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2018 – the Year of the Security Token
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Accredited Investor Declaration
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By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents the PEC tokens, as described in The Elephant's White Paper have not been registered under any securities laws in any jurisdiction (together with the Act, the “Securities Laws”), but rather are being and will be allocated by The Elephant pursuant to exemptions from registration under the Securities Laws.

Accordingly, the undersigned gives the following representations and warranties:

• It has the knowledge and experience in financial and business matters required to receive and use the PECs and/or services to be made available by THE ELEPHANT, as described in the White Paper, as amended from time to time, and as such it is capable of evaluating the merits and risks involved with them.

• The purpose of this declaration is to enable THE ELEPHANT and its affiliates to discharge its responsibilities under such exemptions and that THE ELEPHANT will rely upon the information contained herein, and therefore, the representations herein are complete, accurate and binding, and may be relied upon by THE ELEPHANT and its affiliates.

• Although THE ELEPHANT will use their best efforts to keep this letter strictly confidential, they may present this declaration and any other information which the undersigned has provided to them to such parties as they deem advisable if called upon to establish the availability under the Securities Laws of an exemption from registration of the offer and sale of the PEC or any other service to be made available by THE ELEPHANT, as described in the White Paper, as amended from time to time, or if the contents thereof are relevant to any issue in any action, suit or proceeding to which THE ELEPHANT or its affiliates is a party or by which they or it are or may be bound.

• Any offer or services that may be made available to the undersigned by THE ELEPHANT or its affiliates (i) will not constitute a violation of any laws or regulations, including the Securities Laws and investment advice laws, of any applicable jurisdiction; (ii) will be permissible under all applicable Securities Laws and shall not trigger any licensing, registration, or other requirements.

• It shall not transmit or otherwise send any information to which THE ELEPHANT will give it access to, to any person in any jurisdiction in which the distribution of such information and/or the offering or services to be offered by PEC are not authorized, or to whom such offer or invitation may be unlawful.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is a “sophisticated investor” or a “professional investor” and a “wholesale client” (and not a “retail client”) as defined under the Corporations Act (Cth) 2001

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that:

1. Any fiat currency used by the undersigned in connection with the offering and services to be made available by The Elephant, as described in its White Paper and associated commercial terms, as changed from time to time, is legally owned by the undersigned and not raised from any other parties.

2. In respect of the transaction made in connection with these offering and services, it has not obtained any access to the relevant transaction information in a press release, conference, advertisement, announcement, professional or trade publication or marketing materials within the People’s Republic of China.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it has made appropriate enquiries and has full knowledge of the nature, rights and obligations arising out of the offering or the services made available by The Elephant, as described in its White Paper and associated commercial terms, as changed from time to time, and obligations applicable to it under the laws of the Arab Republic of Egypt, and will not make any offerings, disposals, investments or otherwise transact with regard to offering or the services made available by The Elephant in case such offering, disposal, investment or other transaction is in contravention to the laws, regulations, governmental circulars and decrees of the Arab Republic of Egypt.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is located or resident in the European Economic Area (the “EEA”), it is a “qualified investor” within the meaning of the law in any member state of the EEA which has implemented the Directive 2003/71/EC, and amendments thereto, including Directive 2010/73/EC (the “Prospectus Directive”), implementing Article 2(1)(e)(i), (ii) or (iii) of the Prospectus Directive.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is a “qualified investor” within the meaning of Directive 2003/71/EC, as amended, and it professionally or commercially purchases or sells securities or investment products (Vermögensanlagen) within the meaning of the German Investment Product Act (Vermögensanlagengesetz) for its own account or for the account of others.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is a “qualified investor” as such term is defined in the Prospectuses Act 2005 of Gibraltar (as amended) and in Directive 2003/71/EC. It is a “professional client” as such term is defined in the Financial Services (Markets in Financial Instruments) Act 2006 of Gibraltar; and that it has not requested “non-professional treatment” within the meaning of Schedule 2 of the Financial Services (Markets in Financial Instruments) Act 2006 of Gibraltar.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is a professional investor (as such term is defined in Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)).

