Right after the backpack teased According to co-founder and chief compliance officer Kang Sun, when the announcement was made last Monday that the upcoming token would allow users to earn shares on crypto exchanges, people across the industry started asking the exact same questions.
Everyone wanted to know how an arrangement would be structured that would not turn tokens into securities, he said. decryption. And the answer, he said, includes strategically separating the digital asset function from the backpack business.
U.S. regulators have traditionally scrutinized tokens that directly claim a company’s success, but Backpack is betting that smart legal engineering will keep regulators at bay. Sun argued that the conversion property is not actually attached to the token itself. Rather, it will be included in the upcoming VIP program.
According to Sun, becoming a Backpack VIP requires locking up tokens for a long period of time, as well as trading on exchanges and using the company’s other services.
“Tokens can be circulated to anyone, but if you don’t use Backpack or don’t bet for a year, your tokens don’t have those rights,” Sun explained. “It’s not property of the token itself, it’s property of the VIP program we’re running.”
Backpack is reportedly leaning toward that approach while in discussions to raise $50 million at a pre-money valuation of $1 billion. Axios Early this month. Meanwhile, Sun said Backpack is generating interest among SPACs (publicly traded companies formed to acquire private companies) and bankers looking to take the company public.
“We have a lot of interest, but we want to find the right time to do it,” he added, noting that the supply of Backpack tokens is expected to be unlocked in relation to that timeline.
While the company’s legal strategy may resemble an unprecedented move amid growing regulatory support in the United States, Sun said the company has backup plans, including registering its tokens as securities during an expected initial public offering.
“The remedy for unauthorized securities offerings is registration,” he said. “We simply register additional types of securities for the IPO, which solves the worst-case scenario.”
San, who previously provided He bet that a token-to-equity program would have been allowed under former SEC Chairman Gary Gensler, who infamously sued countless crypto companies as general counsel for the failed cryptocurrency exchange FTX.
Sun pointed to a filing that Coinbase filed with the SEC in 2020, which he worked on at law firm Fenwick. Before pivoting to a direct listing on Nasdaq, the exchange attempted to register “Class T common stock” that would be tokenized as part of the public offering.
SEC document show Coinbase said it was asked to provide a legal analysis on how tokenized stocks are not entirely different from traditional stocks, but are a potentially more complex type of investment. Coinbase eventually dropped the idea, citing “further consideration.”