STO: What do you do to avoid “security” label

 · 2 mins read

After you hear all the fuzz about security tokens and read our part 1 and 2 articles, you night ask: are most of the tokens illegal now? That’s not quite right. In order for ICO to be illegal in the United States, it would be necessary to declare tokens de facto as a security. Once this is done, an attempt to sell securities without observing SEC procedures can be considered a violation. However, today the situation is much more complicated and cunning.

Due to the strengthened verification, a number of ICOs were extremely cautious with the formulations. For example, some abstained from using the term "ICO" in general. Instead, they use more ambiguous phrases, such as "crowdsale" or "token generation event". They also refused to mention their tokens as a currency and instead used other terms.

Some strictly prohibit the discussion of prices on the stock exchange or speculation on the official sites of projects. When the chat participants asked why they were not allowed to discuss prices, the moderator of one project replied that there was a warning from the SEC.

In fact, it turns out that industry leaders seriously discuss at conferences and meetings devoted to legislation that if you want to run a project without the risk of getting into jail, you should immediately exclude America completely from your distribution plan. It is also said that even those who want to do everything under the letter of the law and launch their project legally, are faced with the regulator's unwillingness to provide detailed procedures. The regulator at this stage itself is in a kind of transition period and tries to think through these procedures, conducts discussions with colleagues, but unequivocal solutions are not yet available and all projects are thus in the gray zone.

That’s why lots of ICO teams are forced to plan the launch of the utility tokens, despite the fact that it imposes certain restrictions. These startups insist that their tokens are not designed to generate additional benefits, but are the key to a unique product, something like a software license, not a security. Others say that their users contribute to the development of the ecosystem and consider this activity a charity that allows the launch of a non-profit organization.

Others have to allocate huge budgets for lawyers and taxes, and also face a number of unsolved difficulties, if the security token is planned. Some even refuse to hold a public token offering and prefer to work with large investors and venture funds to avoid misunderstanding with the SEC.

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Previous articles: STO: Falling dominoes of restrictions, STO: What does security token mean