Initial Coin Offerings (ICOs) Security Token Offerings STOs & Tokenization
Blockchain tokenization substantiates and reflects the enormous potential of blockchain. Tokenization means the process of digitally representing real life assets, and rights in such assets, in blockchain tokens. For fundraising purposes, tokens are created as part of coin offerings, thereby resulting in Initial Coin Offerings and Security Token Offerings. Tokens take various forms depending on their nature, characteristics, and function. Tokens are classified in the broad categories of security tokens, which are a digital representation of “conventional” securities, such as shares in a company, utility tokens, which grant access and use rights to the utilities of a platform, and payment tokens, which are used as payment means. ICOs involve the offering of utility tokens, while STOs are specialized coin-offering vehicles for security tokens. Tokens offered to the public or selected investors for capital-raising and investment purposes, may be traded on secondary markets/exchanges. Depending on the type of offering deployed, distinct legal and regulatory obligations, needs, and issues arise.
Tokenization offers wider opportunities than ICOs and STOs. Tokenization is set to refine and revolutionize the way people invest in, transfer, and exchange tangible and intangible assets. Financial services are bound to benefit in a profound manner because of the expediency, efficiency, transparency, and easy way tokens may be traded on blockchain. This is set to offer significant market liquidity gains, especially for markets which are typically illiquid (such as real estate), and make token investment and trading widely accessible, because of the lower costs decreasing minimum investment amounts.
ICOs, STOs, tokenization and token-reliant business models operate in uncertain, or at least developing regulatory frameworks. Taking various forms, functionalities, characteristics, and being integrated for specific purposes, tokens call for specialized regulatory treatment, adding to the regulatory demands of the industry in which they operate. Blockchain tokenization operates in an evolving regulatory framework since regulators are still processing and assessing the optimal approach to providing a proper blockchain framework.
In certain jurisdictions specific blockchain and tokenization rules have emerged requiring compliance with specialized blockchain rules. In other cases, such as, primarily STOs, existing securities and investment regulations apply, hence we assist clients navigate this complex set of existing rules that could apply to STOs. The type and functionalities of tokens and the kind of industry in which they arise determine the scope and kind of regulation.
In Cyprus, blockchain regulation is closely examined by competent authorities and regulators. The government and parliament, as the executive and legislative branch, have issued the National Strategy on DLT, proposing a comprehensive legislation on blockchain, tokens, and connected activities. The regulatory framework is expected to place the use of blockchain technology on certain and predictable legal bases, furthering and facilitating its use. Similarly, the European Commission adopted a new Digital Finance Package towards the growth of fintech and technologies in the EU considering the need for protection of consumers/investors and the financial stability of the EU. Within this context, the Commission has proposed the so-called MiCA (Markets in Crypto-assets), which seeks to regulate types of tokens and activities that are currently out of regulatory scope, such as stablecoins and crypto-asset providers, imposing a number of important requirements.
Our team has the expertise, experience, and in-depth knowledge to handle compliance matters regarding blockchain tokenization, ICOs and STOs. Our expertise is constantly reinforced by our continuous interaction with significant blockchain projects. Our focus lies with fintech projects, which implicate financial services regulations. Tokenization primarily impacts financial services. Securing finance through token offering, investing in tokens, issue of utility tokens, exchanging and trading tokens, listing tokens to secondary exchanges are all actions that command specific attention to the complex financial services’ regulatory framework. Drawing on our expertise in financial services, we respond to all regulatory needs of blockchain tokenization. Considering the significance of compliance in offering and dealing with tokens, and given the intricacies and highly specialized nature of tokens and token regulation, our clients rely on our blockchain expertise, our financial services capabilities and our general commercial expertise to receive specialized and comprehensive solutions that render their tokenization endeavours, or their dealing with tokens, fully compliant.
As explained, our team leader’s experience and close involvement with blockchain regulation and our team’s continuing engagement with the area place us at the unique position to identify token-specific problems and unique blockchain and token needs from the outset, and offer holistic solutions to our clients, anticipating and accounting for the pending and incoming developments in the relevant regulatory sphere.
For ICOs and STOs, we draft opinions on tokens based on the assessment of the intricacies of tokens and the integration of such tokens in business projects, determining the type of offering at hand. We advise and ensure compliance of Security Token Offerings (STOs), by reference to, primarily, existing investment, security regulations, including prospectus and transparency rules, and for Initial Coin Offerings (ICOs) determining the applicability of any regulation depending on the project. We consult on the operation of crypto-exchanges and secondary marketplaces, taking account of the international regulatory complications and concerns. We advise, ensure compliance, and assess the prospect of listing to secondary exchanges, conducting necessary due diligence processes that guard against regulatory risks. Our consultation and regulatory guidance remain up to date with the latest regulatory developments. Our team’s and founder’s active, close, and hands-on involvement with blockchain and token regulatory development, and our comprehensive and proactive dealing with regulatory issues grant our clients significant competitive advantages over other token-reliant projects.