What Are Crypto Tokens And Which Ones Are Securities?
Crypto tokens are digital assets that can be used to store, send, and receive value on the blockchain. They can represent a wide variety of things such as a company’s stock or equity, access rights to specific services or products, or even physical goods like gold and diamonds. Because they are based on the same underlying technology – blockchain – crypto tokens have similarities in structure and function regardless of their purpose.
In some cases, crypto tokens may also qualify as securities under existing laws – for example if it is promoted as an investment product that provides holders with certain economic rights (e.g., profits from trading activities). The U.S. Federal Securities Law defines a security as “any note; stock; treasury stock; bond; debenture; evidence of indebtedness….” Under this definition many types of token-based investments could potentially qualify as securities depending on how they are structured and marketed by issuers.
The U.S SEC has identified three distinct categories for classifying cryptocurrencies: utility tokens, asset-backed tokens/coins (ABCs), and noncompliant securities/equity/debt instruments (NECDs). Utility tokens do not offer any ownership stake in an enterprise or other financial return but instead provide access to products or services available within the platform associated with them. Asset-backed coins typically represent ownership interests in underlying assets such as real estate properties or commodities like oil & gas reserves while NECDs offer investors returns contingent upon future events outside the control of any party involved in the transaction which makes them more akin to traditional debt instruments than cryptocurrencies per se .
It’s important to remember that all ICOs must comply with relevant regulations set forth by governing bodies at different levels including local governments , industry associations , national regulators , etc.. As such it is always advisable to seek appropriate legal advice before investing in any type of token offering since failure to do so could result in serious fines and even jail time depending on where you live .