The age of tokenized ecosystems has begun, the shift from centralized to decentralized blockchain-based creations and the transfer of assets is ongoing. Our current world is full of different asset classes ranging from money (in a narrow sense) to gold, real estate, securities, intellectual property ("IP") etc., many of which are difficult to physically trade or subdivide. Distributed ledger technology, or more specifically blockchain technology, is increasingly providing solutions to this problem.
Blockchain technology can design digital information units that contain elements of a property right (according to civil law concepts) to which an owner has direct and exclusive access that can be defended against third parties (right in rem). It contains the tools to program a unique set of information that attributes a property right and enables a secure and registered public transfer of the new type of digitally defined property: Blockchain Crypto Property (“BCP”).
In addition, the introduction of Smart Contract Systems (“SCS”) at the application level of the blockchain has added immutable functions and property terms to BCPs, enabling not only the execution of bilateral and multilateral programs in accordance with contractual terms and conditions, but also the ability to create co-ownership like organizations. A BCP is therefore defined as a digital property that can be registered on the blockchain, in addition, it may carry out coded functions governed by an SCS, following coded or manual input by an agreed party (called an “Oracle”).
In order to consistently assess the legal and tax implications, associated risks and investment suitability of BCPs in the tokenized ecosystem, a reliable classification model and risk assessment criteria are indispensable. By applying an assessment method based on functionality, rather than on a particular country’s legal concepts, the classification and risk assessments can be considered in all jurisdictions, regardless of national legal and regulatory frameworks. Though the BCP classification may ultimately lead to different regulatory treatments in each jurisdiction, it may facilitate the multijurisdictional understanding of existing and new applications in the tokenized ecosystem, as well as identify coins which may not have the essential characteristics of digital property (i.e. not a BCP). The objective of the risk assessment and resulting BCP rating is to increase awareness and serve as a basis for establishing governance and diligence standards for all aspects of creating, offering, transferring and holding tokens.
Switzerland, which is known for their superb banking system and strict regulations, was one of the first in the world that started explicitly to exercise control on ICO/STO issuance and crypto fundraising.
The Financial Market Supervisory Authority (FINMA), responsible for the supervision of Swiss-registered STOs and ICOs, published a set of guidelines that every issuer must observe in order to be legally compliant. (Follow link for FINMA guidelines)
The categorization of tokens is made into three distinctive categories: payment tokens (cryptocurrencies), asset tokens (security tokens) and utility tokens. The asset tokens regulations were introduced in order to provide reliable and trustworthy investment information and to minimize the potential risk for buyers.
Security token offerings are obliged to meet FINMA criteria and are characterized as tokens that are issued in vast quantities of equal value. Under the Code of Obligations (CO), keeping a record book of all transferred tokens and their shareholders is fundamental. Thanks to the blockchain technology keeping a record of the aforementioned token holders and transactions allows fast and secure execution of transactions.
In addition, asset tokens mimic the traditional financial instruments. Hence, the obligation of publishing a Prospectus in accordance with the rules of Swiss Code of Obligations is also needed.
One of the critical elements of FINMA`s regulations is the adherence to the anti-money laundering policy and the code of conduct for the STO/ICO projects. All introduced and implemented by the issuer mechanisms for fraud protection are being evaluated and assessed.
The draconian policies for controlling all crypto-related project has ranked Switzerland as one of the “big three” countries regulating the market, along with Malta and Gibraltar. Switzerland is also the birthplace of the Ethereum Foundation (Stiftung Ethereum), indicating the strong presence of Switzerland in the world of crypto.
EDSX.ch is fully compliant with FINMA`s regulations and exercises business practices that are in accordance with the Swiss laws. The Prospectuses when mandatory are published in accordance with the obligations of issuing public securities. All anti-money laundering requirements are kept to the highest standard.
From Jan 2020 Swiss regulation on Prospectuses is harmonized with EEA Regulations and Directives on Financial Instruments and Prospectuses, with slight differences on SME thresholds for prospectus-free issuance to facilitate start-up capital raising.