Thailand Is Opening Up to Crypto, One Step Closer to ICO and STO

Since July, Thailand and its Securities and Exchange Commission (SEC) have voiced their intent to legalize the local initial coin offering (ICO) market and open it to startups.

On Dec. 1, 2018, however, Cointelegraph reported that the Thai SEC declared Thai-related security token offerings (STOs) in international markets to be illegal and said that it will take appropriate legal action against companies that attempt to distribute STOs created in Thailand to overseas markets.

Tipsuda Thavaramara, the deputy secretary of the Thai SEC, reportedly said:

“The regulator will have to consider how to deal with STOs for issues such as share ownership, voting rights and dividend. At the moment, we have not decided whether STOs fall under the SEC Act or the Digital Asset Act, but it depends on the STO's conditions and the details in its white paper.”

The government’s initial stance toward the approval of STOs in the local market contradicted the Thai SEC’s plans to legalize ICOs and allow companies to raise capital from investors in the public market.

This month, the Thai SEC reportedly approved the launch of the country’s first ICO portal, with plans to approve an ICO project in the near future.

Archari Suppiroj, the director of the fintech department at the SEC, said that the launch of the ICO portal could lead to the approval of STOs in the local market:

“The next step is for an issuer to offer security tokens in the primary market.”

Importance of STOs on foreign investment

Andreessen Horowitz, billionaire investor Peter Thiel’s Founders Fund and several more major venture capital firms have funded security token projects throughout the past year, betting largely on the value security tokens with high liquidity and fungibility can bring.

Josh Stein, the CEO of Harbor, which raised $28 million from Andreessen Horowitz, said that no major regulators and government agencies that the company has engaged in discussions with in the past several months have expressed a negative sentiment toward well-structured security tokens.

He said that, primarily because STOs are strictly regulated investment vehicles that are fully compliant with local regulations, governments are generally open toward regulating the security token market.

Placing an emphasis on the absence of legal boundaries between STOs and global financial regulations, Stein said:

“There’s a misconception that there’s a regulatory problem or that somehow the regulations need to change. They don’t. You need to comply with rules around the world. If the compliance doesn’t work, nothing else can happen. We have talked with a number of regulators in the U.S. and around the world. No one has given us negative feedback and no one has signed off on it, but our fundamental opinion is that we’re complying with the rules.”

Assets that are represented by STOs are real-world assets that are tangible and can be approved by the authorities. Security tokens merely offer a cryptographic representation and a proof of ownership, which, as a result, increase the liquidity and fungibility of the physical asset.

Traditional assets, like properties and artwork, can be represented by tokens using a cryptographically encrypted blockchain network, allowing investors to obtain ownership of certain assets by purchasing tokens.

Security tokens enable investors to purchase a portion of an asset without having the pressure of wholly acquiring it. One of the major reasons cryptocurrencies have appealed to millennials since early 2017 is the ability for young investors to invest a small amount in digital assets. With real estate and many other physical assets, it is not possible to do so.

Importance of STOs on foreign investment

Even when security tokens are utilized in complex deals, it is possible for the issuer to freeze trading on a certain security token asset upon the request of the government and move back to paper. While it leads to administrative expenses and reputational exposure, the government and the security token operator can cooperate to create a physical version of the security token if an issue were to arise.

With no major regulatory boundaries and with significant benefits in liquidity, fungibility and transportability, investors that have been involved in the traditional financial sector — like Hong Joon-ki, the CEO of over-the-counter (OTC) cryptocurrency exchange Cumberland Korea — have said that, eventually, various assets like artwork, real estate, sports teams and hedge funds will be tokenized:

“The global cryptocurrency sector will rapidly change to security tokens at an exponential rate. Venture funds, hedge funds, sports teams, artworks, real estate, and a variety of real world assets will be tokenized on the blockchain. Currently, the majority of financial institutions entering the cryptocurrency sector with the backing of institutional investors are driven by the potential of tokenized assets and security tokens. These institutions are expanding their operations rapidly by working with cryptocurrency researchers and blockchain technology startups.”

State of Thai regulation

Despite the shifting trend toward security tokens and the rising interest in tokenized assets in the global market, the current regulatory landscape of Thailand’s cryptocurrency market was nowhere close to permitting the distribution of regulated security tokens less than three months ago.

In July, the Thai SEC officially legalized registered ICOs, allowing companies to run token sales with guidance from the SEC. At the time, the Bangkok Post reported:

“The SEC will allow seven cryptocurrencies, used for initial coin offerings (ICOs), to be traded as trading pairs. They are bitcoin, ethereum, bitcoin cash, ethereum classic, litecoin, ripple, and stellar. [...] All market participants, including ICO issuers, digital exchanges, brokers and dealers involved with digital asset transactions, are required to register with the SEC within 90 days of the effective date. [...] The participants must also receive the Finance Ministry’s approval to conduct digital asset business.”

The implementation of a new policy regarding the legalization of regulated and registered ICO projects portrayed the willingness of the Thai government to facilitate