Israeli Regulator Designates Utility Tokens Issued by Companies as Securities

The Israel Securities Authority (ISA) recently ruled that utility models issued by companies are securities and therefore cannot be classified as assets. The ISA’s decision was made after Israeli technology startup Kirobo tried to convince the regulator that the proposed token issue was not a security offer.

Token Value Growth

However, in response to Kirobo’s claims, the ISA released a position paper explaining why the proposed token offering “should be subject to Israeli securities regulations”. In setting aside Kirobo’s averages, the ISA insists that the “tokens should be viewed as securities, either because of the risk of holding them or because of buyers’ expectations of short- or long-term returns. “

The regulator also highlights an important aspect of Kirobo’s proposal that appears to undercut the utility model claims. In the position paper, the ISA reveals that “Kirobo’s plans to hold 0.8% of the tokens indicate that the value of the tokens should increase”. The slider adds:

There is a likelihood that there will be investors who buy the token for financial purposes and with the expectation that its value will increase, which is characteristic of investments in securities.

Regulators that regulate cryptos

The rest of the report, which doesn’t reveal how the tech startup responded to the ruling, implies that the ISA’s stance is similar to the US stance on Ripple’s token. Towards the end of 2020, regulators in the US stated that the issuance of the XRP token was in violation of US securities law. The SEC has now filed a $ 1.3 billion lawsuit against Ripple and its executives for these alleged violations.

Meanwhile, the report states that the two countries’ decisions were made at a time when “financial regulators are still looking at how to regulate cryptocurrencies like Bitcoin and its competitors.” The report concludes by suggesting that “future court battles could determine whether cryptocurrencies can make the leap from niche to mainstream asset”.

What exactly should be called a utility or a security token? You can let us know what you think in the comments section.

Photo credit: Shutterstock, Pixabay, Wiki Commons

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