By A secondary digital assets exchange provides an efficient means of purchasing and trading digital assets. These transactions are facilitated by a network’s administrator, or AP, which determines the compensation for network services. The AP owns or controls the intellectual property rights to the network and its content, and manages the network’s security. The network provides purchasers with access to a digital asset, which may be used to purchase products from the retailer. It also allows the retailer to market to its existing customer base.
APs are responsible for deciding when and where a secondary digital asset exchange can be traded and for determining the conditions under which an additional digital asset can be received. This means that digital assets are offered in quantities greater than likely purchasers might need. In addition, they are not offered in increments that correspond to an investment’s speculative purpose or consumptive intent. Consequently, the purchasing price varies widely, as does the value of the underlying good, which is usually correlated to the price of an exchanged good.
Digital assets that are securities are governed by a range of federal and state laws, and must comply with a variety of requirements. Issuers of these assets are expected to provide complete, accurate, and material disclosure. They must also follow the federal securities laws’ requirement to disclose information to investors.
Whether a digital asset constitutes a security depends on the circumstances of the transaction and the issuer’s network structure and operation. Depending on the circumstances, it may be subject to the Howey Test, or it may be more susceptible to a full breadth of U.S. securities law.
Issuers of digital assets are required to provide complete, accurate, and material disclosure. That includes essential managerial efforts to build the value of the AP and the digital asset. However, that is not all. The marketing materials for a digital asset also emphasize the prospect of continued development and capital appreciation.
During the process of evaluating an asset, the market should consider all of the risks associated with its creation and distribution. This should include cybersecurity risks, the economic benefits to the customer, the benefits to the consumer experience, and any other relevant factors. Regulatory agencies should coordinate their evaluation to achieve a coordinated view of the digital asset.
The SEC has issued a variety of resources on the topic of digital assets. Additionally, it has provided a framework for investment contracts in its 2019 report. These materials provide background information on digital assets and potential regulatory action. While these materials can be useful, they do not replace legal advice. It is therefore critical that issuers of digital assets remain mindful of their obligations to regulators and the public.
Ultimately, regulation will shape the way companies and financial institutions handle and distribute digital assets. Consequently, it is important for companies and market participants to carefully evaluate whether their digital assets qualify as securities and how they will be treated. As the regulations in the digital asset space continue to develop, it is essential to take into account the impact of technological innovation and legislative actions.