Editor’s note: This article from the chain catcher, author: Sun Jiangtao, the daily planet unauthorized release.
To create a legal compliance STO project to go what process? STO in the early stage of strategic planning and preparation, the legal and financial compliance we need to pay attention to what?
The share of Digital China (08255.HK), Goopal Group CEO, founder of Qian Daibao launched a third article by Sun Jiangtao STO series, the first Shenzhou digital (ID:shenzhoushuzi_group), the release of deletions.
Since this year, all under the banner name of STO projects more and more, but more is known as the STO pseudo STO project. So, what is a qualified STO project, it should be a complete business loop is what it looks like, and how to build a legal compliance STO project?
In my opinion, the STO itself contains the asset securitization securitization + securities through both properties, have both properties is a necessary condition for the STO project; at the same time, the entire project links need to have legal compliance, current law as the basis, this is a sufficient condition of the STO project, 2 conditions are indispensable.
Specifically, the project will be the existing traditional assets, such as assets, debt, equity entities has capital attribute of the subject matter, passes through the chain of block technology, passes on the chain after into securitization passes, with the complete set of securities. At the same time, the project must comply with the relevant laws and regulations, that is to say, even if is the completion of the asset securitization and securitization securities through the project, if you do not comply with the relevant laws and regulations, still can not be called a real STO project.
Not only that, the STO project in the completion of the asset securitization and securities through securitization, and legal compliance, but also need to have liquidity, issuing and trading links, this liquidity can be now has, can also be visible in the future. The law in some countries, the project issued only in the face of investors or institutions qualified, in a certain period of time (one year or half year) need to be locked, you can enter the two level market, in the face of ordinary investors.
For any assets, liquidity is the circulation of value protection, if only to complete the asset securitization and securities through securitization, and no liquidity or not see liquidity, it still could be really qualified STO project. In my opinion, a qualified STO project includes the following aspects: the strategic planning and preparation, the legal and financial compliance, securities Token and ST circulation, a chain link progressive relationship, and eventually formed a complete STO closed loop business.
In this article we mainly talk about early strategic planning and preparation, the legal and financial compliance part two.
The 01 strategic planning and preparation
For any STO project, the strategic planning is the foundation of the project can take place, it contains four factors, namely business development strategy, Token structure design, selection and planning time supervision area. In order to complete the whole stage of strategic planning and preparation, for most projects, the selection of reliable STO service providers should be the best path at this stage; however, with STO related experience can also operate their own projects.
1) business development strategy: business development strategy determines the direction of the project, especially for the securitization of assets subject, both attributes will directly determine the project with STO, and the future market space.
In August this year, the Aspen Coin is the first real estate project in STO. Aspen St. Regis Aspen hotel resort town in the state of Colorado famous, its customers are mainly celebrities, high net worth individuals, corporate executives and some individual, in 2017 the hotel just profitable, but the future of the flow of income is still worrying.
In this case, it will choose to resort assets for STO, the following is the U.S. Securities and Exchange Commission (c) regulations 506 Reg D. Relevant data show that in the 2 month period to raise funds raised $18 million.
“22X Fund” project is derived from the famous American accelerator 500 Startups, which is composed of twenty-second start-up companies in the formation of the stock type fund tokens. According to the strategic plan, 500 2017 Startups entrepreneurship camp graduation enterprise, not more than 30 winners will get 22X Fund investment, the fund will hold each startup 2.5%-10% stake. Chibidaigou 22X Fund issued token by token exchange traded or repurchase mechanism to obtain return.
From the above two cases we can see: the ultimate standard of two STO objects are more pragmatic, and has a certain visibility, two STO projects can be said from the level of strategic business development has been at the forefront, it also determines the market have some imagination, to support future trading depth of course, and activate the liquidity, does not rule out the risk of it.
2) Token structure design: Token structure design depends on the assets of their own property, and will cover the effects of the STO project group, which determines the flow of energy, and the magnitude of future potential investors.
For example, PropertyCoin (property currency), it is managed by the Aperture STO project. Aperture is a California based real estate investment and technology company, is the use of innovative acquisition, renovation and disposal of residential real estate technology.
PropertyCoin through a 100% asset backed currency, leveraging the real estate market, Aperture operators will be the token behind the proceeds into two sections: depression housing prices residents; to other investors in real estate lending. Through the investment, the fund share holders profit 50% tokens.
Another case of Sia, this is a block chain to the center platform based on cloud storage, leasing companies can lease the corresponding service provider from the host. Sia has designed two kinds of Tokens: Siacoin and Siafunds. Leasing companies use Siacoin, use the Siafunds hosting provider, an agreement on the platform. Leasing companies and hosting providers need to pay all the expenses on the platform of 3.9% to Sia, as the network service fee. The service fee of Siafunds cash proportion.