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE WILL BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is:

1. An Investor to which at least one of the categories set forth in the First Addendum to the Israeli Securities Law, 1968 (the "Securities Law") and as listed below apply (a "Sophisticated Investor"); and

2. aware of the implications of being a Sophisticated Investor, and agree thereto.

The categories are:

1. A Joint Investment Trust Fund, as such term is defined in the Joint Investments Trust Law, 1994, or a management company of such a fund;

2. A Provident Fund or a Management Company as such terms are defined in the Control of Financial Services Law (Provident Funds), 2005;

3. An Insurer, as defined in the Insurance Supervision Law, 1981;

4. A Banking Corporation or an Auxiliary Corporation, as such terms are defined in the Banking (Licensing) Law, 1981, other than a joint services company, acquiring for their own account or for the account of clients which are investors who fall within the categories listed in Section 15A(b) of the Securities Law;

5. A Portfolio Manager, as such term is defined in Section 8(b) of the Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 1995 (the "Investment Advice Law"), acquiring for its own account or for the account of clients which are investors who fall within the categories listed in Section 15A(b) of the Securities Law;

6. An Investment Adviser or an Investment Marketer, as such terms are defined in Section 7(c) of the Investment Advice Law, acquiring for its own account;

7. A member of the Tel Aviv Stock Exchange acquiring for its own account or for the accounts of clients which are investors who fall within the categories listed in Section 15A(b) of the Securities Law;

8. An Underwriter, as such term is defined in section 1 of the Securities Law, that meets the qualifying conditions according to Section 56(c) of the Securities Law, acquiring for its own account;

9. A Venture Capital Fund; for this purpose, a “Venture Capital Fund” means a body corporate the main activity of which is investment in bodies corporate whose main activity, at the time of the investment, is research and development or the production of innovative and knowhow intensive products or processes, investment in which involves greater risk than what is customary in other investments;

10. A body corporate wholly owned by investors that fall within the categories listed in section 15A(b) of the Securities Law;

11. A body corporate, other than a body corporate incorporated for the acquisition of securities from a certain offer, with an equity capital in excess of NIS 50 million;

12. An individual, investing for his or her own account:

a. The total value of his or her Liquid Assets exceeds NIS 8 million;

b. His or her annual income in each of the previous two years exceeds NIS 1.2 million, or 1.8 million for a Family Unit; or

c. The total value of his/her Liquid Assets exceeds NIS 5 million and his/her annual income in each of the previous two years exceeds NIS 600,000 for an individual, or NIS 900,000 for a Family Unit.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is a “wholesale investor” as that term is defined in clauses 3(2)(a), (c) or (d) of Schedule 1 to the Financial Markets Conduct Act 2013 of New Zealand (“FMC Act”), being a person who is

☐ an “investment business”;

☐ “large”; or

☐ a “government agency”,

in each case as defined in Schedule 1 to the FMC Act.

2. The undersigned understands the consequences of certifying itself to be a wholesale investor.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is an “institutional investor” as defined under the Decree-Law 1 of 1999 and Accord 1 of 2001, both as amended, in relation to whom the registration of the securities to be offered and sold is not required. Pursuant to the foregoing, the undersigned (i) is a legal entity, validly formed and in existence, (ii) has participated, on a regular basis, in at least the previous two years, in the administration of investments substantially similar to those described in The Elephant White Paper, (iii) has a net worth of at least one million dollars, (iv) has key executives or, a majority of its directors and officers, that have at least two years of experience in the regular administration of investments and (v) does not require the protection of the provisions set forth in the securities laws of the Republic of Panama.

