The big trend in blockchain at the moment is the concept of a STO or “security token offering”. Before I go further, I want to be clear — I am in full support of the concept of “tokenizing” assets and securities. In fact, that’s what we do at 10XTS.
That being said, somehow or another, the nascent blockchain industry has once again convinced itself that it has created something “new and novel”.
The term “token” essentially means something that represents something else. For example, a word is a token for a mental abstraction of a concept or idea. That way we can do things like… well… communicate with each other as humans (some of the time anyway).
If something is a “security token”, it’s a token that represents a security — which means it’s a security. The token isn’t the security. The security exists separately, and is represented by the token. The token is, in fact, the form of receipt to show the token and it’s holders on a ledger.
I am not quite sure how this very narrow, simple construct of logic escapes so many people in the rainbow farting unicorn and faerie land of cryptocurrency.
It’s not something new, separate or different. It’s a good, old fashioned, uncertificated electronic share of stock or debenture instrument. The fact that it’s represented in a hash on a distributed ledger in the form of a token means nothing.
It’s not new, it’s not novel, and it doesn’t require new legislation to classify the token hash as something discreetly separate or different than any other boring share of stock in a company.
It’s also subject to the same laws that exist, and have existed on the books for nearly a hundred years. Yeah, those fuddy duddy laws that keep the financial market from eating itself. Those same boring old fun stealers that are there to discourage bad actors and fraudsters from taking innocent people’s money — you know, like a high percentage of bullshit ICOs.
If someone holds a STO, they’re selling securities. Laws are already on the books to provide for many forms of securities sales including Regulation CF, Regulation A, Regulation S, 506(c), and so on. The fact that you’re selling securities represented in token form doesn’t necessitate any change to the law. Electronic shares have been legal and recognized for decades.
I’m 100% about blockchain, tokens, fintech, and the advancement of the technology. I’m equally 100% over the notion that because tokenization of assets have become the conversation du jour, that blockchain tokens deserve some special treatment under the law.
A security token is a security, which is already regulated — and should be.
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- What are some of the regulatory challenges for blockchain tokens in the Financial Services Industry? - September 3, 2018
- 10XTS “Tokenizing” its Traditional Corporate Shares as Security Tokens - September 3, 2018