Financial Regulations Compliance
Velocity Network Foundation will introduce a utility token that will act as a proprietary payment currency within the Velocity ecosystem. The key objectives we want to achieve with the Velocity token mechanics are:
- Reward “Human Capital” data processors, for the computational power they contribute and for validating transactions while maintaining complete integrity.
- Incentivize Credential Issuers to provide assertations
- Incentivize Users to utilize and allow controlled access to their personal data in various use cases
- Reward early adopters for their contribution to building the value of the network
At the moment, cryptocurrencies are defined by financial regulators as commodities, a form of currency, securities or other financial assets, and are subject to regulation by monetary or commodity authorities.
If classified as securities, tokens are subject to certain disclosures and registration requirements.
Utility tokens represent future access to a product or service. The defining characteristic of utility tokens is that they are not designed as investments; if properly structured, this feature supposedly exempts utility tokens from laws governing securities, but regulators in most jurisdictions have not given official guidance on utility tokens yet, so the industry does not have certainty in which exact situations crypto tokens can be clearly classified as utility tokens.
A big milestone for the industry was June 2018, when the U.S. Securities and Exchange Commission (SEC) published a statement on Ethereum where it was described as a utility rather than a security — the first time that an American regulator has publicly accepted the existence of utility tokens. Another big announcement came early April 2019, when the SEC has published fresh regulatory guidance for token issuers, nearly half a year in the making. The guidance focuses on tokens and outlines how and when these cryptocurrencies may fall under a securities classification. The framework itself outlines several factors that token issuers must consider before evaluating whether their offerings qualify as securities. While this guidance has been a long time coming and provides some legal clarity for token issuers, it is not a legally binding document and should be seen more as a guideline.
There is no doubt that the issue of compliance with financial regulations requires further analysis. We continue to work with leading legal advisors in this filed to achieve more certainty and maintain full compliance to financial regulations.
In this light it’s important to mention a few defining characteristics of the Velocity token:
- It will not be offered in an ICO under the promise to build a business or operation but rather be used as an internal currency to pay for services within a fully operational network.
- Tokens can be purchased in exchange for Fiat only to be immediately spent on access to network services.
- Token price is set only by the market in accordance with the value of the services that can be acquired in exchange for the token.
- There are no participants external to the ecosystem that can trade speculatively and affect the token price. Tokens can be earned by contributing to the network or purchased to access services. The token is available in increments that correlate with a consumptive intent versus an investment or speculative purpose, and the network services can only be acquired using the token.
- The token is not transferable outside the network and the demand comes only from inspectors as they wish to pay for network services. Transfers of the Tokens may only be made by and among users of the platform.