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Terms & Definitions

For an Investor to be deemed ‘accredited’, the individual must meet certain parameters set forth by regulatory bodies, such as the SEC.  These parameters are built around ensuring the financial stability of the investor, through a look at, either, net worth or annual incomes.

An ATS is an SEC approved platform – typically hosted by companies which hold a broker/dealers license – offering an alternative to regulated exchanges.  These platforms function to facilitate buy and sell orders among a client base.

Anti-Money-Laundering is a term which refers to regulations imposed upon an industry in an effort to prevent, and deter, nefarious activity.  Primarily, money-laundering indicates hiding the origin of funds.  Different jurisdictions use different AML laws to ensure that ‘dirty’ money isn’t passed off as ‘clean’.

Tag: AML

Asset backed tokens are digital representations of ownership of a real world item.  These tokens derive their worth, based on the value of the asset which they are associated with, while providing their holders with the inherent benefits of a blockchain technology.

Simply put, blockchain refers to a ‘digital ledger’.  This ledger is comprised of blocks of data, which are linked together in sequential order, creating a chain.  This chain provides the ability to transfer value between participants, while tracking transactional details.

This is a designation doled out by the SEC to applicants, allowing for them to buy/sell securities on behalf of, both, themselves and others.  Responsibilities of a broker/dealer also extend to include providing financial advice, raising capital, and more.

This refers to a non-traditional means for raising capital.  Rather than relying upon a single venture capitalist, companies can generate small amounts of funds from a ‘crowd’ of investors.  This is done in hopes that the larger pool of investors will allow for more capital to be raised.

A Custodian refers to a company responsible for the safekeeping of securities.  The purpose of such companies revolves around their ability to provide state-of-the-art measures to prevent the loss, theft, and manipulation of assets.  Due to the scale of the endeavor, it is typically only big banks that have the capabilities to provide this service.

These represent assets such as bonds, loans, mortgages, etc., which have undergone tokenization.  The result is a security token that will typically see its holder rewarded with dividends / interest, based upon the asset / debt instrument which it represents.

A DAO refers to a series of ‘smart contracts’, built with blockchain technologies, coexisting in a manner to fully automate all roles within a business.  The goal of this technology is to, eventually, remove the human element completely from certain roles, such as payroll, shipping/receiving, etc.

A digital asset refers to an asset which has undergone tokenization, and is now represented by a blockchain based token.  Digital assets typically represent items such as real estate, art, precious metals, and more.

Digital Securities refers to a security that has been issued to an investor in the form of a digital token.  This process utilizes blockchain technology, and may apply to a variety of securities, ranging from debt instruments, to equity holdings, and more.

A Digital Security Offering (DSO) refers to a capital generation event in which an issuer will create and distribute securities in the form of a digital token.  These tokens provide their holders (investors), with the benefits of blockchain technologies, while retaining the rights of a traditional security.

This is an open-source token standard, built by TokenSoftERC-1404 is a custom built token standard, with various forms of security tokens in mind.  This standard has all the functionality of ERC-20, in addition to features allowing for compliance with regulations imposed upon securities.

Custom built by security token specialists, Polymath, ERC-1400 is an evolution of the ERC-20 standard.  This evolution means that ERC-1400 is tailored specifically towards security tokens.  This is shown through the integration of capabilities allowing for differentiated ownership, and various forms of restrictions based on, both, identity and asset types.

Based on Ethereum, the ERC20 standard was developed as a means to allow the creation and execution of tailorable smart contracts.  It remains one of the industry’s most popular token standards.

Tags: ERC-20, ERC20

An Equity Token Offering is a capital generation event which specifically deals with the sale of equity within a company.  Equity sold through and ETO is represented through the creation of digital securities doled out to investors.

An equity token is a blockchain based holding, which represents equity in an underlying company.  These types of tokens are typically sold and distributed through digital securities offerings, and provide their holders with the same rights as a traditional security.

