schemes to which a particular token may be subject.
Presence of any explicit restrictions on ICOs or the issuance, distribution and/or transfer of token/coins
The distribution and resale of digital assets would also depend on whether they are classified as a security by the SEC and other regulators. If an ICO token or transaction would be classified as a security, then it would be subject to all SEC restrictions on securities, particularly if sold under an exemption from registration where there are significant restrictions on who can purchase as well as resale restrictions. As a general matter, all offers, and sales of securities must either be registered at both the federal and state level or be exempt from registration.
To determine whether the offer and sale of a token is an offer or sale of a security, the SEC typically has looked at whether the sale was for capital raising purposes. This effectively means that the SEC deems all ICOs to be offers and sales of securities. Subsequent redistribution of a security could also result in underwriter liability to the redistributor. Platforms that facilitate the trading of securities are also governed by broker-dealer and exchange laws, as described in “Financial advisory and brokerage services including robo-advisory and auto-trading”. While many tokens originally offered and sold in ICOs trade on exchanges that comply with MSB laws, the SEC has publicly questioned whether those exchanges should also be registered as securities exchanges.
Non-fungible tokens (NFTs) that only have the characteristics of a certificate of authenticity (e.g. those representing art or collectibles) generally are not thought to be securities and thus may be issued or transferred without an exemption from securities law registration. That said, they may be subject to a host of other laws including money transmission, depending on how an NFT platform is operated. Further, NFTs that have other characteristics, such as an interest in profits, could still be viewed as securities.
There is also a limited number of alternative trading platforms that facilitate the offer, sale and trading of tokens that clearly are securities, such as those representing tokenised stock or fractionalised assets. The offer and sale of those security tokens typically are conducted through private placement exemptions.
Obligations and requirements to issue token/coins
As mentioned above, this would depend on if the token is considered a security, in which case all SEC rules would apply, including possible regulation as an investment company under the Investment Company Act of 1940. If the token is not a security the only registration on issuance and trading would be a state money transmission license. As noted, there is no clarity as to what is a true currency that is not a security, and the SEC has stated that it believes most tokens are securities.
Classification of token/coins in the jurisdiction
Unlike Switzerland and some other countries, the United States does not have formal classifications of tokens such as securities tokens, digital payment tokens or utility tokens. Rather, regulators are utilising common law tests established decades ago, before digital assets even existed, to make a case-by-case fact-based determination as to whether a token is classified as a security, a commodity or anything else. The most famous of these tests is from the 1946 United States Supreme Court case SEC v. WJ Howey Co., wherein the court found that the sale of plots of an orange grove with a promise to sell the oranges was an investment contract that constitutes a security. Under the test more generally, an instrument may be a security if there is an investment of money into a “common enterprise” with an expectation of profits from the efforts of others. Another importan