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The evolution of Crypto-assets has transformed the global financial landscape, introducing new forms of investment and exchange methods and Expedit Capital is part of this new financial horizon. Expedit Capital, through its Financial Asset Tokenization Platform, offers different solutions for the issuance of Regulated Security Tokens such as Tokenization as a Service, Market Place Projects, Private Investment Funds, and Issuance of Security Tokens or Security Token Offerings - STOs. In this context, it is essential to understand the differences between Security Tokens and Cryptocurrencies, and the emerging regulation in Europe through the MiCA Regulation - Markets in Crypto-Assets. In this article, we will explore these concepts, their implications, and how regulation is shaping this new Digital Investment ecosystem.
Definition of Cryptoassets
Crypto assets are digital representations of value that use Blockchain technology to secure transactions and control the creation of new units. They can be transferred, stored, and traded electronically. Within this category, there are two main types: cryptocurrencies and security tokens.
1.1 Cryptocurrencies
Cryptocurrencies are a type of crypto asset that functions as a medium of exchange. Notable examples include Bitcoin, Ethereum, USDT, USDC, and several others. These digital currencies operate on decentralized Blockchain networks and their value is based on market supply and demand, as well as user adoption of the technology.
1.2 Security Tokens
Security tokens, on the other hand, are digital representations of ownership of a traditional financial asset, such as stocks, debt bonds, participation rights, real estate, futures contracts, etc. Security tokens grant their holders rights similar to those of traditional shareholders, allowing the transfer of ownership and, in many cases, access to dividends or interest. Unlike cryptocurrencies, Security Tokens are subject to stricter regulations through the Securities Commissions, as they are considered financial instruments.
2. Key Differences between Cryptocurrencies and Security Tokens
2.1 Purpose
- Cryptocurrencies: Their main function is to act as a medium of exchange or store of value and do not represent ownership of a physical asset.
- Security Tokens: These represent the ownership of a tangible or intangible real-world asset or RWA - Real World Assets. Their value is linked to the underlying asset they represent.
2.2 Regulation
- Cryptocurrencies: Although they are still beginning to be regulated, cryptocurrencies generally face a less stringent regulatory framework. Regulation is evolving and varies significantly between jurisdictions.
- Security Tokens: These are subject to existing regulations in the Varlores Laws, which implies more rigorous compliance in terms of investor protection and disclosure of information.
2.3 Underlying Value
- Cryptocurrencies: Their value is mainly determined by the volatility of supply and demand in the market, as well as by the adoption of the technology.
- Security Tokens: Their value derives from the asset they represent, which gives them a tangible and stable backing.
3. MiCA Regulation - Markets in Crypto-Assets
The MiCA Regulation, approved by the European Parliament in April 2023, is a pioneering regulatory framework that seeks to establish uniform rules for cryptoassets in the European Union. Its effective implementation will begin on December 30, 2024, although some provisions have already entered into force.
3.1 MiCA Objectives
MiCA's main objective:
- To protect consumers and guarantee the integrity of the market.
- Regulating public offerings of cryptoassets - ICOs.
- Ensure that investors are better informed about the risks associated with crypto assets.
3.2 Scope of Application
MiCA applies to all crypto assets that are not regulated by existing financial and securities legislation, such as:
- Asset reference tokens: Crypto assets whose value is linked to other assets.
- E-money tokens: Designed to function as a means of payment, including stablecoins.
- Utility tokens: These provide access to specific products or services within a blockchain platform.
3.3 MiCA Exclusions
It is important to note that MiCA does not apply to certain types of crypto assets, including:
- Security tokens: These fall outside the scope of MiCA, as they are considered financial instruments and are subject to stricter regulations under Directive 2014/65/EU on markets in financial instruments and securities.
- Non-fungible tokens (NFTs): These unique assets are also excluded from MiCA regulation, although their inclusion could be considered in the future if they have fungible characteristics.
4. Implications of the MiCA Regulation for Security Tokens
MiCA regulation has a significant impact on the cryptoasset ecosystem, but the exclusion of Security Tokens opens a new horizon in the financial and securities market and raises questions about how they will be regulated in some countries.
4.1 Clear Regulation
The exclusion of Security Tokens in MiCA means that these will continue to be subject to existing regulations through the Securities Commissions. This provides a clear framework for issuers and investors, which fosters confidence in the Security Token market.
