security token

The security tokens are the next step to regulate the exchange crypto

Cryptocurrency exchanges through exchange platforms will be safer thanks to security tokens

The growth of crypto exchanges

Despite the crash of Bitcoins, the crypto exchanges are big business, in 2018 their turnover has doubled.

According to the report “Crypto Trading – The next big thing is here?” of Sanford C. Bernstein & Co, the turnover of exchange platforms has reached about 4 billion dollars.

You have to know that Coinbase alone manages almost half of the trades through exchange

When you decide to rely on a crypto exchange, you need to evaluate factors such as transparency, reliability, assistance and, of course, security.

Whether you decide to rely on a centralized exchange, or a decentralized exchange (DEX), the security factor is important.

What is a security token?

To date, a crpytographic token must pass the Honey test to be considered a security token.

In the US, tokens are subject to federal regulations, ICOs that do not follow them risk sanctions.

The regulations that security tokens must comply with are the following:

Regulation A

This exemption allows those creating a new ICO, to offer a SEC-approved security to non-accredited investors, with an investment of up to 50 million dollars.

The issuing of  “Regulation A” often takes longer than other options, and it’s also more expensive than others.

Regulation D

Compiling point D of the regulation, allows a particular offer to avoid being registered by the SEC.

The completion of the form must have been made by the creators of the ICO, only after the sale of securities.

Compliance with Section 506C of point D, requires that the information provided at the time of offers to investors, is free from misleading or fake declarations.

Regulation S

This part of the regulation applies when the offer is made by a country other than USA, and therefore it’s not subject to Section 5 of the Law 199.

It’s worth pointing out that the above explanations are an interpretation by Anthony Pompliano, the founder of the well known investment company Morgan Creek Digital.

ICO and Honey test

The Honey test stems from a 1946 US Supreme Court ruling involving the SEC (Securities and Exchange Commission) and the company WJ Howey Corporation.

The lack of uniform regulations for cryptocurrencies and the activities associated with them, makes the Honey test the only standard used by the American SEC.

Honey Test criteria:

  • Investment in money must always be present, and must come from a joint venture
  • There must be a profit expectation deriving from the investment
  • Profit from investment must be generated by a third party

The importance of security tokens

Security tokens are like a bridge between legacy finance and the blockchain world, STOs (Security Token Offering), are constantly increasing, and the clash between ICO (Initial Coin Offering), and STO ( Security Token Offering) is inevitable

Advantages of security tokens

  • have the advantage of eliminating intermediaries, thus reducing commissions,  and the likelihood of manipulation by financial institutions
  • speed up execution times, and increase the potential investors, thanks to the lack of intermediaries
  • help the free market, in fact today many investment transactions are localized, for example it will be easier for a Chinese investor to invest in American companies, and vice versa
  • The use of smart contracts in the future with their “automation”, will make the use of lawyers less essential

Disadvantages of security tokens

  • The lack of intermediaries, while being an advantage, shifts the responsibilities of the transaction to the buyer and seller
  • In the case of an intermediary such as financial institutions, there may be less interest from more traditional investors, high levels of security and compliance regulations


It’s now almost inevitable that security tokens will transform equity, as Bitcoin has transformed the concept of currency.

In fact, security tokens offer a direct economic interest in cash to the owner, and a very fast delivery of proceeds.

Many exchange platforms are about to become regulated, so that STOs can also be included, some of the most best known are:

  • The Gibraltar Stock Exchange
  • Coinbase
  • Templum
  • SharesPost
  • Australian Securities Exchange
  • Malta Stock Exchange
  • ZBX based in Malta
  • SIX Swiss Exchange
  • LSE

Thanks to smart contracts, any type of property can be also “tokenised”.

It’s good to remember that the SEC has established that Ethereum and Bitcoin are not securities

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This post is also available in: Italian

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