- The original published by Lars Schlichting, Group CEO at Poseidon Group
A proposal for an internationally compatible interpretation of the security definition applied to digital assets, with a particular focus on stable coins
This content is the part of the “Stablecoins-Money in the right direction” Stablecoin Movement
Through blockchain technology it is possible to create an asset, called token, which represents a standardized digital asset. The token can represent anything: from a cryptocurrency (e.g. bitcoin, ethereum, litecoin) to a stable coin (a token which represents a physical good deposited with a third party, such as national currencies, precious metals, etc.), from a simple voucher to access a service (so called utility token) to the dematerialization of a property, from voting rights to a small part of a work of art.
This technology allows to obtain a variety of standardized assets suitable for mass trading which, from a technological point of view, was not possible to create before. We believe that this scenario calls for a reassessment of the qualification of “security” as currently provided for in the Swiss legislation. As until only a few years ago there was not such an opportunity to make any right or good negotiable, the legal scholars and jurisprudence are not able to answer the questions which arise today on whether standardized elements such as voting rights, stable coins or parts of a work of art qualify as securities.
This document aims to evaluate the definition of “security” applied to digital tokens issued on the blockchain.
For the purposes of this proposal, we will not only define the term security according to Swiss law, but also to EU and US law, since we will use these definitions further in our argument on the interpretation of digital assets as securities.
Pursuant to art. 2 lit. b) of the Financial Market Infrastructure Act (FMIA) as well as the future art. 3 lit. b) of the Financial Services Act (FinSA), securities are standardized certificated and uncertificated securities, derivatives and intermediated securities, which are suitable for mass trading.
Digital assets do not qualify as certificated securities as they do not have a paper support and generally they are not issued as intermediated securities as they are not registered with a custodian according to the requirements of art. 6 par. 1 lit. c) of the Federal Intermediated Securities Act (FISA). Therefore, the definition of security associated to a token is to be evaluated exclusively according to the definition of uncertificated securities and derivatives.
Under the Swiss legislation, uncertificated securities can securitize ( verbriefen) three categories of rights: participation rights, property rights and credits. Therefore, in order to be qualified as a security, an uncertificated security must include one of these three rights and make it standardized and suitable for mass trading. Under the Code of Obligations (CO), the only formal requirement necessary to create an uncertificated security is to have a book kept by the debtor (Art. 973c para.3 CO). This can be accomplished digitally on a blockchain.
Art. 2 lit. c) of the FMIA describes the derivative as “financial contracts whose value depends on one or several underlying assets and which are not cash transactions”. The FMIA ordinance, art. 2 par. 2 lit. a) and b) of the Financial Market Infrastructure Ordinance (FMIO), gives a list of derivatives, i.e. “the financial contracts whose price is set particularly according to assets such as shares, bonds, commodities and precious metals or reference values such as currencies, interest rates and indices.” The above definitions imply that a derivative must have a price of its own, which is to be set according to an underlying asset.
From 1.1.2020, art. 3 lit a) the FinSA will introduce the notion of financial instruments, which includes equity security, debts instruments, units of collectives investment schemes, structured products, derivatives, deposits whose redemption value or interest is linked to the risk embedded or the interest rate and bonds.
According to this definition it appears that not all securities are to be considered as financial instruments and not all financial instruments are securities. This however will depend on the interpretation that we will give to the term security.
According to the directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (MiFID II), a security (called ‘transferable securities’ in the directive) means those classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as:
- shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares;
- bonds or other forms of securitised debt, including depositary receipts in respect of such securities;
- any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures;
The EU security definition is not giving importance to the form of the security (paper support, inscription on a ledger or other), but more to the financial aspect of the instrument.
The MiFID directive also gives a definition of financial instruments, which includes transferable securities; money-market instruments; units in collective investment undertakings; options, futures, swaps, forward; derivative instruments; financial contracts for differences; emission allowances.
In Europe therefore, a (transferable) security is always a financial instrument, but not all financial instruments are a transferable security. This differentiation is crucial, since financial instruments are covered by MiFID II and market abuse regulation, while transferable security are also subject to prospectus regulation.
According to Section 2(a)36 of the US Investment Company Act of 1940, security means:
any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subsciption, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a ‘’security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
The US Supreme Court defines the term of investment contract foreseen in Section 2(a)36 of the Investment Company Act in the decision SEC vs. W. J. Howey Co, according to which, investment contract means a contract, transaction or scheme whereby a person invest his money in a common enterprise and is led to expects profits solely from the efforts of the promoter of a third party.
