With regulatory compliance being an important consideration for security tokens, STOblock interviewed Samuel Katz and Ziv Keinan of Security Token Lawyers to learn about their firm and legal perspectives.
Can you tell us a little bit about Security Token Lawyers?
Security Token Lawyers is a partnership between New York and Tel Aviv-based law firms with years of securities and corporate law experience who are focusing their legal practices on security tokens. We see much of our work as not just legal but also educating the market to the opportunities in security tokens.
At what stage can your firm assist issuers, exchanges and investors?
We believe that in digital securities, in particular, legal counsel plays a pivotal role and needs to be brought in as early as possible. As STOs often use different corporate structures in order to accommodate tokens, it is important to understand what options are available early on. Furthermore, in terms of the technology, such as issuance platforms and exchanges, lawyers need to be consulted before that process even starts to make sure the development is done with compliance built in.
What do you believe are the best use cases for an STO?
At this stage, we believe the best use cases are real estate and debt. In terms of real estate, there is already a strong community of real estate investors who would invest in these projects. With respect to debt, these tend to be lower risk securities, so we believe this is a good use case as well. We believe the best use cases are a few years away and may involve hybrid tokens.
From your experience, which jurisdictions are more progressed and open insetting regulations?
In Europe and in the UK, we are seeing greater progress in terms of regulatory clarity, by recognizing tokens that aren’t securities as non-securities. The US focuses on the fact that its current securities laws cover practically all tokens. Nevertheless, certain states, such as Wyoming have passed laws that will make it easier to form a blockchain shareholder base.
What are some of the obstacles you’re dealing with right now?
From the legal side, we are dealing with issues around structuring asset-backed tokens. In addition, the slowdown at the SEC due to the government being shut down for a number of weeks has caused further delays in the long process of qualification of securities under Reg A+. Generally, however, we hear from many of our clients that they are facing difficulties in finding buyers for the tokens.
What is the best advice you will give someone looking to invest in an STO?
We advise investors not to invest in an STO on the basis that there will be certain liquidity due to tokenization. At this stage, the investment needs to be a quality investment regardless of the liquidity.
Do you have any predictions for security tokens in 2019?
We believe that in 2019, the volume of security token offerings will begin to increase, but we will first see more stable asset classes such as real estate and debt leading the way. Once the first wave of offerings of such classes is successful, investors and issuers will be open to other forms of funding, including through STOs.