CMS Expert Guide to Security Token Offerings

Overview of regulatory requirements in a country comparison

Security Token Offerings (STOs) are a new means for companies to emit securities. The idea is to sell a virtual, blockchain-based token which is unique and transferable, and which represents, for example, a profit participation right or a share in the emitting company. Profits could be distributed to the token holders directly without the need of a bank account. The crypto community and more and more established companies expect efficiency gains due to a potential reduction of the number of intermediaries and, thus, transaction costs.

Aside from the expected efficiency gains in terms of transaction costs, the ability for companies to issue programmable and traceable securities is an interesting prospect. The token contract could ensure that corporate actions, for example the allocation of voting rights, are performed automatically. By obliging investors to identify themselves before they are allowed to buy the token, the transaction history of the token provides a simple way to identify beneficial owners. This offers benefits as regards to the owner's legal rights, the prevention of illegitimate voting and much more.

STOs can be considered the successor of so-called Initial Coin Offerings (ICOs – see our brochure on ICOs here). The big difference between both is that in case of ICOs, only a token is being sold in terms of a "virtual asset", and its value is basically only determined by supply and demand. ICO tokens did not entitle investors to receive profits, for example, and are much easier to conduct from a regulatory point of view. The technical background is, however, the same.

The support of CMS is sought on many ICOs and STOs worldwide. Our aim to provide emitters with profound legal advice, based on deep knowledge of the technologies behind ICOs and STOs. This short publication is a guide to the current state of play of the regulatory environment in select jurisdictions worldwide.