It is worth noting that the Sia platform operators Nebulous 750 as ten thousand Siafunds tokens in accordance with security tokens SEC regulations. This is one of the “two layer” tokens issued as example, issuers of securities issued at the same time, type and function type token token.
It can be seen that the different attributes of the assets in the Token structure is somewhat different, real assets relatively more straightforward. Real estate projects because of the special attributes of assets, will make investors psychological safety, must at the same time, Token after the release of dividends can come from the property value and rental rent, which is why many real estate companies in this seemingly traditional field in reason at this stage but with better and STO.
After the Aspen, earlier this month, also in the United States, New York, Manhattan, a high-grade apartment property was successfully passes in the etheric workshop (tokenized).
The non physical assets, the Token structure can be more complicated than physical assets, which resulted in the popularity of the concept of education and the market may need to spend more effort, but also flexibility and segment degree will be stronger.
3) regulatory jurisdiction choice: the choice of regulatory jurisdiction that project supervision make the choice between penetration in the sandbox and supervision, different jurisdictions will directly affect the project to bear the risk of policy and brought the opening up of the trust risk.
Taking Aspen Coin as an example, it is based on the SEC Reg D 506 (c) issued regulations. Reg D has the advantage of no financing constraints for qualified investors, low compliance requirements, low cost, fast speed. But the disadvantage is that the issuer has the obligation to review for investors, banks and investors need to review qualified tax documents, which increases the economic burden of the issuer and the period of time.
At the same time investors has the restricted securities 6-12 months of the restricted period, liquidity will affect the securities. In addition, Reg D also asked if the business assets of more than $10 million, and the investment of more than 2000 people, enterprises need to register with the SEC; that is to say more than $10 million in assets of enterprises, the number of investment limit is 2000.
This is the SEC penetration caused by regulatory policy risk, will affect the project cycle time, and bring the tremendous influence to the market. If you don’t follow the regulation of SEC, so the aforementioned two companies, CarrierEQ and Paragon Coin by SEC punishment would happen.
Select the sandbox will be relatively loose regulation at the policy level, such as HydroMiner (H3O), which is trying to stock financing regulations follow the current experimental token European, funds for large, environmentally friendly electric currency mining project operation. Data shows, HydroMiner completed a $2 million 500 thousand stock sale tokens (you can imagine that if this project will be subject to many restrictions in the SEC under the supervision of).
But from the amount and influence of view, HydroMiner (H3O) is obviously not as good as those of SEC under the supervision of the project more strength and visibility. After all, for new things, how to get the capital side, investors and the general public’s trust, is probably the biggest problem. Regulation is always a double-edged sword, on the one hand, seemingly delayed efficiency, but on the other hand, regulators are trying hard to protect the interests of investors.
4) time: time planning planning is on the understanding of the project itself, the market prospect of anticipation, and deep understanding of the relevant regulatory laws and regulations, it is an important factor in determining the project to become martyrs, or pioneer in the STO tide in the. In fact, whether it is the first Ethernet Fang STO project tZERO, the first real estate project STO Aspen Coin, at least from the current point of view, is a pioneer in this industry.
The tourist resort town of Aspen Aspen REIT (investment trust company) about a year ago SEC had to apply for IPO IPO issuance of 1675000 shares to $20 per share price, if successful, it will become the first single in the United States exchange traded assets REIT real estate investment trust fund. However, management decided to withdraw IPO, then according to the Reg D 506 (c) of the STO regulations.
That is to say, as early as a year ago, their STO preparatory work has already begun, this is clearly the interpretation of their assessment of their assets on the STO market of SEC and determine the relevant laws and regulations of the decision. From August to October this year, is this time STO gradually began to spread and the rapid development of the Aspen Coin, raising a total of $eighteen million.
There is a project worthy of our attention, Nexo, the first to enter the secondary market can be traded in exchange for STO project. Nexo is a decentralized lending platform, the mortgage process is using the blockchain technology to ensure fair and transparent, with great flexibility and low operating costs substantially all solutions, ordinary users to enjoy the platform loan income dividend 30%, which submitted the Reg form D to SEC, at the same time for Reg S exemption from registration, registration for security tokens.
However, it did not make restrictions on the flow of tokens, free transfer, can also be traded in to the center of the IDEX trading platform, which causes no restrictions on the circulation period, probably because the Reg S exemption in SEC. Reg S is a good complement to Reg D, allowing non US investors invest in U.S. companies based on similar terms and conditions of the Reg D, without obtaining qualified investors without any restriction period.
It is difficult to determine whether the Nexo or pioneer martyrs, but they apparently decided to make the following based on the above factors are analyzed in detail, and became the first to enter the market of the two project.
