Legal compliance for token sales: putting your customers at ease

Geographically, attitudes are constantly shifting around token offerings and issuances. There isn’t a uniform approach — some countries officially want a full ban on digital currencies while others are altering their regulatory policies to keep up with the burgeoning world of blockchain and cryptocurrencies. 

For that reason, global or multi-jurisdictional offerings have to take into account the local law of each jurisdiction in which the tokens are being offered or otherwise distributed. This can be a little hair-raising and a bit of a maze to navigate.

Token generation events have increased dramatically with an estimate that the market went from about 50 separate events in 2016 tover 1,800 since then. It’s widely accepted that the first started in 2013 with MasterCoin, however, statistics on cryptocurrency growth tell us that the business of raising tokens did not really kick off until 2016 when various other token offerings raised billions of dollars.

The regulatory lag or governance gap can’t stunt the progress and innovation of blockchain! 

Despite the fact that regulation is far from being certain, growth in the crypto and blockchain space continues. This means there is a lot of potential in these offerings. The risk involved is certainly worth the reward but how can you provide your customer base with more certainty while the regulatory echelons get their ducks in a row? If you have a product built on blockchain that requires a token offering and sale then how do you assure your supporters that the scamming in the past won’t occur with your project?

The current state of regulation is fraught with operational and legal risks.

You need to provide comfort to your customers but you also need to comply with the appropriate rules and regulations as the token issuer otherwise you may be held liable for violations of the law. Making sure you are legally sound will in turn also give your customer peace. If your activities do not fall within any existing regulatory framework, you could be held liable for infringement of consumer/participant protection regulations if you don’t deliver on promises or on other delineated grounds. 

To progress you need to address the major legal issues around token sales. So, what are they?

Because of the fluidity of blockchain-based tokens and their geographic variability a number of laws and regulations apply whether it be securities laws, commodities laws, regulations around fraud and consumer protection, financial intermediaries and money lending. Civil liability may also come into action if they act fraudulently or enter into a breach of contract with their participants. 

Until such time as there is a  harmonized regulatory framework at the international level for token offerings — which may take some time —  at least there are some trusted partners in the industry you can lean on that can help you navigate these complex waters. As a full service agency, AmaZix offers this to projects so that you know everything you do is above board and more importantly your customers and supporters know you operate legally. They can have faith and trust in your project which make your project more appealing and sustainable!

AmaZix has specialist lawyers that will have your back!

Our experts will make sure:

  • you are compliant  with applicable laws on issuance of utility and security tokens.
  • your documents are in order concerning for the token offering(legal opinions, communications from competent regulatory authorities, prospectus, participant agreement)
  • To identify which marketing activities can be performed and in which jurisdictions

So contact us today and let’s keep evolving the blockchain space!