The cryptocurrency market is constantly changing: technologies are being improved, turnover is growing, and investments are increasing. The interest of state institutions, particularly regulators of both cryptocurrency circulation and investment spheres, is growing accordingly.
The USA became a trendsetter in regulations of investment issues. In particular, The United States Securities and Exchange Commission launched their investigation into the Initial
Coins Offering (ICO) because several ICOs appeared to be a real fraud, and their organizers disappeared along with millions of very real American dollars. Some ICOs have been hacked, and the assets from the investors’ accounts flowed into the wallets of intruders.
All these forced The United States Securities and Exchange Commission to search for the ways of legislative protection of the interests of investors, especially those who are the US citizens. The Commission analyzed the nature of token sales, proceeding from the current federal legislation and judicial practice, in particular, the well-known decision in the case of 1946 “The SEC versus Howey”, considered by the US Supreme Court. The SEC thus came to the conclusion that the coins issued during the ICO process under promises of receiving incomes in the future are nothing but securities in the form of an investment contract. Accordingly, ICO itself is the issue of securities. Having regard to the abovesaid, token sale of this kind fit perfectly into the structure of US securities legislation, which clearly outlines the procedure for securities issuing. Such issue (namely: placement memorandum) must be previously registered with The Securities and Exchange Commission in accordance with the Federal Securities Act of 1933. According to this, without such pre-registration ICO, which coins can be recognized as securities, can be deemed illegal with negative consequences for both the organizers (from huge fines to absolutely real terms of imprisonment) and the investors (loss of profit and time).
The Chairman of the Securities and Exchange Commission repeatedly stated that all the ICOs he has ever seen were the securities issues. This regulator’s point of view completely negates the advantages of ICO over traditional investment projects: the speed of the fund-raising process start without unnecessary costs and bureaucratic red tape, financing of projects, making a profit. In general, this approach simply contradicts the concept of blockchain being a decentralized independent ecosystem.
Following the United States, many other countries such as Canada, South Korea, Brazil, Hong Kong, etc have taken a similar position on ICO. Every day more and more countries on behalf of securities market regulators require of the ICO organizers to follow the formalities provided for by the securities legislation.
Conducting token sale in the context of increasing pressure from the regulators turned out to be a risk not only for the organizers but also for investors. Therefore, it was necessary to find an appropriate solution that would both minimize the risks of claims from state institutions, in particular securities and investment regulators and would allow further financing projects that had already been launched or planned for the nearest future. Combining the practice of venture funds and the technology of electronic money circulation, one can come to the conclusion that it is possible to raise funds in the form of their exchange to a Unit of Demand Notes Accounting, which can be simply called unit (UDNA).
A unit is a digital expression of the equivalent value of the rights belonging to a particular member of the unitsale. By its concept, the unit is more like a conversion commitment, often used by venture funds. A unit is neither a security, nor an investment contract, it does not imply investment income in the future. In fact, it is a contribution of the participant in the development of blockchain and the release of cryptocurrencies based on it. The Ventureon cryptocurrency created by Hypercube Ventures is a kind of such units. After the development is successful, each unit issued by Hypercube Ventures will be converted into its own Ventureon cryptocurrency in a rate of 1:1, which implies no investment interest. This is the obvious advantage of the unitsale over the ICO, as the latter will immediately grab the attention of regulators who initially associate this term with the securities issue.
Thus, there is no doubt that Ventureon Unitsale will be followed by all responsible participants of the cryptocurrency market, who care about their clients’ funds.
By Dmitry Gutgarts – Chief Legal Officer of
@Hypercube_Fund and
@Blockchain_VNN