It can be said that for STO, in addition to the various areas of regulatory policy easing or not will affect the investment of the fund, but also need to grasp the various restrictions on regulations for ST, such as qualified investors, the lock up period, which may affect the project to raise funds amount and schedule. So the plan as early as possible, if you want to become a pioneer, must layout in most people before; of course in the process must be studied through different regulatory policies, otherwise it is likely to become martyrs.
Finally to say, since the STO is a new thing, so a lot of swarmed into the project itself does not have a systematic and complete experience, so the special operation of STO project services will play a key role. Several successful cases at present, either is a professional institution to help go the whole process, or the project itself has a relatively complete system.
02 legal and financial compliance
For the STO project, after the completion of the first phase of the preparatory work, to carry out legal and financial compliance issues related. In my last article “Sun Jiangtao: global regulatory trends, opportunities and challenges of” STO, I have STO global legal compliance problems are discussed here, no longer do special repeated discussion, but the key to talk about the role of project to raise the legal compliance mechanism.
In fact, legal compliance is equivalent to the STO project’s birth certificate, at present it has regional attribute is serious, and directly determines the project registration and recruitment mechanism. How to choose the compliance framework actually finalized early in the first part of STO project commercial closed-loop pre planning and preparation of project. We are still compliance structures from some case selection and the registered recruitment mechanism.
Aspen Coin a year ago after the failure of IPO, according to the regulations of Reg decision D 506 (c) of the exemption clause to open STO. Reg D is in fact private financing regulations, several key rules it is:
1) no limit on the amount of financing, only for the certification of qualified investors (Accredited Investor), including the United States and qualified investors for non US citizens;
2) do not need SEC approval, simply fill in the form of D, but there is one year lock up period and up to 2000 investors limit;
3) because the only proven issued to qualified investors, so it can be widely publicized.
In addition to some additional factors, such as: open market propaganda; the need for KYC and AML verification of the issuer; intermediary business must be a registered broker.
So, Aspen Coin is not only the first STO of the real estate industry, also is currently relatively complete legal compliance project, Elevated Returns for its asset management, Indiegogo is the main marketing platform, Templum Markets LLC is the issuance and trading platform. At present, Aspen Coin has completed a preliminary prospectus and entered the lock up period, while the RegD clause is the main provisions of the laws of the United States to follow most of the STO.
Of course, in the legal framework, there are several other terms, we through the chart to show:
Recently there are punished for the contents and methods of recruitment, such as some time ago by the US Securities and Exchange Commission fined two companies, CarrierEQ and Paragon Coin. The United States Securities and Exchange Commission (SEC) said civil penalties, carry on with the two side of the project include: according to the time of purchase tokens returned to investors valuation in dollars; tokens must be registered with the legal securities; a report to the Committee at least annually; the $250 thousand fine. This is the first SEC announced civil penalties for violation of the provisions of the founder of encryption currency.
The case is the United States STO project, so in the United States outside of the STO project, and how the compliance process? We still see a previous case, HydroMiner (H3O). As Europe’s attempts to comply with the regulations of the securities financing tokens, HydroMiner (H3O). Used in Austria to establish clean Hydropower Station encryption currency mining business, H3O Token the right to participate in the ST based on the right to participate in accordance with the regulations involved in the liquidation income holder HydroMiner.
According to the official website of the white paper, it issued by the SEC regulation, its sale of ST to the United States and non US investors and in the provisions of the federal securities law Reg D and Reg S registration exemption, or in other jurisdictions by way of exemption from local laws for sale. However, it is also affected by the Austria capital market regulations, issued during the need to publish the complete prospectus, and after the Austria financial market administration (FMA) approval.
From HydroMiner (H3O) can be seen when the project compliance and recruitment mechanism corresponding to the area is not at the same time, due to both the multiple areas of regulation, it will lead to a more complex process, more stringent restrictions, such as the need to meet the financial regulations and Management Bureau two districts issued a prospectus.
It’s also worth noting that is registered in the Chinese enterprise, because China regulatory law is not yet available for the STO, so there is no path of legal compliance. However, you can follow the flow of Internet companies listed overseas, the first Offshore Company Registry, by foreign investment enterprises or VIE structure control of domestic companies, published by the Off Shore Company ST.
This approach now seems to be bypassing the supervision, but the project needs to consider the STO regulatory risk, foreign exchange risk, tax risk, and investors need to consider the risk control protocol VIE.
Thus, in the aspect of the selection of the compliance process, the United States STO project according to the relevant laws and regulations, although limited a lot, but clear; and the outside of the United States STO project, laws and regulations need to consider local, as well as the face of global market supervision.