The undersigned acknowledges that the securities have not been registered under the Panamanian securities laws and regulations and may not be offered or sold within Panama except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Panamanian securities laws and regulations.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is a “qualified investor” within the meaning of the Federal Law of the Russian Federation “On Securities Market” No. 39-FZ dated April 22, 1996, as amended, (ii) the execution and performance of the offering and services to be made available by The Elephant, as described in its White Paper and associated commercial terms, as changed from time to time, do not violate applicable laws of the Russian Federation and (iii) in making any payments in connection with offering and services, it has complied or will comply with the requirements of all applicable laws of the Russian Federation, including with respect to foreign currency transactions. The undersigned acknowledges that the The Elephant is relying in part upon the truth and accuracy of, and the undersigned's compliance with, the representations, warranties, agreements, acknowledgements and understandings of the undersigned set forth herein in order to determine its eligibility to gain access to as PrivatEquity's offering and services, as described in its White Paper and associated commercial terms, as changed from time to time and the undersigned is aware of the legal consequences of the foregoing.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE WILL BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is either an “institutional investor” as defined under Section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”) or a “relevant person” as defined under Section 275(2) of the SFA (including an “accredited investor” as defined under Section 4A(1) of the SFA).

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is an “investment professional” within the meaning of Article 11(1) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act of South Korea.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is a “qualified investor” within the meaning of the Swiss Collective Investment Schemes Act of June 23, 2006, as amended, its implementing ordinance and regulatory guidance.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is located or resident in the United Kingdom, it is a person of a kind described in Articles 19 and/or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), or that the offering or the services made available by The Elephant, as described in its White Paper and associated commercial terms, as changed from time to time, may otherwise be lawfully distributed to it pursuant another applicable exemption under the Order.

The undersigned acknowledges that these offering and services are only directed at (i) persons who have professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Order, (ii) high net worth entities (including companies and unincorporated associations of high net worth and trusts of high value) or other persons falling within Article 49(2)(a) to (d) of the Order, and (iii) persons to whom such offering and services may otherwise be lawfully distributed.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents that it is an “accredited investor” (an “Accredited Investor”) as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended, for one or more of the reasons specified below:

 Where the undersigned is a natural person:

 He or she has an individual net worth, or joint net worth with my spouse (determined by (i) subtracting total liabilities from total assets, and (ii) excluding the value of my primary residence), in excess of $1,000,000; and/or

 He or she had an individual income in excess of $200,000 (or a joint income together with my spouse in excess of $300,000) in each of the two most recently completed calendar years, and reasonably expects to have an individual income in excess of $200,000 (or a joint income together with my spouse in excess of $300,000) in the current calendar year.

 Where the undersigned is or acting on behalf of:

 a corporation, partnership, limited liability company or similar business trust or organization described in Section 501(c)(3) of the Internal Revenue Code not formed for the specific purpose of acquiring the Tokens that has total assets in excess of $5,000,000;

 a bank as defined in Section 3(a)(2) of the Securities Act, a savings and loan association, or other institution defined in Section 3(a)(5)(A) of the Securities Act acting in either its individual or fiduciary capacity (this includes a trust for which a bank acts as trustee and exercises investment discretion with respect to the trust’s decision to invest in the Token);

 a broker dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended;

 an insurance company as defined in Section 2(13) of the Securities Act;

 an investment company registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), or a business development company as defined in Section 2(a)(48) of the Investment Company Act;

 a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958, as amended;

 a plan established and maintained by a state, its political subdivisions, or an agency or instrumentality of a state or its political subdivisions, for the benefit of employees, having total assets in excess of $5,000,000;

 an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), (a) for which the investment decision to acquire the Tokens is being made by a plan fiduciary, as defined in Section 3(21) of ERISA, that is either a bank, savings and loan association, insurance company, or registered investment adviser, (b) which has total assets in excess of $5,000,000, or (c) which is self-directed, with the investment decisions made solely by persons who are Accredited Investors;

 a private business development company defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended;

 a trust not formed for the specific purpose of acquiring the Tokens with total assets in excess of $5,000,000 and directed by a person who has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of investing in the Tokens;

 a revocable trust (including a revocable trust formed for the specific purpose of acquiring the Tokens) and the grantor or settlor of such trust is an Accredited Investor; and/or

 an entity in which each equity owner is an Accredited Investor.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents the PEC tokens, as described in The Elephant's White Paper have not been registered under any securities laws in any jurisdiction (together with the Act, the “Securities Laws”), but rather are being and will be allocated by The Elephant pursuant to exemptions from registration under the Securities Laws.

