“What is a coin?” Lawyers who work in the digital assets space have become very familiar with multiple variations of that question over the last few years. “It depends” is the answer with which issuers have become equally familiar.
There is much legal confusion about the exact nature of a coin or token. This is largely driven by the number of variables that affect how a token can be categorized and whether it is, or is not, a security.
- the jurisdictions in which a token is offered,
- the identity of the issuer,
- the rights attached to the token,
- and even to who the token is offered can impact on the above, not to mention the criteria such as those set out in the US Howey test.
Add to this the fact that the laws and approaches of regulators in relation to digital assets are constantly changing and developing, and a certain level of uncertainty can be excused.
However, the market is catching up. The complexity of the regulatory environment is now being matched with a growing level of sophistication of market participants. Not that long ago, most players issuing coins were anxious to ensure that such coins were not securities, and could be issued in what the issuer hoped was an unregulated environment. Flash forward to the present day, and most clients will be asking to ensure that their token is classified as a security, and get a boost from the legitimacy that comes with being able to demonstrate that you are a regulated issuer, with strong corporate governance, and a culture of compliance.
The question that then arises is “what kind of entity should issue the token, and from where?” In an effort to be the country of choice for the digital assets sector, many jurisdictions have jumped in and introduced specialized laws and regulations which deal specifically with this emerging space as a way of attracting investment, but also in the hope of demonstrating certainty of treatment.
This is not the approach…