According to the US security definition, therefore, if there is no expectation of a profit from a common enterprise, there is no investment contract and no security.
Token categorization in the Swiss legislation depends on the guidelines issued by FINMA on 16 February 2018 ( FINMA Guidelines), where said supervisory authority has adopted an approach focusing on the token’s economic purpose, dividing it into three categories: payment tokens, utility tokens and asset tokens.
Let’s verify, for each of these categories, under which circumstances a token is to be qualified as uncertificated security or as a derivative.
Utility tokens are tokens which are intended to provide access digitally to an application or service by means of a blockchain-based infrastructure. The only scope of a utility token is to allow the holder to use the services of the token issuer. The token can therefore be assimilated to a sort of voucher.
3.1.1. Utility tokens and derivatives
Utility tokens do not qualify as derivatives as their value does not depend on any underlying asset. The value of utility tokens increases or decreases depending on the number of users using it, and not according to the value of the service offered by the infrastructure. As a matter of fact, the price of the service, if expressed in Swiss francs, does not change but it’s the number of tokens needed to buy the service that changes depending on the token’s increase or decrease in value.
3.1.2. Utility tokens and uncertificated securities
Utility tokens can give their holders a credit to access the service offered by the token issuer or a participation right allowing them to vote on aspects of the issuer’s business. Since they are standardized and suitable for mass trading, this may result in utility tokens qualifying as securities.
According to FINMA Guidelines, “ utility tokens will not be treated as securities if their sole purpose is to confer digital access rights to an application or service and if the utility token can actually be used in this way at the point of issue. In these cases, the underlying function is to grant the access rights and the connection with capital markets, which is a typical feature of securities, is missing”.
Therefore, FINMA does not classify as securities those utility tokens which are missing a connection with financial aspects of the transaction. This applies when the token can be used immediately after its issuing and when there are no further developments of the platform advertised when the token is issued. However, if the token can be used for future services explained (and promised) when it is issued and when these future services are not considered as accessories, FINMA will qualify the token as having an investment feature. In this case, users buying the token believe that it will increase in value once the new service has been developed, which means they are buying the token not for its use but simply for speculative purposes.
The above described concept allows to point out some important element: not all standardized credits or participation rights qualify as securities, but only those credits and voting rights that are connected to the issuer’s business and have a financial element. This may be the case because the credit right gives a monetary entitlement (e.g. the interest paid by the bond or even its final repayment), or because the voting rights allow to have a financial impact on the issuer (e.g. the decision on the dividends to be distributed). The simple credit to use a service or to vote for a non-financial matter does not entail the qualification of the token as a security. The fact that the token gives a non-financial right to use the service of the token issuer appears not to be relevant for the security qualification. As we will see below, this is an important new element in the definition of security.
This conclusion appears also logical taking in consideration the requirement resulting from a qualification as security. Pursuant to art. 35 FinSA, those who offer to the public the purchase of securities must first publish a prospectus including information on the issuer, such as semi-annual or annual accounts, business situation and net revenue. The publishing a prospectus for the issuing of a utility token (like a voucher granting access to existing service offered by the issuer or voting rights relating to non-financial matters) does not make sense. On the contrary, if the value of the token is connected to the issuer’s future economic activity, then a prospectus shall be required.
According to FINMA Guidelines, “ payment tokens are tokens which are intended to be used, now or in the future, as a means of payment for acquiring goods or services or as a means of money or value transfer “ and therefore do not qualify as securities.
This category includes cryptocurrencies such as bitcoin and etherum, which give rise to no claims on their issuer. Payment tokens do not generally result in any risks for the counterpart as they do not give the issuer claims nor association rights.
From a civil law point of view, they are not goods as they are not physical assets nor uncertificated securities as they do not imply association rights or credits.
However, they are fungible which makes them sui generis assets.
According to FINMA Guidelines “ asset tokens represent assets such as a debt or equity claim on the issuer. Asset tokens promise, for example, a share in future company earnings or future capital flows. In terms of their economic function, therefore, these tokens are analogous to equities, bonds or derivatives. Tokens which enable physical assets to be traded on the blockchain also fall into this category”.