Accordingly, the undersigned gives the following representations and warranties:

• It has the knowledge and experience in financial and business matters required to receive and use the PECs and/or services to be made available by THE ELEPHANT, as described in the White Paper, as amended from time to time, and as such it is capable of evaluating the merits and risks involved with them.

• The purpose of this declaration is to enable THE ELEPHANT and its affiliates to discharge its responsibilities under such exemptions and that THE ELEPHANT will rely upon the information contained herein, and therefore, the representations herein are complete, accurate and binding, and may be relied upon by THE ELEPHANT and its affiliates.

• Although THE ELEPHANT will use their best efforts to keep this letter strictly confidential, they may present this declaration and any other information which the undersigned has provided to them to such parties as they deem advisable if called upon to establish the availability under the Securities Laws of an exemption from registration of the offer and sale of the PEC or any other service to be made available by THE ELEPHANT, as described in the White Paper, as amended from time to time, or if the contents thereof are relevant to any issue in any action, suit or proceeding to which THE ELEPHANT or its affiliates is a party or by which they or it are or may be bound.

• Any offer or services that may be made available to the undersigned by THE ELEPHANT or its affiliates (i) will not constitute a violation of any laws or regulations, including the Securities Laws and investment advice laws, of any applicable jurisdiction; (ii) will be permissible under all applicable Securities Laws and shall not trigger any licensing, registration, or other requirements.

• It shall not transmit or otherwise send any information to which THE ELEPHANT will give it access to, to any person in any jurisdiction in which the distribution of such information and/or the offering or services to be offered by PEC are not authorized, or to whom such offer or invitation may be unlawful.

PLEASE NOTE EXTERNAL CONFIRMATION AND/OR EVIDENCE MAY BE REQUIRED BEFORE THE ACCREDITAION PROCESS IS COMPLETED

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By filling in this form and selecting the 'I confirm' button below, the undersigned hereby confirms and represents the information above does not qualify as a recommendation or an opinion with regard to conducting any transaction or investment. Each investor should conduct his or her own checks and verifications, while taking into account his or her specific circumstances and requirements. All the relevant aspects of the purchase, including the legal, economic and tax aspects, should be carefully examined with the assistance of professionals and consultants on the investor’s behalf.

The information above or on the site and the blog does not qualify as an offer of investment and is meant for general information only. Offers for selling of the securities will be delivered only to ‘Accredited Investors‘ as defined in the first supplement of the Israeli Securities Law, 5728-1968. The Elephant, shall not be responsible or liable and shall not guarantee in any way the return of the investments to investors, including any profits earned as a result of such investments. The engagement with the investors shall be in accordance with the transaction documents and the conditions stipulated therein, subject to the negotiations that will be held with the investors.

The Elephant charges fees from sellers and buyers of securities, and therefore The Elephant has an interest in the information posted about various companies.

The information published on the Site, does not constitutes an investment consulting as defined in the Regulation of Investment Consulting, Investment Marketing and Portfolio Management, 1995, and the said information is not a substitute for professional consulting which among others takes into consideration the special needs of every person.

For those who are considering making an investment (including sale and purchase of securities) via the website, can apply different laws deriving from their residence or citizenship, including tax laws, laws relating to the statement or report on investment activity, laws relating to the eligibility of investing, regulatory issues in process and so on. Therefore, those who are considering making such an investment, undertake to examine the applicability of any applicable laws, as they are committed to take all necessary action in order not to violate the said laws, including to disclose fully and fairly in relation to any investment to any local lawfully authority, as the law requires such disclosure.

We welcome you to The Elephant Investors Community, your gateway to the Secondary Market.

