Book a legal discovery session with a legal node expert for a preliminary evaluation of your token and an overview of the best crypto-friendly countries for issuing your token. With this guide, we want to help founders who want to launch a token understand the legal implications of different types of tokens and how they are issued. We`ll cover what a token legal notice is and why you need it, what types of tokens exist, and what different regulations apply to each token type issuance. Let`s dive in! The status of a token as money, securities, property, or property – or all – has considerable legal significance. The status of a token can facilitate its use as a means of payment or hinder its use to the extent regulated, especially if it is regulated as collateral: the issuance and distribution of tokens may trigger different laws depending on the legal status of the token. Utility tokens may require special authorizations or token approvals from the regulator. Security tokens or financial instruments require issuers to handle licensing and filing with public authorities that oversee securities and stock markets. In turn, digital goods must comply with customer protection and e-commerce laws. Tokenomics is also useful for assessing the likely future value of a token.
This is important not only when a token is valued in isolation, but also and especially when considering alternative tokens. When examining tokenomics, any factor that even remotely affects the value of a token should be identified and weighed. Below are some key steps to consider when deciding on the value of a token. In addition, TT service providers wishing to list crypto assets on their platform should obtain legal advice on those crypto assets to ensure that they are not financial instruments, failing which those TT service providers would have to obtain a separate licence under the EU MiFID to list those crypto assets. Tokenomics, the combination of token and economy, refers to the qualities of a crypto asset that make it attractive to users and investors. It refers to the supply and demand characteristics of the asset. Each distribution method has its own legal requirements. They range from preparing the required documents (e.g. SAFT or Token Sale Agreement for a private sale of tokens) to obtaining regulatory approvals (e.g.
VASP permit in the Cayman Islands or symbolic approval from FINMA in Switzerland for a public sale of tokens). The above definition excludes securities and even most stablecoins, and mainly covers cryptocurrencies consisting of payment tokens and utility tokens. The definitions in these legal frameworks underscore the importance of ensuring accurate classification of a token within a particular legal ecosystem, as the classification of a token as a regulated instrument could have serious implications, including licensing requirements under securities regulations that would impose onerous obligations on the company seeking to list or issue tokens. What motivates tokenomics and tokenization? The tokenization wave has evolved from forms of payment or monetary tokens to sustainable assets, debt and equity securities, utility tokens such as paying for a specific service or a reward for participating in the platform. Prolonged periods of pandemic-induced captivity have accelerated the growth of virtually everything, including crypto assets. According to a reliable source, more than 9,000 different crypto assets are traded on public markets today. Asset tokenization allows the holder to exchange all or a fraction of their own assets. While monetary tokens and tokens underlying commodities such as gold and silver are “fungible,” monetizing a holder`s ownership of unique assets such as art, music, and even real estate has triggered a boom in non-fungible tokens, or NFTs. The governance of companies, virtual worlds and games has also been tokenized. According to Liechtenstein`s regulatory framework, persons wishing to offer trustworthy technology (TT) services and token issuers must prove that their business model is not subject to any other licensing requirements. It depends on the classification of tokens issued or supported by the service. In particular in the case of ICOs, the Autorité des marchés financiers could require a legally sound self-assessment, usually in the form of a legal opinion, that the token does not fall within the mandate of traditional financial instruments and therefore does not require the publication of a prospectus and does not establish due diligence obligations.
Token allocation: Check how the token is distributed. There are currently two ways to generate crypto tokens – either through pre-sales leading to a public tokenization event, or through a so-called “fair launch”. If the summer of 1968 was the summer of love, then 2017 was the summer of play. Initially, the Securities and Exchange Commission and the state`s “blue sky” regulators oscillated between creating safe regulatory sandboxes (e.g., Wyoming laws and SEC Commissioner Peirce`s Safe Harbor) on the one hand, and enforcement actions on the other (the infamous DAO Section 21A report, Munchee and other cases). Markets began to respond by moving overseas, as encouraged by then-SEC Chairman Jay Clayton by citing private placements and offshore offerings as two legal ways to sell investment contract tokens. There can be many rights, and it`s best to define them through symbolic use cases. These use cases explain how token holders can use tokens and what benefits they receive. When crypto assets are tokenized as NFTs, the NFT market will typically be denominated in one or more of the largest layer 1 coins, and they will be bought, sold and traded as a fraction of a “coin”. In addition, token status and regulatory restrictions associated with its issuance are elements that investors typically address during the fundraising process for Web3 startups. Poorly structured tokens mean high regulatory risks for investors, which would likely become a disruptive factor for potential investments. Token distribution in a Web3 project typically consists of three steps A legal opinion is prepared to confirm or deny the classification of a token as a security. Cryptocurrency exchanges require such security of legal advice or not in order not to be subject to the laws that apply to conventional exchanges that trade securities.
Legal advice is also crucial for the token issuer so as not to trigger higher legal requirements than is necessary for the intended business model. Offer: A major component of a crypto asset`s tokenomics is offering. There are different types of offerings that need to be looked at when it comes to crypto assets. The number of tokens issued and currently in circulation is called the “circulating supply” of a token. “Total token supply” refers to the number of tokens present, excluding those that may have been burned (i.e. destroyed). And the maximum supply is just that – the maximum number of tokens that can ever be generated. Think of the outstanding offer as the equivalent of the “outstanding” amount of a company`s debt or equity securities, and the maximum offer as the issuance restriction contained in the company`s founding documents or debt obligations. Under the Maltese VFA, the financial instrument test must be carried out before DLT assets are offered to the public in or from Malta or VFA services are offered in relation to a DLT asset, unless it has already been carried out by an issuer. Financial instrument testing involves an analysis to determine whether a DLT asset is electronic money, a financial instrument, a VFA, or a virtual token, and the scope of the test is to determine the classification of a token. For a VFA service provider to list a token on its platform, the classification of a token must be that of a virtual financial asset or electronic currency.
Classification as a financial instrument would require the VFA service provider to obtain a separate license, while classification as a virtual token is generally reserved for crypto assets that cannot be freely traded publicly. Due to its special and technical nature, the financial instrument test should ideally be carried out by VFA agents licensed by the Malta Financial Services Authority. One of the most important points of any token offering is the quotation of a token issued on a cryptocurrency exchange or cryptocurrency exchange to create liquidity. Therefore, it is often necessary to prepare a legal opinion on the content of the token, the legal opinion analyzing the concept and characteristics of the token. On the other hand, Liechtenstein law gives a generic definition of tokens as information on a trusted technology (TT) system, which represent rights such as membership or property rights, and which are associated with one or more TT identifiers. The law does not classify tokens, this classification depends entirely on the characteristics of the tokens themselves. This lack of legal certainty further highlights the importance of obtaining legal advice on the classification of the token, as tokens can represent financial instruments that financial market laws will apply.
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