The token holders

Brief notes on tokens

The token holders are the owners of tokens, which can briefly be described as computer files created within a Distributed Ledger Technology (DLT) network and recorded in a common database.

Having posited this first, essential definition, it is believed that the substantive and legal nature of tokens is more readily understood where it is defined by moving from a number of distinctions.

First, tokens are distinguished on the basis of the function to which they are preordained, into:

• tokens representing cryptocurrencies, with no embedded rights or liabilities;
• payment tokens, which are intended to replicate the functions of currency, maintaining a fixed value and representing the liabilities of the issuer. They include stablecoins, tokens issued by central banks (being tested) and non-convertible tokens;
• utility tokens, which are non-tradable and incorporate only administrative rights or user licenses. These include Non Fungible Tokens (NFTs), which represent ownership rights to unique (non-fungible) physical or digital assets;
• asset or security tokens (investment tokens). These, in particular, are negotiable and transferable, representing entrepreneurial projects, or physical and financial assets that give the holder property and administrative rights.

The tripartition into payment tokens, utility tokens and security tokens has been officially proposed by FINMA (Swiss Market Supervisory Authority) in the “Practical Guide to Initial Coin Offerings” published on Feb. 16, 2018.

The same was later reiterated by the EBA (European Banking Authority) in “Report with advice for the European Commission on crypto-assets”, published on Jan. 9, 2019.

However, according to some scholars, this tripartition has a purely indicative value, because it is important to better consider the complexity realty of tokens, thus proceeding with a case-by-case analysis, in order to make a correct classification.

Second, based on the issuing procedure, tokens are distinguished according to whether they are issued in one slot or minted by a defined entity and offered through an ICO (Initial Coin Offering) or an IEO (Initial Exchange Offering).

Brief notes on security tokens

Security tokens can, in turn, be distinguished into:

• digitally native security tokens: programmable financial instruments, created as smart contracts residing on a DLT, which can form the basis of, e.g., so-called "Distributed autonomous organizations" (DAOs);
• purely synthetic security tokens;
• security tokens originated by traditional financial entities.

The token holders in a decentralized autonomous organization

Those who have conferred crypto assets to a decentralized autonomous organization (DAO), thus receiving security tokens in turn, become members of the organization.

They can obtain governance or non-governance tokens (for further details see “DAO governance”), so their rights, which derive from the tokens themselves, can vary.

In general, DAO’s tokens grant patrimonial rights, which imply a return on investment. In this sense, there are two possible type of benefit:  (1) the token owner can receive different types of benefits, such as discounts, additional token or cash; (2) the owner can resell its token and thus obtain additional amount of cryptoassets.

Moreover, they grant administrative rights, which imply a right to public proposals on the shared platform, both in relation to new transactions and, for example, in order to change the DAO's organizational rules; together with voting rights.

References

• G. Farina, Blockchain, DLT, valute virtuali, cripto-attività: la disintermediazione finanziaria, in Diritto dell’innovazione, edited by A. Blandini, Cedam, Milano, 2022, p. 449.
• P. Hacker, Corporate Governance for Complex Cryptocurrencies ? A framework for Stability and Decision Making in Blockchain-Based Organizations, in Regulating Blockchain. Techno-Social and Legal Challenges, edited by P. Hacker, I. Lianos, G. Dimitropoulos, and S. Eich, Oxford University Press, 2019, p. 32.
• R. Piselli, Quando la decentralizzazione delle DLT incontra il mercato dei capitali. Appunti sulle organizzazioni decentralizzate, in AGE, 2019, pp. 373 ss.
• C. Santana, L. Albareda, Blockchain and the emergence of Decentralized Autonomous Organizations (DAOs): An integrative model and research agenda, in Technological Forecasting & Social Change, 2022, p. 5.
• A. Stanescu & T. Velea, SLV Legal, The emergence of DAOs: From legal structuring to dispute resolution, in Blockchain & Cryptocurrency Regulation 2023, Fifth Edition, Global Legal Insight, 2023, pp. 206-207.