Note:
The provision of information in this website is not based on your individual circumstances and should not be relied upon as an assessment of suitability for you of a particular product, service, or transaction. It does not constitute investment advice, tax advice or legal advice and The Elephant Platform makes no recommendation as to the suitability of any of the products, services or transactions mentioned herein. The information included in this website is intended to “Accredited Investors” only, as this term is defined in the jurisdiction in which they reside (or such similar term in such jurisdictions financial regulations). Non-Accredited investors may not partake in any products, services or transactions mentioned herein or offered by The Elephant.


* Please note that the purchase of the shares of any Target Company may be subjected to right of first refusal of other shareholders, in some cases also to approval of the Target Company’s board of directors or other transfer restrictions as may be applicable.

2018 – the Year of the Security Token
Sign up as a private stock seller
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Note:
For those who are considering making an investment (including sale and purchase of securities) via the website, can apply different laws deriving from their residence or citizenship, including tax laws, laws relating to the statement or report on investment activity, laws relating to the eligibility of investing, and so on. Therefore, those who are considering making such an investment, undertake to examine the applicability of any applicable laws, as they are committed to take all necessary action in order not to violate the saids laws, including to disclose fully and fairly in relation to any investment to any local lawfully authority, as the law requires such disclosure.

2018 – the Year of the Security Token

As Initial Coin Offerings (ICOs) take the world of finance and investment by storm, there are now over 1,500 different digital tokens available. These range from cryptocurrency Bitcoin, to IOTA, a token that aims to facilitate transactions between devices on the Internet of Things (IoT), to PizzaCoin, a token dedicated to ordering pizza. As this market continues to grow, it is worth taking a look at the various types of tokens.

According to a report from Fabric Ventures and TokenData, ICOs raised over $5.6 billion in 2017. This compares to $1 billion of ‘traditional’ venture investing in blockchain startups in the same time frame. In 2016 $240 million was raised in ICOs.

USD_Raised_by_ICOs_in_2017

Security Tokens vs Utility Tokens

Tokens are generally broken down into either utility tokens or security tokens. Utility tokens, often called app coins or user tokens, represent access to a company’s product or service. One example comes from camera company Kodak’s KODAKCoin blockchain, which aims to let photographers license and sell their photographs online. Some have described utility tokens as comparable to API keys, used to access a service.

The other main type of token is security tokens, which enable purchasers to own an asset (such as coins redeemable for precious metals or tokens backed by real estate) without taking possession of the asset. Security tokens represent assets with real value, such as physical goods, credit, futures, and more. One of the main applications of security tokens is that they grant companies the ability to issue tokens that represent shares of company stock.

In the United States, securities are subject to SEC securities regulations. As described by Marco Santori, President & Chief Legal Officer at Blockchain, an arrangement is a security if it involves “an investment of money…and a common enterprise…with the expectation of profit, primarily from the efforts of others.” On the other hand, utility tokens are not designed as investments, and as a result are generally exempted from regulation and security laws. The large majority of tokens to date are utility tokens, but many utility coins are currently in a gray area where regulators may consider them to be securities due to their perception as investment opportunities, even if that is not their official intended function. One result of this situation is that many projects have simply avoided offering participation to US investors.

Security_token_vs_utility

Security tokens aim to improve traditional financial products by removing the middleman from investment transactions, allowing users to more directly buy and sell assets. This can lead to lower transaction fees, faster transfers, decentralization, and more access for everyday individuals to invest rather than just financial institutions. Because security tokens are subject to federal securities regulations, they are legally compliant from the beginning.

While most tokens currently available are utility tokens, many leading experts believe that this may shift soon, as the market develops and Wall Street invests in security coins. Until recently, many blockchain startups have focused on utility tokens in order to avoid dealing with SEC rules and regulations. There is no regulation of utility tokens, making this a much more attractive strategy for companies thus far. Companies launching utility tokens can avoid costs involved with regulatory compliance and can pursue non-accredited investors. In addition, cryptocurrency exchanges have thus far disallowed security tokens from being traded on their platforms in order to avoid getting bogged down in legal complications and regulations themselves.

