Ask Me Anything… Part 5

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In a few days, The Tokenizer launches the world’s first AI-powered regulatory GPT – or RegGPT – designed specifically to cover the space of asset tokenization and digital assets. 

The RegGPT will be an integrated part of The Tokenizer’s SaaS product, The Token RegRadar

With this game-changing AI upgrade, The Token RegRadar will be a vital tool for any professional who needs to understand or analyse regulatory requirements and stay updated with regulatory changes and news within the asset tokenization and digital asset industry.


But what kind of question is the new RegGPT actually capable of answering? In this countdown series, we will show you some examples: 

  • I want to tokenize an asset in the US, but I am unsure of whether I need to make a prospectus and whether I am allowed to sell to retail investors and to investors outside the US. Can you provide me with a quick overview of the rules and the exemptions? I have heard that some of these exemptions have names like A, D and R, is that correct?
  • Yes, you are correct that there are exemptions with names like A, D, and S in the United States that may apply to the tokenization of assets. Here’s a quick overview of the rules and exemptions that could be relevant to your situation:

    1. Regulation A (Reg A): This exemption allows companies to offer and sell securities to the public without full SEC registration. There are two tiers within Reg A:
    Tier 1: Permits offerings of securities up to $20 million in a 12-month period.
    Tier 2: Permits offerings of securities up to $75 million in a 12-month period.

    2. Both tiers have different requirements, but notably, Tier 2 allows you to raise more capital and generally preempts state securities laws, which can simplify the process. Reg A offerings can be sold to both accredited and non-accredited (retail) investors, and there are provisions for immediate liquidity for tokenized Reg A+ securities, which can be traded on regulated Alternative Trading Systems (ATS) from day one of issuance.

    3. Regulation D (Reg D): This provides a set of rules that allow companies to raise capital through the sale of securities without having to register with the SEC. Within Reg D, the most commonly used rules are:
    Rule 506(b): Allows raising an unlimited amount of money from an unlimited number of accredited investors and up to 35 non-accredited investors. However, general solicitation or advertising to market the securities is not allowed.
    Rule 506(c): Similar to 506(b), but all investors must be accredited, and it allows for general solicitation and advertising of the offering. The issuer must take reasonable steps to verify the accredited status of investors.

    4. Securities sold under Regulation D are typically “restricted securities” and may not be sold freely in the secondary market immediately after issuance.

    5. Regulation S (Reg S): This exemption is for offers and sales of securities outside the U.S. It allows U.S. or foreign issuers to sell securities to non-U.S. residents without registration with the SEC. The sales must occur outside the U.S., and there are conditions to prevent the flow back of these securities into the U.S. markets.

    When tokenizing an asset, it’s crucial to analyze the nature of the token to determine if it qualifies as a security under U.S. law. If it does, then the federal securities laws require all offers and sales of securities, including those involving digital assets, to either be registered or to qualify for an exemption from registration. The information that must be disclosed to investors, whether through a prospectus or otherwise, is designed to provide them with the necessary details to make informed investment decisions.

    It’s also important to note that while these exemptions can facilitate the process of raising capital, they each come with specific requirements and limitations. It’s advisable to consult with a legal expert who specializes in securities law and the tokenization of assets to ensure compliance with all applicable regulations.

Previously we’ve asked the AI:

How would you evaluate the developments we have seen globally in the asset tokenization space during the second half of 2023?

“In the second half of 2023, Hamilton Lane started tokenizing private funds on ADDX. Can you tell a bit about Hamilton Lane and explain how and why they did that? What are the main regulatory challenges of doing what Hamilton Lane is doing?”

“Can you briefly explain what the German Electronic Securities Act (Gesetz über elektronische Wertpapiere, eWpG) is all about?”

“Can you make a list of the most important Hong Kong laws regarding virtual assets?”

If you want to know more about a subject, you can simply ask the RegGPT follow-up questions or use The Token RegRadar’s other features like the search engine, the collection of law texts and more.

If this made you curious about how The Token RegRadar can help you in your daily work, please visit https://regradar.thetokenizer.io and sign up for your two day free trial right now.


Image by Katie Moum from Unsplash

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