{"id":99014,"date":"2019-03-09T12:43:37","date_gmt":"2019-03-09T20:43:37","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=99014"},"modified":"2019-03-09T12:45:40","modified_gmt":"2019-03-09T20:45:40","slug":"colorados-digital-token-act-provides-securities-exemptions-to-businesses-leveraging-utility-tokens","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/colorados-digital-token-act-provides-securities-exemptions-to-businesses-leveraging-utility-tokens\/","title":{"rendered":"Colorado\u2019s Digital Token Act Provides Securities Exemptions to Businesses Leveraging Utility Tokens"},"content":{"rendered":"

Colorado is becoming a \u201chub\u201d for startups looking to use blockchain technology to power their business models. The recently signed-into-law Digital Token Act<\/a> will exempt utility tokens from certain state securities regulations and make it easier for startups to raise growth capital, crowdfund via cryptocurrency, and sell utility tokens in a clearer and more compliant way.<\/p>\n

The Colorado Digital Token Act<\/a> will exempt utility tokens from certain state and federal securities regulations and make the state a friendlier place for blockchain companies looking to leverage the promising technology. The technology, as described by the bill:<\/p>\n

\u201cBlockchain technology has the potential to create new forms of decentralize \u2018web 3.0\u2019 platforms and applications that have advantages over current centralized internet platforms and applications.\u201d<\/p><\/blockquote>\n

Solving Regulatory Uncertainty Around Utility Tokens<\/h2>\n

The impetus of the bill, according to the authors, is that blockchain companies face regulatory uncertainty, especially around the sale and issuance of tokens. These tokens provide growth capital and crowdfunding opportunities. According to the text of the bill.<\/p>\n

\u201c[The Colorado Digital Token Act] will enable Colorado businesses that use cryptoeconomic systems to obtain growth capital and help grow and expand their businesses, thereby promoting the formation and growth of local companies and the accompanying job creation and helping make Colorado a hub for companies that are building new forms of decentralized \u2018web 3.0\u2019 platforms and applications.\u201d<\/p><\/blockquote>\n

According to the bill, current state securities laws<\/a> may impede the use of cryptocurrency that is \u201cconsumptive in nature,\u201d tokens which provide \u201cgoods, services, or content\u201d\u2014or, in other words, utility tokens.<\/p>\n

Legislation Argues Utility Tokens Aren\u2019t Securities<\/h2>\n

Previously in Colorado, it was unclear whether cryptocurrency, in all circumstances, would be treated as a security. This uncertainty made it more difficult for crypto companies to offer their services and do business in the State.<\/p>\n

Based on text from the bill, utility tokens are more akin to offering access to a good or service, and consequently should not be treated as an investment into a company:<\/p>\n

\u201cDigital tokens issued to provide access to an amount of a company's product or service is consumptive in nature, and would not typically be treated as an investment if it is not tied or linked to the future profits and earnings of the company.\u201d<\/p><\/blockquote>\n

That said, the bill is not free reign for companies to create and trade \u201cspeculative\u201d cryptocurrencies that construe themselves as \u201cinvestment\u201d into a company. There is a list of requirements to qualify as a \u201cconsumptive\u201d token:<\/p>\n

    \n
  • Will need<\/a> to file a notice of intent with the state\u2019s securities commissioner,<\/li>\n
  • The good, service, or content is available at the time of sale, or all of the below:<\/strong><\/li>\n<\/ul>\n
      \n
    1. The good, service, or content is available within 180 days from date of sale;<\/li>\n
    2. The buyer of the token is prohibited from reselling or transferring ownership;<\/li>\n
    3. The buyer provides \u201cknowing and clear acknowledgment\u201d that the token is not an investment.<\/li>\n<\/ol>\n

      Bill Takes Effect August of 2019<\/h2>\n
      \n

      Exciting day for #blockchain<\/a> technology. @GovofCO<\/a> @jaredpolis<\/a> signed the #Digital<\/a> Token Act today with key legislators, Attorney General @pweiser<\/a>, and #Colorado<\/a> cabinet members Patty Salazar with @DORAColorado<\/a>, @BetsyMarkey<\/a> with OEDIT, and @TheresaSzczurek<\/a> of @OITColorado<\/a>. pic.twitter.com\/erOEloEdpy<\/a><\/p>\n

      — TheresaSzczurek (@TheresaSzczurek) March 7, 2019<\/a><\/p><\/blockquote>\n