Thus far in 2018 the value of cryptocurrencies has nosedived, dropping from a total market cap for all cryptocurrencies of $815 billion in early January down to a total market cap of $330 billion in March 2018. Amidst uncertainty in the field, the number and value of ICOs has also receded. According to Globes, there were 175 ICOs in January 2018, and 197 in February, but March 2018 has only expected 180 ICOs. The sum of money raised in ICOs in March is expected to be the lowest since August 2017. The drop in ICOs may be attributed both to market conditions as well as companies watching out for the SEC.

Security Token ICOs

An increasing number of companies have worked on ICOs involving security tokens:

  • Causam eXchange, a Causam Enterprises, Inc. company, is using blockchain-based software to try to change how power is bought and sold. The company calls itself “Visa for the electric grid”, linking energy consumers and providers. The company’s ICO does not sell a token, but rather actual stock in the company based in smart contracts on ethereum.
  • Kairos is using AI-based facial recognition biometrics and blockchain technology to secure people’s identities. The company’s planned ICO will include both utility tokens and security tokens, and according to the company’s whitepaper ICO holders of their security token are projected to own 40.4% of the company’s shares.
  • SPiCE VC is a tokenized venture capital fund. The company issues regulatory-compliant securities tokens. The tokenized nature of the fund lets investors enjoy liquidity that allows them to trade their tokens without waiting for an exit or specific event. According to the company, their tokens will be tradable, and will entitle holders to 100% of net exit revenues. Investors can use bitcoin, ether, or fiat currencies (USD and Euro) to buy tradable tokens that represent venture capital equity.
  • PrivatEquity.biz is introducing a security token that will be backed by shares in promising private companies and unicorn startups such as Palantir, Gett, BlaBlaCar, and DocuSign. The platform will allow pre-IPO companies’ shareholders to sell shares before a company exit, and let investors buy these shares through a dedicated limited partnership represented by digital tokens.
  • Bnk To The Future operates an online investment platform that allows qualifying investors to invest in financial technology companies, funds, and other new alternative financial products. Essentially, Bnk To The Future is trying to create a competitor platform to the Nasdaq Private Market, but with a primary focus on blockchain technology and using tokenized securities.
  • LAToken is a blockchain platform for creating and trading asset tokens. It allows cryptoholders to diversify their portfolio by getting access to tokens linked to the price of real assets. LAToken enables asset owners to unlock the value of assets by creating and selling their asset tokens. As a result, cryptocurrencies will be widely used in the real economy. According to the company, tokens linked to the price of shares (e.g. Apple, Amazon, Tesla), commodities (oil, gold, silver) and real estate ETF are already traded on the LAT platform.
  • The Praetorian Group, referred to as a “Cryptocurrency Real Estate Investment Vehicle,” (CREIV) filedwith the US Securities and Exchange Commission (SEC) in March 2018 to register their $75 million ICO as a security offering. If the SEC accepts their registration, the Praetorian Group will hold the first ever SEC-registered ICO. The company aims to purchase 5 to 7 real estate properties in the New York area per month. Investors will be able to trade the company’s PAX tokens on cryptocurrency exchanges.

Other ICOs listed with a real-estate component include:

  • BitRent, a way to speed up financing construction projects by selling tokens that represent real estate.
  • Etherty, real-estate management through equity access. The company lets users buy and sell property through smart contracts and tokenization of real estate.
  • Caviar, a fund that tempers the volatility of crypto investments with loans to real estate projects.
  • Trust, a way to tokenize equity in real estate and other real-world assets.
  • Brickblock, which lets users buy and trade tokenized real estate assets, ETFs, and coin funds.

