Web3-based platform token securities legal review

Law firm Veat received a request from company A, an operator of a Web3-based platform (hereinafter “the Client”), to review the securities nature of tokens.

The Client inquired about the requirements and procedures necessary to ensure that the process of listing tokens issued by the Client on a virtual asset exchange does not violate the “Act on Capital Markets and Financial Investment” (hereinafter “the Capital Market Act”).

The Law firm Veat Virtual Asset Team comprehensively analyzed the Financial Supervisory Authority's position and relevant laws and thoroughly analyzed the white paper content, including token functions, issuance purpose, and user rights, to review whether the token in question constitutes a security.

If the token is deemed to have securities nature, it must comply with various regulations such as disclosure obligations under the Capital Market Act, which could pose a significant legal risk to the company. We provided detailed guidance on this and assisted the company in developing necessary countermeasures.

Security Tokens and Investment Contract Securities

A security token means issuing the rights of a security in the form of a cryptocurrency using blockchain distributed ledger technology. The Financial Supervisory Authority has operated a securities review committee since February 2022 to determine the investment nature and securities nature of tokens, NFTs, and other virtual assets. If the committee determines that a virtual asset constitutes a security under the Capital Market Act, the virtual asset will be subject to the regulations of the Capital Market Act.

​Whether or not an investment contract security is involved is important in determining the securities nature of a token. An investment contract security is a type of security governed by the Capital Market Act, and the Capital Market Act defines it as an agreement where a specific investor invests money or other assets in a joint business with the investor and others, and receives the profits or losses from the joint business primarily performed by the other party (Article 4(6) of the Capital Market Act).

​Therefore, it is desirable to review whether the token meets the requirements of an investment contract security from the project inception stage, conduct business based on this review, and prevent legal risks in the future.

Law firm Veat has extensive experience in providing legal advice related to blockchain and virtual assets, and provides legal services reflecting the latest financial regulations and technological trends.

​In particular, Partner Attorney Ahn Il-woon of Law firm Veat has deep expertise in the blockchain field and actively engages in legal advice and contributions regarding virtual currency and other virtual assets. He has been appointed as a member of the Korea Bar Association's IT Blockchain Special Committee in recognition of his years of experience in the blockchain field. Also, Senior Foreign Attorney Song Woo-seok of Law firm Veat served as a senior legal counsel for Binance, the world's largest virtual asset exchange, and provides legal advice on virtual asset-related issues, anti-money laundering (AML), cross-border M&A, and other matters for numerous domestic and international blockchain projects and exchanges.

​If you need legal advice regarding virtual assets, the Capital Market Act, or other aspects of blockchain business, please contact Law firm Veat as your legal partner.

​Thank you.

Law firm Veat