However, not all asset tokens qualify as securities. According to FINMA, asset tokens constitute securities within the meaning of Article 2 lit. b) FMIA if they represent an uncertificated security and the tokens are standardized and suitable for mass standardized trading. Asset tokens which do not have these requirements do not qualify as securities. For example, non-fungible tokens cannot be considered as a security.
Let’s see when asset tokens qualify as securities.
3.3.1. Asset tokens and uncertificated securities
As mentioned in chapter 2.1 uncertificated securities can securitize three categories of rights: participation rights, property rights and credits.
188.8.131.52. Participation rights
Asset tokens can represent a participation right, i.e. a voting right. It is in our understanding clear that not any kind of participation right is to be considered as a security.
Participation rights can be divided into two categories: participation rights without any economic value (when it gives the right to be involved in non-economic matters, like for example the decision on what color to pick for your team’s next jersey), or a participation right with financial value (for example the vote on the annual dividends). In the first case, the token does not qualify as a security, whereas it does in the second case.
This kind of interpretation, where only standardized financial related participation rights are to be considered as a security appears not only to be consistent with the utility token consideration outlined by FINMA (see above 3.1.2) but also with the EU and US practice.
184.108.40.206. Property rights
The Swiss Civil Code (SCC) includes the securitization (“ Verbriefung” “securitization “) of property rights only for the mortgage certificate (art. 842 SCC) and bond issues secured by a lien (art. 875 SCC).
In both cases, the certificated or uncertificated securities include both the mortgage and the claim (“ obligatorische Anspruch “).
As for the securitization of other property rights, the principle of correlation of property rights provided for in relevant legislation must be followed, in particular the “ numerus clausus “ principle must be applied, according to which it’s not possible to securitize other types of property rights in addition to the two mentioned.
This implies that asset tokens can represent uncertificated securities only if they include a property right on a mortgage note or on a loan obligations with real estate collateral.
From a statutory point of view, a credit is defined by legal scholars as all types of debt claims of private law for a monetary entitlement or a good (e.g. the delivery of goods).
The main question which arise today, is if this extensive notion of credit can be applied in the qualification of a security.
In case of a monetary entitlement due by the issuer and incorporated in a standardized and tradable token, this shall be recognized as a security.
This is the case since the credit is associated with a future transaction of the debtor. According t o FINMA Guidelines “ Asset tokens promise, for example, a share in future company earnings or future capital flows. In terms of their economic function, therefore, these tokens are analogous to equities, bonds or derivatives “. Like for utility tokens (see par. 3.1.2), the “future” element is crucial to this definition as the token buyer believes he will make future earnings based on the company’s development.
The existence of a “future” element in order to qualify an asset as a security is logical. One of the main consequences following the qualification as a security is the drawing up of a prospectus protecting the market and investors from dishonest behaviors and from bankruptcy of the issuer. As stated above, this prospectus is to include financial information on the issuer, on the securities issued and the estimated revenue. This information is necessary to allow investors to verify the credibility of the issuer who will have to reimburse the monetary claim in the future. The prospectus allows investors to understand whether the issuer will be able to pay off its debt and pay the investor according to its terms.
Asset tokens which are standardized and apt for mass trading implying a monetary claim payable by the issuer qualify therefore as a security. In case the token is locked and cannot be transferred, it cannot be a security even if it recognize a monetary claim
It’s however less clear if we can talk about a security if the credit is associated with a good. The law is not explicitly recognizing a security in case of a credit towards a good. Only legal scholars are. However, as stated above, we believe that the “future” and “financial” elements are crucial to the security definition. Therefore, according to our interpretation, in order to be considered as a security, this credit provision for a good needs to replace a future monetary claim to qualify as a security. This is for example the case for asset-linked-financial instruments, where the amount of the claim depends from the value of the underlying asset and it is settled in cash, or if in case of a redemption in kind, the amount of the redemption is connected with the business activity of the issuer.
The claim on a good in custody, which has no relation with the business of the issuer, is not a monetary transaction nor a future transaction and cannot be deemed as a security. In fact, in this case the drawing up of a prospectus (following the qualification as a security) would not have any impact in case of a claim on a mere good in custody.
This argument is further discussed below with the examples of stable coins.
3.3.2. Asset tokens and derivatives
Art. 2 lit. c) of the FMIA describes the derivative as “f inancial contracts whose value depends on one or several underlying assets and which are not cash transactions “.
