After getting familiar with the benefits of the Serbian Crypto (Digital) Assets Law (Law), and advantages that Serbia as a jurisdiction can offer, we are moving to the step one of every tokenized ecosystem. And that is raising capital or funding through the issuance of digital tokens.
Before we start, let's recall that any person, including foreigners, could issue a token according to the Law. Law divides crypto assets only into two categories: virtual currencies and digital tokens. For the purposes of this article, we will not be too interested in virtual currencies since their main function is a means of payment or exchange. Our focus will be on digital tokens, which the Law defines as a type of crypto assets in which any property right can be incorporated as well as the right of the token holder to request certain services to be provided.
The Law stipulates that the Securities Exchange Commission (SEC) is competent for digital token issuance, whether being an investment or utility token. Law does not specifically regulate utility tokens or investment tokens.
Type of token
In accordance with the definitions and competencies prescribed by the Law, the first question that a potential issuer of crypto assets should ask itself is whether the crypto asset it plans to issue is a virtual currency or a digital token. It is important to note that the issuer's decision that a certain crypto asset is a virtual currency or a digital token has no significance, rather its nature is determined in accordance with the characteristics of a particular crypto asset.
Law does not specifically regulate utility tokens or investment tokens status.
After a decision was made to issue digital token, the second question arises and that is whether digital token has all characteristics of a financial instrument listed in the Capital Markets Act (CMA). If the digital token does not have the all characteristics of a financial instrument, only the provisions of the Law (not CMA) will apply to its issuance, which represents a huge relief in terms of the issuance procedure.
Capital market regulation exemption
Under the CMA financial instruments issuance could be performed only through Central Registry of Securities who does not recognize blockchain technology as compliant at this moment. However there is an CMA application exemption regarding token issuance in case of tokenized financial instruments when following conditions are met:
total tokens value issued by one issuer during a period of 12 months does not exceed mil. 3 mil. euros
token does not have the characteristics of JSC shares;
token is not exchangeable for JSC shares;
Given the innovative nature of a token technology and economics, it is possible to be creative while structuring a token, bearing in mind that the Law does not prescribe mandatory features of a digital token. Additionally, token could be designed in such a manner to avoid being considered as a financial instruments. Practically, it opens the door to use different types of financing through traditional instruments (debt, shares) mix of traditional, or inovative.
The Law shall not be applied in the case that transactions with digital tokens are carried out exclusively within a limited network of persons who accept these digital tokens. In this case, we are talking about closed ecosystems, and therefore the public interest is not under watch.
Regarding tokenizing shares in LLC, there is an obstacle due to regulation restrictions where only shares being registered in the Business Register Agency are proof of ownership.