Cryptocurrency derivatives trading is a new trading area that many daytime traders are interested in. Several people hold some experience and knowledge of how to define token and security and should we tokenize or securitize or both. This article will give you a brief introduction of this, and help you receive a deeper understanding of this knowledge.
Define Token and Security
A token is a digital representation of value on a specifically allocated ledger. Tokens can play a role as voting rights, ownership shares, bonds, and much more. For example, ERC 20 smart contracts on the Ethereum Blockchain and NEP5 smart contracts on the NEO blockchain are currently standing to used to pay out business dividends and vote on managerial judgments. On the other hand, the description of security varies from jurisdiction to jurisdiction. In some country, a financial product is authorized classified as security if the four following criteria are matched:
¨ Investment of value
¨ With an expectation of profit
¨ In a common enterprise
¨ With the profit to be generated by a third party
In the US, these criteria developed from the 1946 Supreme Court case between a Florida citrus grower identified as Howey and the Securities Exchange Commission. In reply, US cryptocurrency issuers are applying for Reg D. and Reg S. exemptions from security law. They are also searching for how Airdrops can encompass security law.
However, Europe does not have any theory of the Howey test. This is because the US has a common law where court cases set examples for future recommendations. In the opposition, continent Europe has civil law, which is a principle-based way to law, which is suitable for mass trading.”
Should We Tokenize or Securitize or Both?
Tokenization of assets existed before cryptocurrencies were produced. They are called certificates. However, certificates cost money to set up and maintain. Unlike issuing an ERC token on Ethereum, certificate issuers must have a business formation that can legally issue structured products, and often certificates are restricted to qualified investors, a qualified investor need
to match one of the following criteria :
¨ Supervised financial intermediaries (such as banks, securities dealers and investment fund managers)
¨ Supervised insurance business group
¨ Public law institutions and pension funds with professional investment operations
¨ Business enterprises with professional investment operations
¨ Investors who have a written asset management agreement with a supervised bank, securities dealer or investment fund manager
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