Security tokens would be a hybrid between the shares of a company and a cryptocurrency, with the advantage that they have a lower cost than stock shares and the security and advantages of blockchain technology.

CAs we have previously explained what a tokenNow we can classify tokens in three ways: utility token, equity token and security token.

Well The security tokens are a type of cryptographic tokens similar to any other, but linked to traditional security. In other words, they are linked to financial values.

A security or security is a type of interchangeable financial asset: Bonds, swaps, futures, ... There are many types of security, and one of them very recurring is the traditional actions of companies. The technology blockchain it allows to digitize the security equipping them with many advantages that allow to reduce costs, time and bureaucracy. With this action, comes the birth of the Security Token.

This is already a very common practice today, in fact it is not uncommon to see this type of token as a form of action. That is, security tokens give owners rights and obligations (for example, right to vote and / or dividends). This is related to the number of tokens owned. Which can be transferred and exchanged between people and robots from anywhere at the speed of light

Like the rest of tokens, these can be offered through a ICO. This allows companies to obtain capital through the sale of shares (in the form of a cryptographic token). All this at a theoretically lower cost than it will be worth in the future.

With this, the regulations are trying to find the legal reserve and requirements that this type of tokens must meet. This is especially important for investors, since the purchase and performance of these tokens is regulated by law. Laws that can change from one country to another.

Objective of a Security Token

The objective of the Security Token is to offer rights quite similar to traditional shares. Allowing to reach a wider audience, eliminating bureaucracy and slowness. At the same time it does so at a much lower cost than having to list shares.

This type of assets allows the development of "Simple Agreement for Future Tokens (SAFT)" that allows accredited investors to purchase contracts during a symbolic offer in which they will receive as a reward a token developed by the company in the form of a Utility Token that can be a current asset for use on the platform.

Again, regulation is still searching the border for conceptually separate the Security Token and the Utility Token. Well, many regulations think that all tokens are Security Tokens. Something to be very vigilant about when they can be quoted, exchanged based on another currency or cryptocurrency.

An example of this is the United States Securities and Exchange Commission, also known as SEC. This body has repeatedly warned that launching this token implies complying with all regulations for financial assets. It has even gone further, and has reported that any token that they detect in the market that can qualify as "Security" must necessarily comply with the rules for financial assets, even if they do not consider it.

Additionally, the SEC obliges to comply with the precept that "You cannot massively advertise an ICO where any individual can acquire the financial asset" among other things. To accomplish this, the SEC is guided by the Howey Test, a method that lets you know if a token is a value or not.

How much do you know, cryptonuta?

Does the lack of clear regulation for security tokens result in problems for their mass adoption by companies?

TRUE!

The lack of clear regulation and enforcement of securities laws not adjusted to blockchain technology and current forms of securities result in a major problem for the deployment of an ecosystem rich in security tokens. Many business and community projects face difficult problems to solve because of it, such as Telegram and its cryptocurrency and even Ethereum and Bitcoin.

Howey Test: values ​​and security tokens

La Howey Test o Howey's Evidence, it is a method by which you can test whether a certain economic action is an investment contract or not. Its creation dates back to 1946, when the US Supreme Court handled a monumental case, known as SEC vs Howey, which would lay the foundation for the now infamous Howey test. In the case, it was to establish a test of whether a particular agreement involves an investment contract or not.

The test consisted of a series of parameters that would define whether a transaction will be called an investment contract. Those parameters are:

  1. It is an investment of money.
  2. The investment is in a joint venture.
  3. There is an expectation of profit from the work of the promoters or the third party.

The term "Common enterprise" it is open to interpretation, as many federal courts have redefined the concept. Even though the original Howey Tests used the term "money", subsequent cases expanded it. With which they included other types of investments and assets that were not money.

Also, there is one other important thing to consider when determining values. The benefits that come from the investment, are they under the investor's control or are they completely out of it? If it is not under the investor's control, then the asset is generally declared a guarantee.

Then, How is this relevant for ICO and tokens?. If the token meets the three criteria mentioned above, then it is considered as a security.

If you are thinking of creating a security token in Spain / Europe, you can contact us. In Bit2Me We have the technical resources, industry know-how and legal knowledge necessary to help you through all the different stages of the process.