main perks of FINMA’s decision is that they decided that each case needs to be decided on its individual merits. Given that current regulation is not ICO-specific, FINMA will focus on the function and transferability of tokens.
The key factors to consider are the underlying purpose of the tokens and whether they are already transferable or tradable. FINMA will categorise the tokens into three types: payment tokens, utility tokens, and asset (commonly referred to as security) tokens. Hybrid forms of the previous categories are also possible. Let’s move on to define them.
- Payment tokens: synonymous with cryptocurrencies and have no further functions or links to other development projects. Tokens may in some cases only develop the necessary functionality and become accepted as a means of payment over a period of time.
- Utility tokens: tokens which are intended to provide digital access to an application or service.
- Asset tokens: these represent assets such as participations in real physical underlyings, companies, 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.
- Hybrid: there can be combined forms of the categories listed above. For example: a utility token that can also be widely used as a means of payment will fall under a hybrid payment/utility classification.
After setting out the classification of tokens, FINMA decided that anti-money laundering and securities regulation are the most relevant to ICOs. The Anti-Money Laundering Act (AMLA) establishes several requirements for financial intermediaries, like establishing the identity of beneficial owners. Money laundering risks are high in a decentralized blockchain-based system since assets can be transferred anonymously and without any regulated intermediaries. On the other hand, securities regulation intends to create a safe environment that ensures that investors have a minimum set of reliable information; and that trading is fair, reliable, and price-efficient. Lets now describe how these two sets of law apply on the different kinds of tokens that we described previously. Please keep in mind that hybrid tokens will be subject to two or more sets of law.
- Payment tokens: FINMA will require compliance with the anti-money regulations, and will not treat such tokens as securities.
- Utility tokens: these tokens will not be classified as securities if they only serve the purpose of conferring digital access rights to an application or service. If this utility token has a partial or full function as an investment in economic terms, FINMA will treat the tokens as securities.
- Asset tokens: these tokens will be regarded by FINMA as securities, and will have to go through all the requirements established by the securities law and the Swiss Code of Obligations.
As it can be noted, Swiss regulation is forward thinking. It aims to guarantee the safety of investors while allowing legitimate innovators to navigate the current regulatory landscape and launch their projects in a law abiding and integral way. The PSK token will fall into the utility category, because it confers discount rights for the PSK platform. The PSK token serves a specific purpose. It will permit holders to retrieve a higher reward when staking a Proof of Stake coin. The Utility nature of the PSK token causes it to not be considered a security because of the following points:
- PSK token is not a security since the contributor has no rights attached to the PSK token, outside of participation access provided by ownership of the PSK token and the discounts it provides to holders
- PSK is not an investment product.
- The token is not a company share stock/derivative.
- The tokens may be listed on various secondary exchanges, this is incidental and non-consequential to the primary purpose of the token as an utility.
In conclusion, PSK is just a Utility token. It will not fall under the category of an asset, thus, securities law will not be applicable. It is also not a payment token, which exempts it from the Anti-Money Laundering Act. Investors will be able to enjoy the flexibility of not falling under the current securities regulation, and yet still have the security provided by AMLA. In short, investors can count on the historically proven reliability and security that Swiss regulation offers, while not being burdened by excessive regulation.