Art. 2 par. 2 lit. a) and b) FMIO, gives a list of derivatives, i.e. “ the financial contracts whose price is set particularly according to: — a. assets such as shares, bonds, commodities and precious metals; — b. reference values such as currencies, interest rates and indices. “
The above definitions imply that a derivative must have a price of its own, which is to be set according to an underlying asset. Generally speaking, the derivative must not be associated with any other contractual relationship.
The use of a token does not change the definition of derivative, meaning that derivatives always qualify as securities even when the financial product is issued as a token on the blockchain. In that respect, technology does not result in any changes to the current practice.
One of the characteristics of cryptocurrencies, in this period of limited adoption, is their high volatility. In order to avoid this, several cryptocurrencies have been created being pegged with more economically stable values or being managed in a way that avoids the high volatility. These type of cryptocurrencies are called stable coins. The most common ones are associated with currencies (e.g. dollars, euros, francs), precious metals (e.g. gold) or guarantee stability through financial transactions. In the last few months, several stable coins have been issued on different currencies as well as on precious metals such as gold, or on assets baskets managed by algorithms.
The qualification as a security of a stable coins takes place according to the above-mentioned criteria. Let’s have a look at the main ones.
Stable coins on fiat currencies are tokens allowing their holders to reclaim the fiat currencies held in custody by the issuer on behalf of the token holder. Keeping the relevance of banking law out of this analysis, stable coins on fiat currencies qualify as payment tokens as they are used as a mean of payment. Applying the FINMA Guidelines we consider these tokens also as representing an asset value (the fiat currency) therefore they also qualify as asset tokens.
In this case, the issuer acts as the depositing party of the fiat currencies pursuant to art. 472 et seq. CO on behalf of the token holder. Therefore, the token holder has a monetary credit right towards the token issuer. However, we believe that in order to assess whether the credit right is such to be qualified as an uncertificated security, and therefore as a security, the credit claim needs to be impacted by the future development of the issuer’s business. This depends on how the money is deposited. If the currency is deposited on a separate account, which cannot be used by the issuer and with a contract allowing, in case of bankruptcy of the issuer, to segregate the assets deposited in favor of the token holders without the need to register the credit in the creditors claiming list according to art. 146 Swiss Bankruptcy Act, then the monetary claim is not associated with the future business of the company and should not qualify as an uncertificated security. However, if the amount is deposited in such a way that it is included in the issuer’s account books and bankruptcy assets, then the reimbursement claim also depends on the company’s development and the token buyer may want to know the issuer’s financial situation before going ahead with the token purchase (as the same would possibly be subject to counterparty risk). In this case the stable coin on fiat currencies shall be considered as a security, a prospectus shall be required and the information included in it can influence the token holder on whether he wants to buy or not.
Stable coins on precious metals have the same functionality as stable coins on currencies, using exclusively precious metals instead of currencies. Applying the FINMA Guidelines, these token are also to be qualified as hybrid tokens, since they can be used as a mean of payment or investment. Unlike stable coins on fiat currencies, the issuer of precious metals tokens can decide whether to allow a redemption in kind or in cash.
When buying a stable coin on precious metals, the parties enter into a deposit contract pursuant to art. 472 et seq. CO, where the depositing party has a personal credit, of a contractual nature, for the reimbursement of the deposited good (redemption in kind) or the value of the good (redemption in cash) . In such later case, not only a deposit contract but also a financial contract to reclaim the value of the precious metals is concluded.
The qualification of stable coins on precious metals varies therefore depending on whether the redemption of the token can be done only in kind or also in cash.
When the token holder has only the right to require a redemption in kind, there is no monetary credit right associated with a future transaction, but a personal credit which is specific to an actual good. In the same way as FINMA does not qualify as a security an utility token which gives a standardized right to claim for a service, also a claim for good which is not related or connected with the activity of the issuer and whose value is not related with the activity of the issuer, shall not be qualified as a security.
Furthermore, since the stable coin represents a direct investment (on the precious metal) and not an indirect one, this type of token does not classify as a derivative. In fact, the token does not have a value in itself, since the only value is that of the underlying asset.
Since they do not represent uncertificated securities nor derivatives, stable coins only allowing the redemption in kind do not qualify as securities.
On the contrary, when the token issuer agrees a redemption in cash, he enters into a financial contract with the holder whose value depends on the underlying asset. In this case, the token represents a derivative and qualifies as a security.
