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 here at 10XTS.
That being said, somehow or another, the nascent crypto 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 as a unit of account. The token is, in fact, the form of receipt to show the token and it’s holders on a ledger. We don’t have “bearer shares” any longer in the United States. Cryptocurrencies like Bitcoin operate under the premise that if you have access to the private key of a wallet, you have some form of custody or possession of the Bitcoin or Ethereum tokens in the wallet.
Securities operate differently. Having a password to a wallet associated with the ownership of legal securities doesn’t automatically mean ownership. Securities ownership is tracked by statute under various other forms of recordation by the securities issuer, or registered and/or licensed actors like transfer agents, broker dealers, custodians, etc…
In fact it’s a good, old fashioned, uncertificated electronic share of stock or debenture instrument. Electronic shares have been legal and recognized for decades. The tokens are simply the units of account from which numeric totals of ownership are derived.
How ownership is recorded and tracked doesn’t require new legislation to classify the token hash as something discreetly separate or different than any other traditional share of stock in a company.
Therefore, if someone holds a securities token offering STO, they’re selling securities. Many laws already exist in nearly every global jurisdiction to provide for many forms of securities sales. In the United States, this includes Regulation CF (crowdfunding), Regulation A+, Regulation S, 506(c) exemptions, and so on.