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Legal Opinion : Securities Regulation

BlockchainFactory.001

The author is stating his own opinion & from his regular discussions with lawyers and findings on his reading of the law & finance. If you need further clarification you may consult your own lawyer.

After US SEC made an announcement about how it would treat Blockchain ICO, Singapore’s Monetary Authority of Singapore followed up with a similarly sounding announcement.

Both the announcements basically made the same point, cryptographic tokens that inherit the behaviour of securities would be treated as securities in the eyes of the regulator.

Once being classified as Securities, then issuance of tokens is required by law to comply with a certain set of procedure. The procedure like registration of a prospectus before issuing the token.

That is also directly to say that not all cryptographic tokens would be regarded as Securities as they may not inherit behaviour of Securities.

It is then crucial to understand what are Securities. I have created the above image to allow people to understand what are Securities so that according to that framework we deem Katalyst not to have any securities related behaviour.

If a token represents anything that is coloured red in the attached chart, then without doubt, the token is considered to be Securities and the law would require the token to be regulated as per it is a Security.

Those areas coloured red, especially “Share Capital” include abilities to vote for appointment of officers, decisions to make like investing in another company. Tokens that have voting mechanism may be treated as having the behaviour of “Share Capital”. Voting mechanisms coupled with an expectation of receiving dividends may make it a Security

Anything that concerns prepayments for the main purpose of generation of revenue, is coloured as blue. Granting that prepayments for the time being may reside in current liabilities, we cannot see it as behaving like shares, debentures or bonds as prepayments often contain terms that it is not repayable if services is not redeemed or rendered.

A customer who prepays you does not have the inherent rights to vote for how your business is done. The business may through goodwill (and not because of legal obligation) listen to the person who prepays money but he is not obliged to do as he instructs.

Katalyst Coin, along with any coin structured and incubated by it, only deals with prepayments of products and services. Categorically, it categorizes itself into the blue coloured areas – areas that do not behave like Securities.

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