Challenges of Tokenization
Last summer, the Securities and Exchange Commission (SEC) decided to regulate Initial Coin Offerings (ICOs), also known as “token sales,” in order to subject them to securities federal regulation. Although the specific offering in question (the DAO) was declared to be within the scope of securities law, Ryan Clements of Duke University’s FinReg Blog reminds us that this decision is applicable under the following conditions: “the significance of promoters, managerial and gatekeeping functions, voting and information rights, the nature of control of an enterprise, the potential for profit, and the impact of secondary exchanges.” The tokens provided rights to vote and reward payments that were compared to dividends by one of the ICO’s leaders, Christopher Jentzsch.
The profitable aspect of ICOs is one of the key reasons that the SEC submitted the DAO to securities law, however, it remains unclear whether this ruling will apply to “app tokens” that have intrinsic value, i.e. that would be held rather than resold or redeemed for a higher value. Tokens with intrinsic value qualify more as assets.
On this matter, France is one of the first countries in the world that has introduced a legal framework — passed on December 8, 2017 — regarding the use of blockchain technology for the representation and transmission of unlisted securities. The conditions to issue tokens will be further explained by the implementing decree that has to be released before July 1, 2018, which is when the ordinance will come into force.
French Minister of Finance Bruno Le Maire: “Using this new technology will enable financial technology companies and other financial institutions to develop new ways of trading securities that are faster, cheaper, and more transparent and secure”.
This progress in regulation is likely to give security tokens an exponential growth for the next decade. Ledgity is poised to take advantage of this new revolution in how we own, follow, and trade assets. Ledgity is creating a compliant platform for tokenizing securities, such as private shares, debt, or units of investment funds. We see the creation of a standardized framework that will ensure compliance in transactions as the first step in this financial revolution.
Charlotte Robin
Let’s make securities frictionless!
Website: http://www.ledgity.com/
