tZero Adviser Jor Law Unlocks Secrets of the Hottest STO
Jor Law, is a well-known figure in the securities token offering (STO) ecosystem. The co-founder of VerifyInvestor.com, a tZERO subsidiary, Jor also is an advisor/consultant with tZERO as well as other prominent companies in the space such as Polymath and Prime Trust. He typically advises companies building infrastructure for STOs.
Last Friday, we were honored to invite Jor to demonstrate his point of view on the hottest issue affecting crypto today: STO. He gave some great insights into the STO industry for companies and investors interested in getting involved with STOs.
Like most people, Jor was driven into this space as ICO gets more popular. People start to use the services of his law firm or his verification company in ICO projects and he was forced to get into the field. When STOs started getting very popular, Jor’s companies were often the ones people turned to for compliance assistance.
First of all, Jor differentiated the security token and the utility token.
“Utility and security are not in the opposite position, at least under the U.S. laws. A token may have a little bit utility or a lot of utility while the core of security token is what its ‘offering’ is. If the token represents some sort of the investment, and people are buying tokens with the expectation of making some money, and the reason they are making money is largely due to the efforts of other people, then that will be an security token offering.”
When Jor was asked what kind of projects can be classified as security token, he said that,
“When a startup buys some real estate and then the equity of the company is represented by a token and then they sell that token, that’s a security token. In addition, it depends on how the token is structured and how the token is sold. A utility token that can be used in an ecosystem or tokens used in capital raise for developing a technology that might not have been developed yet may also be a security token.”
Some people may regard STO as regulated or legal ICO, while others may claim it is ABS (Asset Backed Security) in disguise. Jor also demonstrated the difference between STO and ICO.
“Some of the security tokens are backed by asset, but when a token is designed for a new company or a new utility token ecosystem- there is no real estate, no equity of the company, and those kinds of token offering that are not asset backed at all – it can be an ICO. When that token happens to be the security, it becomes an STO and all STOs are theoretically ICOs but not all ICOs are necessarily STOs.”
Jor commented that the ICOs or STOs can be seen “an old thing in disguise”, but they have many important elements that represent an evolution beyond the status quo. First of all, tokenization is a better way to track securities as it improves on what exists today. Secondly, in the token ecosystem, there is some sort of liquidity. In the ecosystem, we can see the global trading and people are raising money from all over the world and after that, people are trading with each other across the world. These elements give hope that ICOs or STOs maybe can significantly alter the ecosystem even though they may just be old things in disguise.
When it comes to the requirements and regulations on security token, Jor disclosed that:
“There are laws that affect securities companies, companies that issue them and customers investing in them. The core regulation for someone issuing a token is what they called the Securities Act of 1993. It essentially requires that anyone selling securities register their securities with the SEC – it’s not meant to be an issuer burden but a protection for investors. The SEC won’t be so strict with the securities selling to non-Americans or a private offering made only to accreditted investors that are believed not to need so much protection. Interestingly, there are also laws applied to traders, investment companies, the advisers that gives security investment advice to people and theoretically, these parties have to abide by these security laws as well. For example, the law could say you shall not sell or resell securities unless you have an exemption. If you resell the securities illegally, theoretically, you could have liability as well. It just depends on whether the SEC will pursue that or not.”
Jor also mentioned that most security tokens are building on ERC20 instead of ERC1400, as there are a lot of support to the ERC20 standard even though the it is not perfectly for the security tokens while ERC1400 is not yet a standard, it is only a draft and people is still revising it. But he also commented that, ERC1400 still has a best chance to take over at the moment as it has a pretty large and strong community.
As normally security token offering targets accredited investors, many people would wondering whether it will lead to the centralization of securities token projects. Jor also acknowledged this issue, but he indicated that the STO is much more decentralized than before.
“If you realizing everything is just a sliding-scale,over time, we hope the STOs will be more and more decentralized,” he also added that “the completely decentralization means you have to fully trust the system, may be one day we can get there, but today it might be too early and the laws are not ready for that yet. Frankly, we have the government and the banking system and other centralized systems largely because we generally thought it was better than decentralization. People may not know what to do with a completely decentralized economy.”
When asked about which countries are most STO friendly, Jor indicated that:
“The financial centers over the world, like Singapore, Hong Kong, the UK, they have done a lot of security offerings. People may say the US laws are so bad but when the U.S. becomes the largest securities market in the world, obviously the laws are not that bad. It also doesn’t matter which country is STO friendly. Some of countries have no regulation in this field, they don’t even have the securities laws, and they are friendly to STO to some extent, but if you are going to sell your security tokens to the U.S., the U.K. or Singapore, their laws will also applied. So it doesn’t matter which country is STO friendly; in the global STO, it doesn’t matter what region you are in; it only matters where you are going to sell it and where it is going to be traded.”
Last year, people seemed repellent to STO as they were repellent to regulation from governments. Nowadays, STO becomes more popular as they are compliant. Jor indicated that it is a combination of regulation and also marketing. He believes that the early adopters always get lucky as they may able to break the laws, like Ethereum and the DAO did, and obtain forgiveness nonetheless.
Finally, Jor emphasized that the tokenization technology is actually superior technology and the STO is likely going to be a very big thing in the securities world.