Utility Token Issuance

Utility token issuance in Thailand

The main regulation that governs virtual assets in Thailand is the Emergency Decree on Digital Asset Businesses, B.E. 2561 (2018). The Regulatory Authority - is Thai Security and Exchange Commision (SEC).

The SEC's Notification No. GorJor. 15/2561 Re: Public Offering of Digital Tokens (and its amendments) provides a definition ofUtility Tokens. Thus, Utility Tokens are electronic units created in a digital system or network that the holder can exchange for goods or services or any other specific right as agreed upon by the issuer and the holder.

The SEC proposed to divide Utility tokens into two groups and to introduce different issuance procedures, taking into account the characteristics of each group:

• Group 1.
• Group 2.

Utility tokens of Group 1 have the following characteristics:

• “issued for consumption purposes, such as digital vouchers, digital gifts or points, concert ticket redemption tokens, loyalty points and non-fungible tokens ("NFTs") ; or
• issued in the form of a digital certificate or representation of rights, such as carbon credits, renewable energy certificates, digital transcripts, title deeds, medical certificates and digital bills”.

Group 1 Utility tokens must be non-financial products and must have a designated channel or trading platform that has been made available for exchange for goods, services or specific rights offered by the issuer.

Utility tokens of Group 2 have the following characteristics:

• tokens that grant the holder the right to access underlying products or services provided using distributed ledger technology (" DLT ") or other systems;
• exchange tokens that will be used to obtain discounts on trading commissions or to upgrade membership levels;
• governance tokens that provide the token holder with voting rights on decentralised funding (DeFi), centralised funding (CeFi) or GameFi; or
• project tokens that provide services related to digital assets through CeFi.

The procedure for approving the issuance of Group 1 and Group 2 Utility tokens is different. Due to the fact that Group 2 Utility tokens have higher risk applications, their issuance procedure is a bit stricter. The process of issuance Utility tokens of Group 1 in Thailand described at the scheme:

• Establishment of a company in the form of a limited liability company or a public limited liability company
• Creation of technical documentation, preparation of token structure
• Selecting an ICO portal that is licensed by the SEC to offer digital tokens
• Token offering on the ICO portal resource

During issuance Group 1 Utility tokens it's required involving ICO portals. The ICO Portal is a provider of an electronic system to facilitate the offering of issued digital tokens. It is the responsibility of the ICO Portal to conduct due diligence on the characteristics of the digital tokens offered and the qualifications of the issuer, and to ensure the completeness and accuracy of the information contained in registration statements, draft prospectus or any other information to be disclosed through the portal.

The process of issuance Utility tokens of Group 2 in Thailand described at the scheme:

• Establishment of a company in the form of a limited liability company or a public limited liability company
• Creation of technical documentation, preparation of token structure
• Prepare a draft prospectus and all necessary documents for filing a digital token offering statement
• Filing an application and related documents to obtain SEC approval
• The SEC verifies and ascertains the information and reports any problematic issues to the applicant for clarification within a certain timeframe
• The applicant shall clarify the issues of concern within a specified time period set by the SEC (not to exceed 60 days)
• The SEC will report its findings within 30 days of the date it receives the applicant's written explanation of the issues of concern

Utility token issuance in Dubai

The Virtual Assets Regulatory Authority ("VARA") has approved a system of regulations that relate to virtual assets. Thus, the entire field of virtual assets in Dubai is regulated by the VARA, including the issuance of tokens.

In accordance with the Virtual Asset Issuance Rulebook, Virtual Assets issues in the Emirates are categorized to 3 types:

• Category 1 token
• Category 2 token
• Other tokens

It should be noted that VARA has no specific definition of Utility token.

Category 1 token is Fiat-Referenced Virtual Assets [FRVAs], defined as types of Virtual Assets that purport to maintain a stable value in relation to the value of one or more fiat currencies, but do not have legal tender status in any jurisdiction, as more fully defined in the FRVA Rules. In the UAE, it is not possible to issue FRVAs on AEDs as this is the exclusive domain of the National Bank.

Category 2 token is all issuances which do not constitute a Category issuance, and:

• by or involving Designated Non-Financial Businesses and Professions (DNFBPs), which include: Dealers in precious metals or precious stones; Law firms, notary firms, Accounting, audit, or insolvency firms; Single Family Offices etc.
• which satisfy any of the following:
• a single transaction exceeding AED 40,000, or the equivalent amount in another fiat currency or Virtual Assets
• offered to 150 entities or more
• over a period of 12 months, starting with the beginning of the issuance, the total consideration, direct or indirect benefit, accrued to the Issuer exceeds AED 2,000,000

Other tokens are types of tokens that do not fall into Categories 1 and 2. Other tokens must comply with all rules contained in the Virtual Asset Issuance Rulebook that relate to General requirements (Honesty and fairness, Thoroughness, Capabilities and resources), Whitepapaer and risk disclosure, Compliance obligations.

