How to enter token sale/ IDO legally as a USA citizen?
Token sales have emerged with the advent of blockchain technology. In token sales, the company sells part of its tokens through mass sales of digital tokens. Tokens are exchanged for the amount of existing liquid medium, such as Bitcoin or Ether (Ethereum), at a fixed or multi-level exchange rate. The company can then use the bitcoins or ether it has collected to sell tokens or can convert them into fiat currency, such as dollars. This allows the company to finance the development of its products and services and to grow and manage the company. Depending on the design of the platform, customers of the company’s digital tokens may be able to use the digital token as part of a system, product, or service created by the company.
Token Sale is the issuance of tokens in exchange for another cryptocurrency. Also referred to as an Initial Coin Offering (ICO). Initial coin offerings are a popular way to raise funds for products and services usually related to cryptocurrency.
A cryptocurrency exchanges
A cryptocurrency exchange or digital currency exchange (DCE) is a business that enables clients to exchange cryptocurrency or digital currencies for different resources, for example, customary fiat cash, or diverse computerized monetary forms. In other words, Cryptocurrency exchange is an online platform in which you can exchange one kind of digital asset for another based on the market value of the given assets.
Centralized and decentralized exchanges both have advantages and disentangles based on what they are used for. The main difference between the two is the existence of the middleman (or a third party), which helps conduct the transactions in the centralized exchange.
The rising DeFi sector has been decentralized exchanges (DEXs), upon which users can trade tokens 24/7 and in a non-custodial and permission-less fashion. DeFi or decentralized finance came as an idea to avoid control and the heavy hand of central banks by a group of crypto enthusiasts in 2017. They made an alternative solution to offer every financial service you need — savings, loans, trade, insurance, and others, all available through decentralized platforms and internet connections.
An IDO, or initial DEX offering, refers to the launching of a cryptocurrency on a decentralized exchange (DEX). It is the latest way for crypto projects to sell their tokens to the public Recently, a decentralized blockchain/AI platform, announced that it will hold an Initial Dex Offering (IDO) on Binance DEX. We could say that IDO is a fundraising method that will enable protocols available for traders. IDO is different from other common fundraising schemes, and according to Binance, it can lead to a progressive revolution in the crypto arena. While ICOs and IEOs dominated crypto companies’ fundraising in the past, it seems that Initial DEX Offering become the preferred method to distribute tokens and raise capital in DeFi.
Examples of DEXs that offer IDO services include Binance DEX, Polkastarter, and Uniswap. Most traders also prefer IDOs over ICOs since IDO listings prevent the issuer of the tokens from controlling how the fundraising round will go. One of the first IDOs launched in the space was RAVEN.
There are several reasons why cryptocurrency exchange rates are unstable: No intrinsic value, Lack of regulatory oversight, lack of institutional capital, thin order books, long term vs. short term, Herd mentality.
Token sales have brought a transformative approach to fundraising, but the regulatory framework is rather imprecise. Token sales and the platform on which they are exchanged must be carefully designed to avoid securities, currency, taxes, consumer protection, and other regulatory barriers.
The U.S. Securities and Exchange Commission (SEC) protects investors against fraudulent and manipulative practices in the market and monitors corporate takeover actions in the United States. In the past, many exchanges have chosen to avoid U.S. regulations by moving abroad and restricting access to American customers. If registered with the SEC, crypto exchanges would be forced to record their trades and adopt technology systems to make their order books audit-compliant. They would also face strict rules on order execution to prevent market manipulation.
The Internal Revenue Service (IRS) classifies cryptocurrencies as property for federal income tax purposes. According to Investopedia, Crypto exchanges in the United States fall under the regulatory scope of the Bank Secrecy Act (BSA) and must register with the Financial Crimes Enforcement Network (FinCEN). They are also required to comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) obligations.
How to enter token sale/ IDO legally as a USA citizen?
If you wish to raise money with the token sale, then you have two options. You can register with the SEC and offer only to accredited investors, or you can raise money from abroad. If you raise money from outside the United States, you might decide to incorporate offshore as well.
Considering the second option, you can set up an international trust in Belize, Panama, Costa Rica, Seashells, etc. Offshore asset protection is an effective and legal way to protect personal wealth and assets. One of the best ways to protect your assets is by incorporating a company in an offshore jurisdiction.
The US government is always going to say that cryptocurrencies support money laundering and terrorism so, of course, they’re going to come down like a ton of bricks. But now they are also coming in with the tax component and it can be targeted by so many different types of tax. U.S. citizens are taxed on their worldwide income, including cryptocurrency gains. Selling unregistered securities to US investors is a strict liability offense.
Trading crypto through an offshore company has some powerful US tax benefits as long as you do everything correctly. Donations to a qualified charity may be tax-deductible if you itemize your deductions. To qualify, you must have held the asset for at least one year before donating it. A trust is established under the laws of a foreign country and managed by a professional trustee not subject to the jurisdiction of the settlor’s home country. Prospective trustees can direct what to sell to, they can send recommendations for sales trustees they guarantee too. The trustee then will reach out to the sales, whitelisting process. Trustee as an owner of assets submits their KYC to the sales, sales send tokens it to the multi-signature wallet, where the trustee and maybe one other person, it could be a protector.
Beneficiary which is a US citizen can be gifted those tokens from the trust as a gift. They should contact local tax experts to the tax application to gift themselves if there are any. Usually, the received gifts are not taxed to the recipient but the donor, in this case, the trust, might be taxed. You typically get to deduct the fair market value of your cryptocurrency, but you don’t have to pay capital gains taxes when doing so.
The CRT (Charitable Remainder Trust) is a specialized trust recognized by the IRS. When you create a CRT, you will designate two recipients: a charity and a lifetime beneficiary. The lifetime beneficiary is you while the charity can be a church, your own foundation, or any organization that must be recognized by the IRS as a 501(c)(3) organization.