However even in the case of a redemption in kind, if the token issuer does not hold the metal in custody or agrees to lend the precious metal to third parties, then the token holder’s claim will only be of a financial nature and therefore the token will qualify as a security.
In order to avoid a credit right, stable coins must only represent the deposited metal: the number of issued stable coins must be identical to the amount of deposited metal (e.g. 1'000 tokens equal 1'000 grams). If this is not the case, the token holder would have the right to get a refund in cash based on the price of the metal and the stable coin should again be considered as a security. On the contrary, when every issued token corresponds to gold deposited with the issuer, the token holder’s claim to get the gold deposited back is covered by the off-balance sheet gold deposits. Should the issuer declare bankruptcy, in the first case the token holder has only a monetary credit right towards the bankruptcy assets, requiring therefore a registration within the creditor claiming list; in the second case he would have a segregation right for the gold deposited with the custodian and would be able to get back the deposited gold without the need to share it with the other creditors. This explains why in the first case investors need to know whether the company will be able to pay the promised amount and, therefore, they need a prospectus and the information on the issuer financial status, whereas in the second case the issuance of a prospectus does not have any impact on the purchase decision of the token holders.
This interpretation appears to be consistent with the EU law, since according to MiFID II, derivatives based on commodities which are settled in cash are considered as financial instruments, while derivatives which foresees only a redemption in kind are considered as financial products only if they are traded on a regulated market.
Asset backed tokens can be developed with other types of values, like paintings or vintage cars. Generally the goods are deposited with an Escrow Agent, which keeps them on behalf of the issuer, whereas the token holders are to be considered as co-owners and the token represents proof of property. If the token is not fungible and represents the deposited asset, it is not a standardized asset and therefore it is not to be considered as a security. If the token is used to represent one part of the good (for example when a painting is divided into many identical tokens, whereas one single token does not represent a particular painting) and if the number of tokens is higher than 20, then the asset is considered to be standardized. In this case, since the token cannot entitled to gave rights on the good (the painting will not be destroyed in order to give one small part of it to each token holder) but only rights on its value (the part of the value of the painting represented by the token), the token shall be qualified as a derivative and, consequently, as a security.
Blockchain will allow the remote transfer of value and the creation of different types of digital assets. This technology is creating and will create new types of securities. With this contribution we tried to explain the necessary elements to establish whether tokens issued on the blockchain qualify as securities or not, emphasizing the need for a monetary claim or its association with the company’s business for a qualification of the tokens as securities. We believe that a qualification of securities according to this study would allow help the blockchain to flourish, without putting at risk the interest of investors or of the financial market, as well as bring a more consistent qualification of the security definitions compared with EU and US legislation.
Att. Rossella Dressi Petrini, co-writer and Att. Umberto Milano for the review of the work which definitely help to improve the readability and quality of the paper.
 Arthur Meier Hayoz, Hans Caspar von der Crone, Wertpapierrecht, Stämpflis juristische Lehrbücher, 3. Überarbeitete Auflage, Zürich 2018, page 1, n. 1.
 FINMA Guidelines, page 4, no. 3.2; Swiss Legal Tech Association (SLTA), Regulatory Task Force Report, 27 April 2018, p. 27.
 Also because the custodian, pursuant to Art. 4 para. 2 FISA, has to be a prudentially supervised entity. Therefore, the custodian needs to have a license as a bank, a securities dealer, a fund management company or a central securities depository.
 In connection therewith, art. 3 of Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories provides that “any issuer established in the Union that issues or has issued transferable securities which are admitted to trading or traded on trading venues, shall arrange for such securities to be represented in book-entry form as immobilisation or subsequent to a direct issuance in dematerialised form”. A contrario, it can be impliled that transferable securities (and, more generally, financial instruments) do not qualify as such only because of their form (as certificated or uncertificated instruments).
 Moreover, the need for a financial element appears to be confirmed in Italy by CONSOB, according to which, in general, investments in consumer assets are not considered as financial instruments “ non rientrano nella nozione di prodotto finanziario le operazioni di investimento in attività reali o di consumo, cioè le operazioni di acquisto di beni e di prestazioni di servizi che, anche se concluse con l’intento di investire il proprio patrimonio, sono essenzialmente dirette a procurare all’investitore il godimento del bene, a trasformare le proprie disponibilità in beni reali idonei a soddisfare in via diretta i bisogni non finanziari del risparmiatore stesso “ (CONSOB, Comunicazione n. DTC/13038246 del 6–5–2013).
