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Why You Should Order a Blockchain Cryptoasset Legal Opinion Letter

Why You Should Order a Legal Opinion Letter for Your Blockchain Crypto-asset Project

Lex Futurus Newsletter #1, 

29th January, 2021.

Crypto-asset projects hardly ever order legal opinion letters to help evaluate projects for purpose to appreciate regulatory hazards that may be lurking in the dark for crypto firm token projects. Beyond these regulatory and court legal hazards, there are potential project benefits and blessings like legal opinion letter presentation to backers and investors who may want to have a comprehensive appreciation and evaluation of what they want to get involved with, or a feel for the crypto-asset project into which they want to make an investment commitment. Lex Futurus has drafted some of these crypto-asset project legal opinion letters in context. 

The embryonic, global crypto-asset market regulatory and investment interests, especially from the legacy incumbent mainstream financial capital market actors and regulators will continue to grow because of—among others—the ongoing Covid-19 pandemic lethal economics ravaging the world and driving both private and public government daily meatspace routine business activities into the cyberspace.

Crypto-asset Project Dilemma

Going by crypto-origins, projects based on crypto-assets battle a lot of regulatory dilemmas, clear-cut indecisions and trepidations. This is due largely to a number of factors like the position that regulators would take on them; or how they would be taxonomised and regulated if push ever dares come to shove. There are four fundamental categories laid out by the International Organisation of Securities Commissions (IOSCO) that touch upon crypto-asset in all its considered prerequisite manifestations as “currency, commodity, security, or a derivative on a commodity or security”. National securities market regulators from Japan, United Kingdom(UK), Singapore, Malta, Nigeria, European Union(EU), United States to Switzerland, and many more, have their own national crypto-asset regulatory and policy taxons, but the IOSCO accurate capture seems to have substantially settled the major sovereign state level confusion bred in the quest to taxonomise and thus better appreciate and regulate the nascent, embryonic distributed ledger global crypto-asset capital marketplace cowboy power dynamics.

Clarity and Regulatory Jurisdiction 

The United States Congress in order to clarify whose regulatory remit it is among its regulatory bodies; Financial Crimes Enforcement Network(FINCEN), United States Securities and Exchange Commission (US-SEC), Commodity Futures Trading Commission (CFTC), Financial Industry Regulatory Authority (FINRA), Inland Revenue Service(IRS), the Federal Reserve System, etc. to regulate crypto-assets, introduced a crypto law act Bill year last, where it taxonomised crypto-assets as crypto-commodity, crypto-currency and crypto-security. Suffice it to state that Lex Futurus observed that there is an essential categorisation crypto-derivative, which the US Congress legislative-cum-regulatory clarity effort inadvertently failed to take cognisance of. 

Everyday Use Token Asset Terms

Utility tokens, security tokens and hybrid tokens are some of the more general great unwashed crypto-econosphere folk argot. Crypto-asset projects’ long-term protection from state-actor regulatory, legal and compliance onslaught, investment worthiness checkbox et al. means having a legal opinion letter, with precise concentration and  next-door neighbour legal implications of these terms and phrases, which further help in the individual token structuring and construction on a techno-legal level consummated with requisite tokenomics and cryptoeconomics.

Legal Opinion Letter Whys and Wherefores

The below crypto-asset project legal and compliance safeguards are some of the benefits your crypto-asset project is lacking, and which consequences may be damaging to the project, as they are an essential condiment conferred by a legal opinion letter: 

i. Presentation to regulators

The legal opinion letter can be presented to a national securities market regulator for instance, as evidence of legal and compliance, that an experienced legal expert specialised in the particular crypto-asset law practice bailiwick was consulted, before going ahead with the token asset project platform lunch.

ii. Showing to prospective investors

Smart investors experienced enough on crypto-asset project investment nitty-gritties, dos and don’ts may require to see and analyse a crypto-asset project legal opinion letter for project evaluation purposes with respect to legal and compliance, before taking any further possible investment step.

iii. Tendering as evidence of legal and compliance in court

Tendering the legal opinion on the project in court as a piece of evidence of legal and compliance in court may save the project from a potential disaster or a shutdown, fines, or imprisonment of promoters etc. for violation of the law. As the case may be, the common law court system would be aided tremendously in resolving issues into their legal categories and arriving at a just determination, by leaning on a crypto-asset project legal opinion letter tendered and admitted in evidence during court hearings.

iv. Showing to a potential backer/advisor

Experienced crypto-asset project advisors may require to see the project legal opinion letter as a prerequisite to offer acceptance to advise the project. As a general standard practice common among blockchain project legal advisors in the crypto-econosphere, before contract execution to advise projects, they are wont to carry out Due Diligence(DD); an important part of which is putting a request to see the legal opinion letter for the project.

v. Passing the Howey Test

The Howey Test though only applies to crypto-asset projects over which the United States Congress has power to enact laws, it is both instructive and advisable to consider the Howey Test for crypto-asset projects, as the case-law may be cited in other common law jurisdictions and thus have persuasive effect in assisting the common law jurisdiction courts to come to a just determination on the issue whether a crypto-asset project violates extant or crypto-bespoke securities regulation. 

vi. Exchange demand for crypto-asset token legal opinion letter before listing

Compliant crypto-asset exchanges demand to see beforehand a legal opinion letter on a token as a conditio sine qua non, and for the purpose–among others—to know if the token is what the prospective crypto-asset exchange client claims it is. The legal opinion letter may be on a security token, utility token or hybrid token. What crypto-asset exchanges do is refer the matter to their legal departments for legal and regulatory analysis purposes, so that at the end, they know the type of token being listed on the exchange platform. This saves them both exchange and client from running into trouble with the law and regulators. 

Yours truly, 

Boulevard A. Aladetoyinbo, Esq., 

Partner, Lex Futurus (Africa Region) & Head, Crypto-asset Capital Formation Practice. 

Disclaimer 

This newsletter is not intended to be a legal advice piece. It serves informational and educational purposes only, and is part of Lex Futurus’ on-going contribution to the growth, practice, development and regulation of the fast-emerging crypto-legal space.

STAY TUNED for the next edition in a fortnight. 

Follow @Lex_Futurus on Twitter.

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