The Governor of the US State of Colorado, Jared Polis, has signed the Digital Token Act into law and it will come into effect on August 2, 2019. The act was introduced in January and will exempt digital tokens from state securities laws if their use is “primarily” consumptive. This means that businesses in the space will no longer be hobbled by archaic rules.
The bill provides “limited exemptions from the securities registration and securities broker-dealer and salesperson licensing requirements for persons dealing in digital tokens”.
However, only strictly defined utility tokens are eligible for the exemptions. The issuer must file a notice of intent with the Securities and Exchange Commission (SEC). Any tokens must be utilities used for consumptive purposes, they must not be marketed in any way or used for speculation. All tokens must be rolled out and find use within six months after the initial sale or transfer. Buyers must provide proof that they are buying the tokens for use and not for speculation and may not transfer the token until after 180 days have elapsed.
Entrepreneurs and Companies Encounter Difficulties With Regulations
Colorado has become a hub for companies and entrepreneurs looking to utilize crypto-economic systems to power their business models. The bill outlines the confusion these companies face when buying, selling and issuing their own cryptocurrencies, such as the costs and complexities of state securities registration. These issues cause difficulties for businesses who are seeking to raise capital and create new platforms within the digital community.
Authorities are hoping that this will strengthen Colorado’s economy by creating new jobs and will attract venture capitalists, developers, and investors to the state.
This area is still unregulated at the state level in the US but this act could potentially encourage other states, as well as other countries, to address digital tokens for purposes of their securities laws. While the act applies only to intrastate digital token offerings, it does permit the Colorado Securities Commissioner, Chris Myklebust, to enter into agreements with federal, state, or foreign regulators “to allow digital tokens issued, purchased, sold, or transferred in this state to be issued, purchased, sold, or transferred in another jurisdiction and any digital tokens issued, purchased, sold, or transferred in another jurisdiction to be issued, purchased, sold, or transferred in this state”.