Initial Coin Offerings – Are tokens transferable securities

In both financial law and company law, how we should treat security tokens in relation to initial coin offerings is potentially problematic. This paper examines the legal qualification of security tokens in financial law and the derived consequences it should have for the treatment of security tokens in company law. Through an analysis of the applied approaches in the US and the EU it is argued that both jurisdictions prioritise function over form in the assessment of tokens. This leads to the conclusion that within the EU, security tokens are covered by the definition of transferable securities in Article 4(1)(44) of Directive 2014/65/EU. It is further concluded that this legal qualification should in most cases be applied within company law as the difference between transferable securities and company shares and other financing instruments available to the company is insignificant. Finally, it is recommended that the supervisory authorities in the EU centralise their activities to a higher degree in order to achieve greater harmonisation across Member States.