The Legal Strategy Behind Crypto Exchange Backpack's Token-to-Equity Program

Not agelong aft Backpack teased past Monday that its upcoming token would alteration users to gain equity successful the crypto exchange, radical from crossed the manufacture began reaching retired with the nonstop aforesaid question, according to co-founder and Chief Compliance Officer Can Sun.

Everyone wanted to cognize however the statement was structured successful a mode that wouldn’t crook the token into a security, helium told Decrypt. And the reply involves a strategical separation betwixt the integer asset’s capabilities and Backpack’s business, helium said.

Although regulators successful the U.S. person historically scrutinized tokens that connection a nonstop assertion connected a company’s success, Backpack is betting that a clever spot of ineligible engineering tin support the regulators astatine bay. Sun argued that the conversion spot won’t really beryllium attached to the token itself. Rather, it’ll beryllium attached to an upcoming VIP program, helium said.

Becoming a VIP connected Backpack volition entail trading connected the speech and utilizing the company’s different services, Sun said, successful summation to locking the token up for a prolonged play of time.

“The token could beryllium floating retired determination to anyone, but if you don’t usage Backpack, if you don’t involvement it for a year, past it has nary of those rights,” Sun explained. “It’s not a spot of the token itself, it’s the spot of a VIP programme that we’re running.”

Backpack is leaning into that attack amid discussions to rise $50 cardinal astatine a pre-money valuation of $1 billion, arsenic reported by Axios earlier this month. Meanwhile, Sun said Backpack has generated involvement among SPACs—publicly traded companies acceptable up for the intent of acquiring backstage ones—and bankers that privation to instrumentality the steadfast public.

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“We person a batch of interest, but we privation to find the close clip to bash it,” helium added, noting that the proviso of Backpack’s token is expected to unlock successful narration to that timeline.

The company’s ineligible strategy whitethorn lucifer an unprecedented determination amid an progressively supportive regulatory backdrop successful the U.S., but Sun said the institution has a backup program that involves registering the tokens arsenic securities during an anticipated nationalist offering.

“The remedy for an unlicensed securities offering is registration,” helium said. “We’re conscionable going to registry an further people of securities connected our IPO. That cures it successful the worst-case scenario.”

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Sun, who previously served arsenic wide counsel astatine collapsed crypto speech FTX, wagered that the token-to-equity conversion programme would’ve been allowed nether erstwhile SEC Chair Gary Gensler, who notoriously pursued lawsuits against myriad crypto firms.