4.2 Opportunities for Innovation
As Security Token markets continue to evolve, regulatory clarity opens the door to new opportunities for innovation. Companies like Expedit Capital have the opportunity to exploit the tokenization of traditional assets, making it easier for retail investors to access investments that were previously difficult to reach.
4.3 Compliance Challenges
However, strict regulation also presents challenges. Companies such as Expedit Capital that issue Security Tokens through Security Token Offerings - STOs must comply with disclosure and investor protection requirements.
5. The Future of Crypto assets and Regulation
As the cryptoasset market continues to grow, we are seeing greater convergence between cryptocurrencies and Security Tokens. The MiCA regulation is an important step towards creating a more consistent and harmonized framework in Europe, but it is also essential that regulators around the world adapt to the rapidly evolving nature of this technology.
5.1 Global Trends
Globally, several countries are adopting different approaches to the regulation of cryptoassets. The United States and some European Union countries have established clear regulatory frameworks for security tokens, while others are still in the process of defining their policies, and in LatAm, it is practically non-existent. This diversity leads to a competitive environment where jurisdictions that offer more favorable regulations will attract more innovators and companies such as Expedit Capital, whose Financial Asset Tokenization Platform complies with all the regulations of both the United States and the European Union.
5.2 The Importance of Education
Education and awareness of crypto assets and their regulation are critical to the success of this new ecosystem. Investors must understand the differences between cryptocurrencies and Security Tokens, as well as the risks associated with each. MiCA regulation helps provide an educational framework that benefits consumers and fosters confidence in the marketplace.
Advantages of doing a Regulated Security Token Offering with Expedit Capital:
Access to Global Capital: The issuance of Security Tokens allows companies to access a global investors market. This broadens the available capital base and facilitates more efficient fundraising.
2. Enhanced Liquidity: Security Tokens can be traded on exchange platforms or within Expedit Capital's platform through its Private Secondary Market, which provides greater liquidity compared to traditional assets. This means that investors can easily buy and sell Security Tokens, which attracts more investors.
3. Reduced Transaction Costs: Real World Assets (RWA)Tokenization significantly reduces the costs associated with issuing and trading traditional securities. By eliminating intermediaries and using blockchain technology, companies save on fees and commissions.
4. Transparency and Security: The blockchain technology used by Expedit Capital provides an immutable record of all transactions, which increases transparency and security. This generates confidence among investors and facilitates regulatory compliance.
5. Access to New Markets: Tokenizing with Expedit Capital allows companies to issue fractional assets, meaning that investors can purchase a portion of an asset, rather than having to buy it in its entirety. This opens up a new horizon for asset investments, which were previously inaccessible to many.
6. Regulatory Compliance: Security Tokens are designed to comply with existing securities regulations, which facilitates investor confidence and reduces the risk of legal problems.
Advantages of Investing in Security Tokens with Expedit Capital
Investment Diversification: Security Tokens issued through Expedit Capital allow investors to diversify their portfolio by accessing a variety of tokenized assets, from real estate to stocks of emerging companies.
2. Yield Potential: As with traditional securities investments, Expedit Capital's Security Tokens offer attractive returns through dividends, interest, or capital appreciation.
3. Participation in Innovative Projects: Investing in Expedit Capital's Security Tokens means participating in innovative projects and startups using blockchain technology, which is more exciting and potentially lucrative.
4. Access to Real-Time Information: Expedit Capital's platform allows investors to access 24/7 real-time online information about their investments, facilitating informed decision-making.
5. Investor Protection: Expedit Capital's Regulated Security Tokens offer a level of investor protection not present in other types of cryptoassets. This includes disclosure requirements and investor rights.
6. Ease of Transfer: The digital nature of Expedit Capital's Security Tokens allows for fast and efficient transfers, a significant advantage over traditional securities transfer processes.
Issuing and investing in Security Tokens with Expedit Capital represents numerous advantages for both companies and investors. The combination of access to capital, liquidity, transparency, and regulatory compliance makes Expedit Capital's Security Tokens an attractive option in today's financial landscape.
If you need to raise capital for your private investment projects or want to invest in Regulated Security Tokens, contact us now!