Goldmint ICO: Legal review of some aspects of the White Paper by BlockSharks.

I
In a nutshell, the main idea of the project is to create digital cryptocoins which is 100% backed by physical gold.
At the project’s core we have GOLD cryptocurrency which will not have the “token” status for the purpose of ICO. The cost of one GOLD equals one ounce of physical gold on the LBMA and will be secured by physical gold stored in the project’s partner banks. GOLD coins will be used by their owners for purchase of goods and services, for investment purposes and P2P lending.
During the ICO GoldMint company will be distributing Mint tokens (“MNT”) which have a certain similarity to shares of GoldMint company. MNT-holders will receive a benefit in the amount of 75% from GOLD transaction fees.
To our view, backing of GOLD coins by physical gold is both pro and con of the GoldMint idea. On the one hand, we have very stable cryptocurrency which is completely non-volatile due to being bound to real gold price. Any other cryptocurrency can fall down in value as a result of the exchange of a great number of this cryptocurrency into fiat. We have also seen examples when a project raised Ethereum during the ICO, and then just in a couple of days we got a huge drop in Ethereum value and no funds for the project to implement its plans.
On the other hand, gold is very inert and slowly changing metal. Potential investors will be reluctant to play with GOLD coins since their value is stable with very low margin.

II

The legal structure of the GoldMint project provides for some novel ideas in part of dealing with concerns caused by SEC and MAS regulations.

First, if necessary GoldMint undertakes to reimburse any US and Singapore citizens who will buy MNT tokens into fiat. While it provides some sort of comfort to both SEC/MAS and investors, it does not explain in which cases the bought tokens will be bought back and uses vague wording “if necessary”.

Second, it is stated that GoldMint may entertain the possibility of registering its project in the SEC would their project enter the American market. Again, it is said exclusively in marketing purposes since GoldMint retains this right by default.

A lot of attention is paid to the aspects on which GoldMint sought advice from Deloitte CIS. It is also stated that GoldMint may approach SEC and MAS to see whether they will consider MNT tokens as securities. It is not clear why GoldMint team did not seek their opinions before the start of ICO since it could boost the confidence of potential investors in the project.

A separate question is whether MNTP tokens would pass the Howey test. As we can see from the White Paper, the GoldMint team did their best to make MNT tokens to look as non-securities. MNT tokens are very unlikely to be deemed as securities based on the Howey test due to the following WP provisions:

"MNT token holders will need to validate blocks and add them to the chain. Once it is done, they may get as much as 75% in GOLD commissions for validated transactions"

Comment: From this provision it follows that MNT token holders can expect profits from their own efforts.

"Owning MNT does not imply rights to participate in company management of GoldMint nor does MNT represent a share in company partnership"

Comment: Just to be on the safe side, it is noted that MNT tokens are neither shares nor any other interest in the company.

"MNT tokens holders are allowed to vote on GoldMint platform proportionate to the number of tokens they own. They have the right to vote on changes to the platform"

Comment: This token holders’ right to vote on changes is unlikely to be considered as significant management control on the platform and therefore does not fulfill the Howey test requirements.

To sum up, our view is that MNT tokens are not securities based on the Howey test.

Conclusion
Given our considerations above, our position is that GoldMint project has been structured quite safely from legal perspective. However, our opinion has a limited nature since it is based exclusively on the white-paper: there have been yet no token sale terms available on the website. The GoldMint team should also be prepared for some major challenges at the stage of project implementation inasmuch as the gold market is a strictly regulated in Russia and the team’s lawyers may face challenges to obtain a bevy of licenses/permissions to deal with physical gold.