14 January 2022

He Securities Law Treatment Of Utility Tokens (Or Why It Is Past Time For The SEC To Engage With The Hard Questions)

Cadwalader, Wickersham & Taft LLP


Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
In an extensive thought leadership piece, Cadwalader attorneys argue that the SEC should revisit the application of the securities regulations to the sale of utility tokens on blockchain networks.
United States Technology
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I. Introduction

A. The Hard Questions

Two hard questions have arisen with respect to the treatment of “utility tokes” for purposes of the securities laws:

  1. Is there a way for the creators of a blockchain network to fund the development of that network through the sale of utility tokens that can be either (i) used to obtain a service on the network or (ii) resold at a profit by the initial purchasers?
  2. At what point is a blockchain network sufficiently developed such that it is reasonable to believe that utility tokens for the network are being sold for their use value and not for their speculative or investment value, and thus such tokens are clearly not “securities” for the purposes of the U.S. securities laws?

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