US SEC & Singapore MAS Announcement on Blockchain based Initial Coin Offerings

After US SEC made an announcement about how it would treat Blockchain ICO, Singapore's Monetary Authority of Singapore followed up with a similarly sounding announcement.

Both the announcements basically made the same point, issuance of tokens that inherit the behaviour of securities would be treated as securities in the eyes of the regulator. In spite of being called anything else once the asset under question has a claim on dividend or the interests on a company shares / bonds, it is seen as a Securities.

Once being classified as Securities, then issuance of tokens is required by law to comply with a certain set of procedure.

The procedure like registration of a prospectus before issuing the token.

It is then crucial to understand what is Securities. I have created the following picture to allow people to understand what are Securities so that they can adapt their own actions in preparation of their own ICO.

If your token represents anything that is coloured red in the attached chart, then without doubt, your token is Securities and the law would come down on you very very hard. I am having mixed feelings about retained earnings. It is a balance sheet item, and if a token represents the "retained earnings" I think for the moment you all err on the side of safety and assume that retained earnings is red as well.

Those areas coloured red, especially "Share Capital" includes abilities to vote for appointment of officers, decisions to make like investing in another company. Tokens that have voting mechanism may be treated as having the behaviour of "Share Capital".

Anything that concerns prepayments for the main purpose of generation of revenue, is coloured as blue. Granting that prepayments for the time being may reside in current liabilities, we cannot see it as behaving like debentures or bonds as prepayments often contain terms that it is not repayable if services is not redeemed or rendered.

A customer who prepays you does not have the inherent rights to vote for how your business is done. The business may through goodwill (and not because of legal obligation) listen to the person who prepays money but he is not obliged to do as he instructs. However, as most DAO is being structured, the DAO is obliged by the design of its smart contract to do as instructed / willed by the token owner - thus in the process may make the DAO not compliant to US SEC or MAS regulation.

Few of the notable examples here are illustrated for better understanding of whether existing tokens / coins are compliant to US SEC / Singapore MAS requirements. In any case, this is my own evaluation basing on prima facie observations (on where they land on the chart attached). I have not done a deep analysis of the specific coin design to conclude definitively. In any case, only the Court of Law can conclude definitively, not any lawyer or financial professional. Not even MAS / SEC.

So this list is provided on the best effort basis (by matching features to the attached chart) and you are advised to seek professional advice from lawyers / MAS / SEC to confirm.

Comply (i.e. Not securities)

Bitcoin
Ethereum (seems to have voting features, but no dividend)
Litecoin
Status
Monetha (transaction fee 0.5% to coin owner, borderline)
Waves (fuel for token creation, and fuel for transaction)

Does not comply (i.e. Securities behaviour)

Reidao
Starta

I have also received more calls on how to structure an ICO. You may get this free tip that I post on facebook. Any further, I expect a fee based arrangement. You may also join our online Telegram group to participate in the discussion.

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