Regulations in US

As mentioned on the previous page, United States is one of the most significant markets in the world due to its large size, vast customer base, and the substantial amount of capital available. If you're offering Real-World Assets (RWAs) on the blockchain, you're essentially offering securities, which means you must comply with U.S. regulations.

Important Regulations

Some of the key regulations and licenses that can apply security tokens if you are offering them to normal public are:

1. Securities Laws:

   • What It Means: Security tokens are treated like traditional securities (like stocks or bonds) because they often represent an investment and the expectation of profits based on the efforts of others. This classification triggers the need for compliance with securities laws.

   • Why It Applies: These laws protect investors from fraud and ensure that the companies issuing tokens operate transparently and provide necessary information to potential investors. The rules require most security tokens to be registered with the SEC, unless they qualify for an exemption.

2. Broker-Dealer Regulations:

   • What It Means: Firms that sell, buy, or facilitate the trading of security tokens might need to register as broker-dealers. This means they have to meet high standards for financial responsibility and fair dealing.

   • Why It Applies: This registration helps protect investors by ensuring that the firms handling their investments are stable, trustworthy, and comply with fair trading practices.

3. Alternative Trading System (ATS):

   • What It Means: If a platform facilitates the trading of security tokens, it might need to operate as an ATS. These platforms are regulated venues that match buyers and sellers but aren't full-fledged exchanges.

   • Why It Applies: Registration as an ATS ensures that these trading platforms operate under SEC oversight, promoting fair and efficient markets.

4. Money Services Business (MSB):

   • What It Means: Companies that handle transactions of tokens might need to register as MSBs, which subjects them to regulations aimed at preventing money laundering.

   • Why It Applies: This registration helps track the flow of money and prevent illegal activities like money laundering, ensuring that transactions are legitimate and transparent.

5. Custodians:

   • What It Means: Custodians are responsible for safely storing security tokens, especially the cryptographic keys needed to access these digital assets.

   • Why It Applies: Proper custody prevents theft or loss of tokens, which is crucial for protecting investors' assets. Regulatory standards ensure that custodians have robust security measures in place.

6. Transfer Agents:

   • What It Means: Transfer agents manage the record-keeping for the issuance and transfer of security tokens. They ensure that token ownership records are accurate and that transfers are processed correctly.

   • Why It Applies: These agents help maintain the integrity of the securities market by ensuring that all transactions are properly recorded and reflected, which is essential for clear ownership and compliance with securities regulations.

Companies involved in issuing or trading security tokens must navigate these regulations carefully, often with the guidance of legal and financial experts.

Avoiding Regulations

There's some flexibility though. If you decide to test your product with a small group of users, you may be able to qualify for exemptions from many of the cumbersome time and effort consuming regulations. The U.S. regulatory framework is more accommodating if you are targeting accredited investors or professional investors.

Given this, it's wise to start by focusing on a specific segment of the U.S. market, such as accredited investors, or even consider launching outside the U.S. first. This approach allows you to validate your product and establish a market presence without immediately facing the full burden of U.S. regulations. Once you feel you have found product-market-fit and you’re ready to scale, you can then consider expanding your focus within the U.S. market, fully complying with the necessary regulations.