 FINMA Guidelines, pag. 3, n. 3.1
 FINMA Guidelines, pag. 4, no. 3.2.2.
 This interpretation is similar but not identical to the Howey Test created in the United States to identify a security. See Securities and Exchange Commission v. W. J. Howey Co., 328 U.S. 293 (1946).
 FINMA appears to use, for its qualification as a security, a sort of US approach, where it made a sort of presumption that if the services offered by the issuer of the utility token are already existing, then the purchasing of the token is done in order to acquire the service and not for investment purposes. However, the SEC appears to be much stricter in the definition of security, recognizing the investment purposes of the tokens also in the case the services can already be used by the token holders, but these are clearly purchasing the tokens with the aim to the resell them rather than use them.
 We have expressely avoid a qualification of Ethereum back to the date of its ICO, but stay strict to a qualification at the time of the publication of this contribute.
 R. Kogens, C. Luchsinger Gähwiler, ein 360 Grad Blick auf Token, EXPERTsuisse, EF 8/18, page 592.
 Arthur Meier Hayoz, Hans Caspar von der Crone, Wertpapierrecht, Stämpflis juristische Lehrbücher, 3. Überarbeitete Auflage, Zürich 2018, pagg. 4, N. 16; Traité de droit privé Suisse VIII/7, Anne Petitpierre-Sauvain, Les papiers valeurs, pag. 37, n. 102; Hans Kuhn, Handkommentar zum Schweizer Privatrecht, GmbH, Genossenschaft, Handelsregister und Wertpapiere-Bucheffektengesetz Art. 772–1186 OR und BEG, pag. 822–823, n. 21, Schulthess, Zürich 2016
 Hans Kuhn, Handkommentar zum Schweizer Privatrecht, GmbH, Genossenschaft, Handelsregister und Wertpapiere-Bucheffektengesetz Art. 772–1186 OR und BEG, pag. 822–823, n. 21, Schulthess, Zürich 2016
 See ESMA Security and Market Stakeholder Group, Own initiative report on Initial Coin Offering and Crypto Assets, no. 43 “ Asset tokens representing a monetary claim on the issuer share characteristics with securities or derivatives”, and diagram at no. 48, which does not call for a prospectus for assets with a “redemption in kind”. Also article 4, paragraph 1, sub-paragraph 44 of the European Directive 2014/65/UE of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments amending Directive 2002/92/CE and Directive 2011/61/UE qualifies as securities “any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures “. This interpretation complies with the European Law when tokens qualify as securities only when they give right to a financial claim, and not when they only provide for the goods to be reclaimed.
 Kommentar zum Finanzmarktinfrastrukturgesetz FinfraG, ad. Art. 1, pag. 58
 See Vaik Müller and Vincent Mignon article in Gesellschafs-und Kapitalmartkrecht (GesKR) 2017, pag. 491
 The custody of fiat currencies on behalf of third parties equals accepting deposits from the public therefore it requires a banking license or one of the exceptions provided for in art. 5 of the ordinance on banks.
 Thévenoz, Werro, Code des obligations I, art. 1–529 CO, ad art. 475, 476 page 2836, n. 16
 An exception could exist if to cover the costs related to the deposit (which shall be borne by the token holder), the token issuer deducts every year the deposit costs from the precious metals in custody.
 See ESMA Security and Market Stakeholder Group, Own initiative report on Initial Coin Offering and Crypto Assets, no. 43 “ Asset tokens representing a monetary claim on the issuer share characteristics with securities or derivatives”, and diagram at no. 48, which does not call for a prospectus for assets with a “redemption in kind”. Also article 4, paragraph 1, sub-paragraph 44 of the European Directive 2014/65/UE of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments amending Directive 2002/92/CE and Directive 2011/61/UE qualifies as securities “any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures “. We have however to point out that in this document the ESMA Security and Market Stakeholder Group is seeking ESMA to take position on asset token backed by commodity in order to clarify their qualification.
 Kogens, C. Luchsinger Gähwiler, ein 360 Grad Blick auf Token, EXPERTsuisse, EF 8/18, page 596
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Originally published at https://medium.com on July 18, 2019.