For companies hosting a capital generation event, there are often ‘caps’ put in place, which indicate a limit to the amount of funds they are looking to raise.  A ‘hard-cap’ is the upper limit, at which the company will cease raising funds, and close out their event.

Established in 1946, the Howey Test, refers to a set of parameters and questions utilized by the Securities and Exchange Commission, in an effort to determine if an asset falls under the definition of a security.

An Initial Coin Offering is an umbrella term, referring to a capital generation event which utilizes digital tokens as a means of compensation for investors.  While not exclusive to utility tokens, the term ICO is most often used when referring to the distribution of such assets.

An Initial Exchange Offering or ‘IEO’, refers to a capital generation event hosted by a digital exchange.  This form of raising capital has become popular, as the host exchanges typically complete some form of due diligence on the projects which they promote – filtering out scams in the process.

An issuing platform is a service meant to facilitate the creation, issuance, and management of digital tokens.  Issuing platforms will typically offers a variety of services, such as whitelisting investors, KYC/AML measures, and more.

KYC refers to ‘know-your-client’ or ‘know-your-customer’.  KYC simply refers to a required database on investors by potential securities issuers.  This data includes everything from identification, to financial awareness, and more.  As the various forms of security tokens are simply digital representations of traditional securities, they are also subject to the same regulations, such as KYC.

Tag: kyc

Liquidity refers to the difficulty with which an asset can be bought/sold.  A highly liquid asset will be easy to quickly convert to another asset.  An illiquid asset will be difficult to sell, typically due to a lack of buyers.

A marketplace provider specializes in providing a trading platform for blockchain based digital securities.  These platforms act as a secondary marketplace where investors can buy/sell digital securities.  In doing so, these assets gain higher levels of liquidity, which would not be attainable otherwise.

A placement agent is a third party usually hired by a company looking to generate capital through fundraising events such as an STO/DSO/ETO etc.  The placement agent will work to, not only develop marketing strategies for the event, but to connect appropriate issuers and investors.

A security token is a blockchain based, digital representation of a security.  As such, they are subject to the same regulations and compliance measures that their traditional counterparts are.  A security token differs from a tokenized security in that they are an entirely new construct, rather than simply wrapping up an old one within a new delivery construct.

A Security Token Offering (STO) refers to a capital generation event which compensates investors with tokens imbued with the similar rights as a traditional security.  To be legal, these events must be cleared with the SEC, and adhere to strict regulations surrounding the distribution of securities.

A smart contract is a blockchain based contract, which is self-executing.  When creating a smart contract, specific action and reactions can be encoded into them.  This allows for transactions to take place between anonymous parties, without the need for an intermediary.

When undergoing a capital generation event, a company will typically set both a soft, and hard, cap.  A soft-cap refers to the minimum amount of funds that the company is looking to raise.  Often the soft-cap is used as a minimum threshold needed to attain a greenlight for token issuance.  If not met, funds are typically returned to investors.

A Stablecoin refers to a cryptocurrency which is pegged / tethered to a traditionally stable asset such as the USD or even precious metals.  The goal of such assets is to allow for their holders to more easily enter/exit positions when investing, while escaping the volatility typically associated with cryptocurrencies

A Tokenized Asset refers to anything from a car, fine art, real estate, and more, which has seen its ownership sold off in the form of a digital token.

A tokenized asset offering (TAO) is a capital generation event which will see an asset undergo fractionalization.  This is done through the creation of tokens which act as digital securities.  These digital securities represent ownership in the underlying asset being sold through the TAO.

A tokenized security refers to a security which has been ‘wrapped’ in blockchain technology, and delivered as a token.  These tokens are imbued with the same rights and characteristics as their paper counterparts.

The role of a transfer agent revolves around financial bookkeeping.  This involves recording transactional data, including asset ownership, and more.  Transfer Agents are typically utilized by companies which have issued some form of security.

Often issued through an ICO, as a means to raise funds, utility tokens are blockchain based holdings which are not representative of an investment, but rather rights to the services or product of a company.  They are not securities, and must be careful in their structuring in order to avoid being construed as such.

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