An Evolving Space

As a result of the lack of platforms to trade security tokens, one of the main obstacles preventing security tokens from picking up steam has been a lack of places to trade them. However, this situation is evolving quickly. Several new platforms are being launched in 2018 that will help security tokens launch with full regulatory compliance, including KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance. In addition, several security token exchange platforms are launching in 2018. Templum claims to have executed the first security token trade in a fully compliant platform, and Overstock.com also says it is building an SEC-compliant digital assets exchange through its subsidiary tZero. Another company, Polymath, simplifies the legal process of creating and selling security tokens by creating a new token standard, the ST20, and enforcing government compliance. In order to launch a legally compliant token, the Polymath platform brings together issuers, legal delegates, smart contract developers, KYC verification, and a decentralized exchange. All transactions on the Polymath platform take place using the native POLY token. According to Polymath CEO Trevor Koverko, in 2018 Corl Financial Technologies, Inc. (Corl), Ethereum Capital, and SeriesX, plan to each have securities tokens generated on the Polymath platform.

In February 2018, Goldman-backed Circle acquired US cryptocurrency exchange Poloniex. In a statement, the company said they envisioned developing the exchange into a place for more than just crypto assets, but rather “a robust multi-sided distributed marketplace that can host tokens which represent everything of value: physical goods, fundraising and equity, real estate, creative productions such as works of art, music and literature, service leases and time-based rentals, credit, futures, and more”.

Issuing a compliant security token can reduce legal risk and provide protection for both the company and the contributors — especially since the SEC has increased their enforcement initiatives. The SEC has begun declaring many tokens issued in ICOs to be securities, even if they are not announced as such by those creating the tokens.

In July 2017, the SEC issued a report after investigating tokens offered and sold by a group running a crypto VC fund called the Decentralized Autonomous Organization (the DAO). The SEC found that the DAO’s tokens were securities and subject to federal securities laws, and that the tokens in such ICOs would need to be registered with the SEC unless a valid exemption applies to the offer and sale of the tokens. In December 2017, the SEC issued another enforcement action after investigating another token offering that claimed not to be a security but emphasized in its advertising that investors could expect their tokens to increase in value and be eventually resold. The SEC ruled that these tokens were also securities. The SEC’s cracking down on ICOs and enforcing securities regulations has led to some ICOs avoiding the United States but is causing others to attempt to comply with securities laws and benefit from being in line with federal regulations.

New Ways to Invest

By using blockchain tokens to make entire asset classes liquid and tradable, traditional investors such as hedge funds may be enticed to enter the world of crypto. Typical VCs will realize the advantages of not being locked into their investments for up to a decade before realizing any profit. At the same time, smaller qualified investors and individuals or crypto investors will enjoy being able to invest in a variety of asset classes typically accessible only to large investors (such as real estate, equity, and artwork), increasing their ROI and diversifying their portfolios. People who got into investing through the world of crypto will prefer tokenized equities over different investing methods involving fiat currency or even actually buying properties.

Scott Hoch, an analyst at Apex Token Fund explained, “A new level of liquidity is created when tokenizing traditional assets. This liquidity makes it faster and easier to rebalance a portfolio as the market changes.”

Many changes are afoot in the world of cryptocurrency. In January 2018 The United States stepped up its efforts to crack down on initial coin offerings (ICOs) by freezing the assets of AriseCoin, which raised over $600 million in an ICO. This represents the first time that the US government has seized the assets of an ICO it believes to be fraudulent. Facebook, Google, and Twitter have all recently banned cryptocurrency ads. The IRS has ruled that bitcoin and other cryptocurrencies are viewed as property, and not currency, for tax purposes. Leading stock investing app Robinhood has announced the addition of cryptocurrency trading to their app, which is used by four million investors with an average age of 28 to invest in the stock market. The increase in regulation, crackdown on ads and fraud, and additions of new ways to access and trade cryptocurrencies are all signs of a new phase in cryptocurrency.

Thus far, the fledgling cryptocurrency market has mostly avoided regulation and dwelt in gray areas regarding taxation, compliance, and other legal matters. As the space evolves and matures, it is becoming less of a niche alternative for outsiders. Institutional investors are expected to become increasingly involved, governments are making decisions about how to treat tokens, and financial institutions are beginning to adapt. The increase in platforms and companies related to security tokens is one sure sign that this market is on the rise, and 2018 may be the turning point.

 

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