ICO Utility Tokens and the Relevance of Securities Law
Hong Kong Lawyer, March 2018, pp30-33
4 Pages Posted: 24 Aug 2018
Date Written: February 20, 2018
Abraham Lincoln famously posited that if one calls a tail a leg it doesn't mean that a dog has five legs. Similarly, a blockchain-based token offered in an initial coin offering (ICO) may, irrespective of how it is called, be a security subject to securities laws applicable to the primary market as well as secondary market activities. ICOs are an example of how new technology is changing the way the public capital market is accessed by businesses, typically start-ups, in need of capital. However, Lincoln was wrong semantically. If a tail is called a leg then it can be said that a dog has five legs. And if utility token issuances put public capital at risk, expose consumers to fraud, and behaves similarly to an investment in established classes of securities, then perhaps that is enough to render it a security within the original intent of the legislature. On the other hand, calling a security a utility token does not change its nature.
Keywords: ICO, Utility Token, Cryptocurrency, Securities Regulation, SEC, SFC, Abraham Lincoln
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