The New Mechanism for Fund Raising
Both SBHCs and CCCs will use a new form of fund-raising by selling something to the general public called “Digital tokens,” which can come in several forms. The type of token sold will be different between SBHCs and CCCs.
Digital tokens are used to represent something either intrinsic (“intrinsic tokens”) or external (“external token”). Intrinsic tokens mean the token has some representation of value in and of itself (like money). An external token means that it generally maps or refers to some other kind of external tangible or intangible asset (“asset backed tokens”).
Intrinsic tokens are generally broken down into either tokens used to represent money (i.e. a digital currency called a cryptocurrency), or some set of “rights” or a “license” of some sort, usually called “utility tokens” that provide its owner some sort of legal rights.
Asset back tokens can likewise be broken down into two categories – assets that are considered “securities” by the SEC and other regulators around the world (like stocks and bonds) and assets that are not considered securities (like diamonds, art, real estate, etc.) and therefore are not the concern of the regulators.
SBHCs will usually sell security backed tokens (and therefore would likely be regulated) while CCCs will usually sell cryptocurrencies and under the current environment, would not likely be regulated.
Digital tokens are most commonly associated with a new kind of distributed ledger technology (abbreviated DLT) called “blockchain“. Distributed means that the ledger is replicated in more than one place. However, digital tokens can also be made part of other kinds of ledger databases that are not distributed, but instead are centralized, and thus would not technically fit the concept called blockchain (even though many users of the centralized databases may still call their system blockchain).
Commonwealth Group will likely make use of distributed ledger digital token databases to manage the sale of CCC cryptocurrency offerings and centralized token databases in its sale of securitized asset tokens sold by SBHCs. Because blockchain would thus only apply to the CCC type offerings, we will avoid using the term blockchain to describe all our token offerings.
Blockchain or DLT solutions are being touted as game changing for many industries (see Banking Is Only The Beginning: 30 Big Industries Blockchain Could Transform), but many of those industries will actually deploy centralized token databases rather than distributed ones, and therefore, as stated above, would not technically be called blockchain. Blockchain is also often conflated with Bitcoin (a cryptocurrency), the first large-scale deployment of a blockchain technology, but blockchain and Bitcoin are not the same thing.
Nonetheless, bitcoin is credited with legitimizing the whole blockchain phenomenon, which established mainstream acceptance in 2016 and exploded in 2017. As can be seen by this cryptocurrency listing platform (which includes intrinsic and external tokens), as of December 2017 there were over 1,300 discreet tokens being sold.
According to this Forbes article, companies that used token offerings to raise capital in public offerings (usually called Initial Coin Offerings (“ICOs”) ) actually raised more money in the first half of 2017 than the sum total of all venture capital investments world wide! Technically ICOs would only describe the sale of cryptocurrencies and not the other kinds of tokens. Thus Commonwealth Group will use the term ITOs (Initial Token Offerings) to describe its collective offerings.
Tokens of all different types are usually traded on platforms called cryptocurrency exchanges (even though all types of tokens can be found there). Such exchanges are used to buy and sell tokens for other kinds of tokens or for fiat currency (i.e. government backed money). As of December 2017, there were approximately 165 token exchanges.
Commonwealth Group will be establishing its own impact investing, token exchange, which will list the tokens offered by our own SBHCs, the CCCs we help to establish and other SBHCS, CCCs and stand-alone companies that with to list with us. Our exchange will be called Universal Exchange or UNIEX for short, as described on this page.