Blockchain technology and the applications that use it (such as cryptocurrencies) consist of an intricate global computer network system. The complexity of this system is accompanied by a whole new way of thinking about business and money. There is no denying that this technology is here to stay. When it comes to security tokens,n accredited investor compliance is an important part of both legal compliance and the integrity of the system.
As the technology surrounding blockchains improves, the applications operating on them improve as well. This includes security tokens which have taken the place of previously unregulated ICOs. Security token offerings are poised to overtake traditional ways of trading, selling, and managing securities backed by real assets. The marketplace is massive and security tokens are changing it.
What are Security Tokens?
Security tokens can be described as digitized securities in the traditional sense. You already know what it means to hold a security if you have any type of investment in vehicles such as real estate, stocks, bonds, or CDs. Your paper stock certificate would be replaced by a digitized version through a security token. Investing in the security token means you are investing in its underlying asset.
What About Security Token Accredited Investor Compliance?
Security tokens include multiple smart contracts which are programs designed to execute automatically when a specified criterion is fulfilled. These contracts regulate how the token can be sold, bought, and traded in accordance with all relevant regulations. These transactions are performed on the blockchain making them traceable, transparent, and incontrovertible. This removes the possibility of non-compliant selling, buying, or trading of securities.
In the United States, the majority of security tokens are offered through an SEC exemption. One of the most commonly-used exemptions is Rule 506(c) of Regulation D, which permits unlimitedaccredited investors to participate in an offering. A security token can be coded to ensure investors are only permitted to trade, buy, or sell the tokens if they have successfully passed KYC/AML accreditation and can prove their accredited investor status.
As part of security token accredited investor compliance, the token issuer can monitor the offering to make sure that only accredited investors are able to participate. This represents a considerable advantage in speed and compliance over traditional securities due to almost instant verification of compliance.
