Legal Memorandum for Cryptocurrency Exchanges
The success of the blockchain sector and cryptocurrencies has prompted a number of entrepreneurs to venture into the industry and launch innovative projects. Many of these projects involve the issuance of new cryptocurrencies which need to be released to the public. While the issuance of a Token or a Coin in an ICO, an initial token offering (ITO) or a Security Token Offering (STO) is the first step, the listing of the tokens in a cryptocurrency exchange is a must.
The process of getting a token listed on a cryptocurrency exchange is a long-drawn-out process that involves numerous interactions between the cryptocurrency exchange and the token issuer. Within this process is the requirement to evaluate the legal standing of the token and the compatibility of the Token with the existing legal framework. A number of exchanges also do not deal with tokens or coins which are deemed as securities due to regulatory hurdles and additional licensing requirements.
This is where a legal memorandum for cryptocurrency projects come into the picture. Unknown to most, this world of ICOs and STOs depends on a global team of legal professionals who evaluate their compatibility with the legal frameworks. These professionals provide the assurances on whether a particular token is a security or a utility token and if it is fit to be listed on an exchange.
The document which is issued by the professionals evaluating the Token is called a Legal Memorandum, a Legal Memo in short or a Legal Opinion. The legal memo for a cryptocurrency project is a detailed document that evaluates a number of parameters. Key among them are:
· The status of the token or coin under US Securities Laws: This involves an evaluation of the Token under the tests laid down by the courts such as the Howey test, the Risk Capital Test and the Reves Test
· The compatibility of the token issuance process and the token itself in light to the latest releases and action by the US regulators
· The status of the token, when viewed against the latest cases, dealt with by the SEC
In many cases, the legal memo also needs evaluation of the token under the laws of other key financial markets such as Singapore or Hong Kong.
How to get a legal memo for getting listed on a cryptocurrency exchange?
The process of obtaining a legal memorandum or a legal opinion for a cryptocurrency exchange is composed of five important steps as detailed below:
First Step: In the first step, the issuer of a Token or coin has to get in touch with a qualified legal professional with a description of his Token, the token issuance process and topics which need to be included in the legal memo. Details about the exchange to which the legal memorandum would be submitted should also be included.
Second Step: The legal professional then moves ahead to review the documents submitted and informs the token issuer if he needs any additional information before issuance of the memorandum.
Third Step: A draft memo is circulated with the issuer who has requested the issuance of the Memo. Feedback can be provided by the issuer and a request for any inclusions can be made.
Fourth Step: A final discussion between the token issuer and the legal professional takes place about any changes suggested or inclusions requested to be made.
Fifth Step: The legal memorandum is issued and can now be submitted to the exchange.
In certain cases the exchange may approach the legal professional for verification of the memorandum and clarification of doubts that it may have regarding the issuance process.
The required documents to request a legal opinion for cryptocurrency projects can vary depending on the issues which are sought to be covered in the memorandum and the requirements of the exchange. For most cryptocurrency projects, the following documents would suffice:
· The whitepaper and any related documentation such as summaries issued while issuing and selling the token or coin. All versions are required.
· The link to the website and social media pages of the project and the ICO or STO
· All marketing material issued for the token sale/ICO/STO process
· Information about the platform where the token will be utilized
· Information about the project and the utility of the token
· Areas on which evaluation has been sought by the cryptocurrency exchange
· Information about the cryptocurrency exchange and the jurisdictions where the Token will be sold
The legal professional may request additional information if the need emerges in the legal memorandum preparation process.
The costs for a legal memorandum for a cryptocurrency project can vary according to complexity, topics, and jurisdictions which need to be covered under the legal memorandum. The time requirements for issuance of a legal memorandum for a cryptocurrency company may vary based on the topics covered in the memo and the background of the token, but normally they can be issued within 14–15 business days.