10 QUICK ITEMS – IS IT A SECURITY?

Note: this list is not comprehensive but hopefully it provides help to those who need an initial checklist. Feel free to add comments/additions underneath.

Six Questions With Yes/No Answers
Question 1: Are you distributing either directly or indirectly any profit you personally have made already? If yes you are selling a security. If no go to 2

Question 2: Is the product you are selling “backed” by any form of guarantee, collateral or promise that ensure the buyer is protected in the event something goes wrong? If yes you are selling a security. If no go to 3

Question 3: Is there a promise to pay the buyer anything, including interest, at some future date in time (an exchange of assets or a random gift does not count). If yes then there is a high chance you may be selling a security and you should seek legal advice immediately before carrying out any marketing. If no go to 4

Question 4: Is there in any way, either via voting or via income share or via other indirect influential means, any way in which the buyer could be assumed to own a share of personal influence over what he is purchasing? If yes then there is a high chance you may be selling a security and you should seek legal advice immediately before carrying out any marketing. If no go to 5

Question 5: Is there any mention at all of revenue, profit, income, equity, ownership or dividend in your marketing literature? If yes then there is a high chance you may be selling a security and you should seek legal advice immediately before carrying out any marketing. If no go to 6

Question 6: Does the product you are selling have any use case other than it being a store of value for the distribution of profit at a future event? If no then there is a high chance you may be selling a security and you should seek legal advice immediately before carrying out any marketing.

4 Core Criteria For Utility Token
•   It must be a “proof” of something (eg proof of work, proof of stake etc.)
•   It must have a function that is not related to profit share distribution
•   It must not represent anything other than its core function (e.g. a receipt must represent a receipt of purchase but once it represents a receipt of purchase that is tradeable on an exchange in lieu of a foreign security it is an ADR)
•   It must not carry entitlements such as votes or ownership rights or responsibilities