TokenSoft CEO Shares Thoughts on Regulation Differences Between Digital Assets and Security Tokens


The CEO and co-founder of TokenSoft Inc, Mason Borda, wrote an article on CoinDesk in which he explains why regulators believe cryptocurrencies are created equally.

Virtual currencies and blockchain technology want to change many industries, and in general, the future of distributed ledger technology is tied to tokens. Now, several companies are starting to think about security tokens rather than Initial Coin Offering (ICO) tokens.

However, Borda asks whether all tokens are created equal. He explains that the term ‘security token’ is a broad designation that gathers digital assets and securities into a single definition. Additionally, it is possible for digital assets to become digital securities and vice-versa according to the circumstances.

Digital assets are blockchain coins that allow users to have access to products or services. This creates the value that this digital asset has. Thus, is growth depends on the usage of the ecosystem. In general, we know this tokens as utility tokens that have been created for a specific use case.

It is important to mark that these digital tokens do not represent equity interest of debt obligations or organizations. However, regulators consider these digital tokens as securities since users and investors tend to purchase them expecting to make profits from the efforts of others.

Nevertheless, according to the U.S. Securities and Exchange Commision (SEC) Director of Corporate Finance William Hinman, there might be a point in time in which these digital assets are no longer considered securities.

For example, Mr. William Hinman explained that Ethereum could have been considered a security when it started to be traded, but its decentralized structure does not make of it a security anymore.

About other digital assets Hinman said:

“Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required. And of course, there will continue to be systems that rely on central actors whose efforts are key to the success for the enterprise. In those cases, application of the securities laws protects the investors who purchase the tokens or coins.”

Borda explains that a digital security is often referred to as a tokenized security that has been launched as a blockchain token. This specific token can represent a share in a corporation or a note or debt security. In general, these these digital tokens are created to be securities and follow traditional securities laws.

In the United States, securities must be registered with the SEC or just qualify for an exemption, according to Borda. These exemptions can be a Reg D or a Reg A, among others. There are other jurisdictions around the world that have similar rules.

There are some benefits related to blockchain technology. It allows for instantaneous trading and settlement, 24/7 access and liquidity and many other things such as direct issuance to a larger investor pool, and more.

Borda says that there are issuers of digital assets that take different steps to meet security regulations, thus becoming a digital security. Although not all tokens are not created equal, they might need to follow the same regulatory framework.

You can read the full article here.

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