Labuan Credit Token Business License Acquisition Support

Bona Trust Corporation provide Credit Token Business License Acquisition Support service.

Credit _Token


What is Credit Token Business ?

A credit token business is defined as any business where a token, being a cheque, card, voucher, stamp, booklet, coupon, form or other document or thing is given or issued to a person (referred to as “customer”) by the person carrying on the business (referred to as “issuer”), whereby such issuer undertakes that:

The work undertaken by issueron the production of the token, whether or not some other action is also required, the issuer will supply cash, goods or services on credit; or
where, on the production of the token to a third party, whether or not any other action is also required, the third party supplies cash, goods or services, the issuer will pay the third party for them, whether or not deducting any discount or commission, in return for payment to be made thereafter to the issuer by the customer.

or the purposes of this definition, the use of a token to operate a machine provided by the issuer or by a third party shall be regarded as the production of the token to the person providing the machine.

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Credit tokens are compared with ICO (Initial Coin Offering), and STO (Security Token Offering) is used as an example.

STO_Credit_Token_Offering


What is STO?

A security token (hereinafter referred to as a “token”) refers to securities that are converted into electronic tokens issued on the blockchain in place of conventional securities such as stocks.

Security token definition
The security token definition is as follows:

Payment tokens / cryptocurrencies are synonymous with cryptocurrencies and have no further functions or links to other development projects. Tokens may in some cases only develop the necessary functionality and become accepted as a means of payment over a period of time.
Utility tokenare tokens which are intended to provide digital access to an application or service.
Asset tokensrepresent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives.

(Ref: FINMA [FINMA publishes ICO guidelines])

STO is an abbreviation for Security Token Offering and refers to a scheme that raises funds by selling tokens to qualified investors.

STO also has contractual effect. While the ownership of traditional financial instruments is confirmed in writing, STO can verify ownership instantly by collating with data on the blockchain.

Since this technology is completed on the blockchain,  and a major feature is that tokens can be issued at a low cost and on a global scale.

セキュリティートークン

In addition, by using smart contracts (Contract automation technology, contract conditions can be checked and executed automatically) to automatically execute programs, various contracts can be realised without going through a third party (This concept is called “Trust less”).

Example: Vending machine (execution of automatic program)
If ~Conditional expression 1[Put money]
Conditional expression 2[Press the button]
Then ~Process 1[Place product]
Process 2[Put out a change]

スマートコントラクト

With the above mechanism, STO does not generate extra intermediate fees, and as a result, it is possible to achieve cost reduction and token trading on a global scale.


Features of STO

The main features of STO are as follows:-

The main features of STO
Compliance with the guidelinesSTO is a financial product and is sold in accordance with the country’s legal regulatory framework.

Therefore, only good projects that can meet the regulations stipulated by the country will be able to implement STO, ensuring the safety of investment (based on the credit level of the country’s FSA that approves the token [※1]).

As a result, institutional investors can also be expected to enter the market, and as a result, the possibility of large-scale fund raising will increase.

Securities converted into electronic tokensSTO is an electronic tokenised securities.

For example, in order to trade stocks, we need access to a stock exchange and cannot trade outside business hours.

However, STO will be able to trade electronic tokenised securities to a crypto currency exchange and trade 24/7. This point has the same properties as FX (foreign exchange) trading.

Therefore, trading is possible anytime by tokenising not only crypto currency but also stocks and bonds.

Extreme volatility controlOne of the characteristics of virtual currency is its volatility. Unless this point can be cleared, it will be difficult to disseminate as a payment method, and institutional investors will be encouraged to enter due to its high speculation.

On the other hand, STO has good compatibility with stable coins (peg currency) and, as a rule, the price is fixed at 1: 1 with the fiat currency, so the volatility is linked to the fiat currency, resulting in price stability.

Therefore, institutional investors have the advantage that it is easier to enter based on the fiat currency base.

※1 Credit token business is a new concept, so some countries / regions have not caught up with the correct understanding and regulation of the Authority.


Main differences between STO and ICO

The main differences between STO and ICO are as follows:-

STOとICOの主な相違点
STOICO
Compliance with the guidelinesYesNo
License is required (Operation according to regulations is required).

Since there are laws and regulations, sales are not possible unless the guidelines can be cleared.

It is legally a financial product.

Centralised (required approval by government authorities).

No license is required (Flexible operation possible).

Since there are no laws and regulations, there are many fraud cases where only fund raising is done and development is abandoned [※2].

It is legally a commodity product.

Decentralised (no required approval by government authorities).

Calculation of fair valuePossibleImpossible
Suitable for investment. Volatility is small.

Theoretical price can be calculated using indicators such as PER and PBR, as well as the fair value price for stocks.

Relative analysis of over perform / under perform compared to other STO is possible.

Suitable for speculators. The volatility is large.

There is no indicators for calculating theoretical price, making it difficult to calculate fair value price. As a general rule, the sales price is determined by the development / operation side.

It is difficult to identify Fake and Real.

Participation conditionsYesNo
Participation qualifications are based on assets held and income level.In principle, anyone can participate.
Dividend functionYesNo
Since it is a credit securities, it has a dividend function like stocks.Since it is not a credit securities, there is no dividend function (* There are some projects can pay dividends).

※2 The definition of scam and fraud here refers to a case where only fund raising is made and development is abandoned or taken away. For example, in the case of Ethereum, a case where the project was temporarily difficult due to financial difficulties during development, Or if development is delayed and listing on the exchange is postponed, Cases where prices did not increase as expected after listing, are not included. The reason is that similar cases occur as usual in normal IPOs.

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Traditional stock market IPO (Initial Public Offering) have been subject to transfer of ownership by investors acquiring shares. Once the ownership is transferred, the investor is allowed to participate in the management and has the right to request a share of profits.

On the other hand, ICO (Initial Coin Offering) implemented in crypto currency, investors are only given tokens as compensation, and they do not have the right to request involvement in the project or distribution of profits.

ICOs have gained attention as a scheme to raise funds for startups because they don’t need to register or file with regulators. However, with the start of fraudulent businesses that only raised funds and abandoned development, there was a movement toward investor protection by regulators.

Here, STO (Security Token Offering) has begun to attract attention. Unlike ICOs, STOs are issued credit tokens that are officially issued and sold by government authorities, and investors who purchase tokens have the right to claim profit sharing.

Comparison of funding scheme
IPOSTOICO
Comply with guidelines on the operation sideYes (Strict)Yes (Relatively strict)No (Optional)
Risk and returns on the investor sideRelatively low (low risk / low return)Relatively high (middle risk / middle return)Absolutely high (high risk / high return)

Compared to ICOs, STOs are required to comply with laws and regulations and must pass strict screening by government authorities.

However, STO is not as burdensome as IPO, so it is expected to be used as a fund raise scheme for startups in the future.


Annual Fees to Labuan FSA

FEES
TYPE OF FEESAMOUNT
Annual FeeRM40,000USD13,000

Ref: Labuan IBFC「CREDIT TOKEN BUSINESS」)

Should you have any queries, please do not hesitate to contact us.


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