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First HK-led token sale tests local laws

Yap, Brian.  ; London (Jul 3, 2017).

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The first Hong Kong-led cryptographic token sale has put the territory's relevant laws to the test

Hong Kong-based Open ANX Foundation's first-of-its-kind cryptographic token sale represents a successful test case for rules on currency, remittance, stored value and collective investment schemes in the city-state.

The sale closed on June 22 and Urszula McCormack, partner at King & Wood Mallesons in Hong Kong points out that, while the relevant statutory provisions aren't new, they have created little precedent. "Every crypto asset needs bespoke analysis [and] most statutory definitions haven't been fully tested," she said.

A recent history

The token sale originated from Mastercoin, the first ever blockchain token seller in 2013. The first ethereum tokens were distributed in August 2014 and subsequently helped to fund the development of the ethereum platform, which was released in July 2015. This, in turn, led to the sale of a token called REP, raised for the first time by a decentralised prediction market called Augur, which was built on the ethereum platform, in Hong Kong in late 2015. This was followed by Singapore-based Digix's sale of an ethereum-based token in March 2016, becoming the first decentralised autonomous organization (DAO) to have done so.

But Aurelien Menant, founder and CEO of Gatecoin, a regulated bitcoin and ethereum token exchange based in Hong Kong, points out that the token doesn't give purchasers the right to use an application, because Digix DAO is not an application.

Rather, as Menant argues, it is a digital entity comprised of smart contracts built and run on the ethereum blockchain, whose tokens are backed by physical assets like gold, silver and other precious metals.

Under the concept, when the company becomes profitable, a token holder will be rewarded with dividends distributed via smart contracts. While there are a few very low-profile projects on...