The issuance of Utility tokens in Dubai is possible using Category 2 tokens and Other tokens. The choice of a specific category of tokens is possible after a full understanding of the business model to be implemented. To issue Category 2 tokens, an Approval of the Issuer must be obtained from VARA.

The issuance process for the Category 2 Token in Dubai

• Company formation
• Submitting an application to VARA with all necessary documents and policies
• VARA checks the submitted documents and reports any problematic issues to the applicant for clarifion within a certain timeframe (if necessary)
• The applicant clarifies problematic issues within a spesific timeframe set by VARA
• Issuance of tokens

No additional approval from VARA is required for the issuance of Other type of tokens (which do not fall into categories 1 and 2)-no additional approval from VARA is required. However, such tokens must still comply with the requirements of Sections 2-4 of the Virtual Asset Issuance Rulebook.

Utility token issuance in Europe according to the MiCA

The new European Markets in Crypto-Assets (MiCA) Regulation defines the following categories of tokens and divides them into three types, which should be distinguished from one another and subject to different requirements depending on the risks they entail.

• The first type is “e-money tokens” which consists of crypto-assets that aim to stabilise their value by referencing only one official currency. Like electronic money, such crypto-assets are electronic surrogates for coins and banknotes and are likely to be used for making payments.
• The second type of crypto-assets concerns “asset-referenced tokens”, which aim to stabilise their value by referencing another value or right, or combination thereof, including one or several official currencies. That second type covers all other crypto-assets, other than e-money tokens, whose value is backed by assets.
• The third type consists of crypto-assets other than asset-referenced tokens and e-money tokens, and covers a wide variety of crypto-assets, including utility tokens.

In accordance with the MiCA “utility token” means a type of crypto-asset that is only intended to provide access to a good or a service supplied by its issuer.

MiCA prohibits the offering to the public of crypto-assets other than asset-referenced tokens and e-money tokens, unless the issuer:

• is a legal person in European Union
• has drawn up a crypto-asset white paper, notified and published this white paper in accordance with MiCA
• has drafted and published the marketing communications, if any, in respect of that crypto-asset in accordance with MiCA
• complies with the requirements for offerors laid down in Article 14

The requirements regarding white paper and publishing the marketing communications do not apply if:

• an offer to fewer than 150 natural or legal persons
• over a period of 12 months, starting with the beginning of the offer, the total consideration of an offer to the public of a crypto-asset in the European Union does not exceed EUR 1 000 000
• an offer of a crypto-asset addressed solely to qualified investors where the crypto-asset can only be held by such qualified investors

The above mentioned regulatory requirements doesn't apply to offers to the public of crypto-assets other than asset-referenced tokens or e-money tokens where any of the following apply:

• the crypto-asset is offered for free
• the crypto-asset is automatically created as a reward for the maintenance of the distributed ledger or the validation of transactions
• the offer concerns a utility token providing access to a good or service that exists or is in operation
• the holder of the crypto-asset has the right to use it only in exchange for goods and services in a limited network of merchants with contractual arrangements with the offeror

In accordance with the stipulations for white paper registration outlined in MiCA, it is not obligatory for an Issuer to obtain approval prior to publication. Instead, the white paper must be made available on the Issuer's website. This regulatory approach represents a forward-thinking paradigm shift and is poised to establish itself as the leading regulatory framework for crypto-assets.

Utility token issuance in the United Kingdom

In the United Kingdom Utility tokens are defined as cryptoassets which provide digital access to a specific service or application (e.g. digital advertising or digital file storage) and use a technology such as DLT to support the recording or storage of data. They do not provide the rights or features associated with a security token (e.g. share or ownership rights), and do not function as a means of payment – though they can be traded on cryptoasset trading venues for investment purposes.

Regarding the rules for issuing Utility tokens, it is predicted that they will not be subject to the requirements that are foreseen for regulated financial activities, but only if they do not accommodate the characteristics of other instruments (e.g. securitisation tokens).

At the same time, new rules regarding the advertising of cryptoassets will be applied when issuing Utility tokens, according to the Finalised guidance on financial promotions on social media.