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Is USPC A Security?

To understand what a security token or a digital security is, you have to consider all of the above and transpose it on blockchain. The result? A blockchain-based token that acts as a security from a legal perspective.

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United States Property Coin (USPC) helps qualified investors get exposure to an income-producing real estate portfolio that can hedge against inflation and generate consistent returns. But is it cryptocurrency or security? Let’s start by defining what a security is and explain why USPC is a security token, and why offerings of USPC must be in total compliance with all applicable federal securities laws and regulations.

What Is a Security?

Security is a broad term that refers to fungible financial instruments that hold value and can be bought and sold on primary and secondary markets. A security may represent ownership in a public company in the form of stock or a corporate or government bond, among others.

Securities are used by companies, governments, or other entities to raise capital in public and private markets.

When it comes to public sales of securities in the US, these have to be registered and regulated by the Securities and Exchange Commission (SEC). Besides this, other regulatory agencies, such as the National Association of Securities Dealers (NASD), the Financial Industry Regulatory Authority (FINRA), and the National Futures Association (NFA), can also take part in the oversight of certain types of securities.

Securities registered in the US are regulated mainly based on the Securities Act of 1933, although there are subsequent laws that also touch upon these financial instruments. The purpose of regulation is to require issuers to inform investors on a regular basis as well as prevent any form of fraud and deceit in the sale of securities both on primary and secondary markets.

There are five types of securities, with the first two being the most important ones:

  • Equity – these securities give investors ownership rights over an entity, most often a company. For example, all company shares traded on the New York Stock Exchange (NYSE) or NASDAQ, including Tesla, Apple, Amazon, Microsoft, etc., are treated as securities.
  • Debt – these securities represent loans. Government and corporate bonds are the most popular debt securities, which provide investors with regular interest payments.
  • Hybrid – this group of securities combines the attributes of both equity and debt assets. For example, a convertible bond acts as a debt instrument because it involves regular payments, but it can also be converted into a predetermined number of shares.
  • Derivatives – these are financial instruments giving investors exposure to a wide range of assets without actually owning them. Because of this, derivatives are sometimes called secondary securities. Futures and options are some of the most popular derivatives.
  • Asset-backed securities – these financial instruments are backed by a pool of income-generating assets, most often debt-related ones, such as mortgages, auto loans, student loans, etc.

What Is a Security Token?

To understand what a security token or a digital security is, you have to consider all of the above and transpose it on blockchain. The result? A blockchain-based token that acts as a security from a legal perspective.

Security tokens are digital representations of ownership of an underlying asset, such as company stock, bond, or real estate. Some of the most popular examples of digital securities represent corporate shares, although debt security tokens and asset-backed tokens have also gained traction in recent years.

Digital securities share similarities to digital currencies like Bitcoin and Ethereum thanks to their underlying blockchain infrastructure, although they act as traditional securities and thus are in the purview of SEC regulations.

In the US, digital securities, like all other securities, have to be registered with the SEC prior to public sale. The US financial watchdog has already launched dozens of enforcement actions against entities offering unregistered digital tokens that share aspects of securities.

Currently, there are three main types of digital securities: equity tokens, asset-backed tokens, and debt tokens. They share similarities with their traditional counterparts. You can learn more details about each type in our dedicated article.

How Is USPC a Digital Security?

To begin with, USPC is a security token representing fractional ownership of an income-producing real estate portfolio. Specifically, it is an asset-backed token since it is backed by a portfolio of properties.

Technically, it is a digital token, as it resides on Ethereum, the largest blockchain ecosystem by the number of applications and use cases. While most tokens on Ethereum use the ERC-20 standard, USPC leverages the ERC 1400 standard, which was created to meet the specific needs of security tokens, including compliance, documentation, controls and permissions, etc.

Therefore, USPC is technically similar to any other digital currency, but legally, it acts as a security.

The SEC relies on the so-called Howey Test to determine whether a financial instrument is a security. Previously, securities were mainly associated with stocks and bonds, but for the US Supreme Court, the term has implied a broader range of assets. In 1946, the case of Howey vs. SEC showed that the court considered the plaintiff’s sale of land as a security given that it constituted an “investment contract.”

In short, the Howey Test implies four criteria to determine whether a transaction is an investment contract and, therefore, a security: (1) there is an investment of money (2) in a common enterprise (3) with expectations of a profit (4) to be derived from the effort of others.

USPC is a security because it enables you to invest money in a token backed by a real-estate portfolio (USPC acts as a third-party and thus is a common enterprise) with expectations of profit that derives from the professional allocation and management based on the acquisition strategy (USPC management’s effort).

While the SEC intends to regulate most utility tokens as securities, USPC already self-identifies as a digital security, and we fully intend to operate well within Regulations D Rule 506(c) and Regulation S.

Benefits of a Digital Security

Digital securities are no different from regular securities from a legal perspective, but they come with several advantages thanks to the use of blockchain, including but not limited to:

  • Liquidity – digital tokens can make any asset more liquid, and this benefit is even more evident when it comes to real estate. Thanks to the fractional ownership feature, USPC is open to a wide range of investors who get exposure to a portfolio of several properties.
  • Programmability – compliance can be easily integrated into digital securities thanks to a blockchain’s smart contract feature. This helps automate the management of the rights of holders.
  • Security – blockchain networks that spread across multiple nodes have no single points of failure, providing unmatched security of transactions and value storage.
  • Global reach – security tokens are borderless due to the nature of blockchain. Companies can use digital securities to raise money from around the world, providing that they comply with the rules.
  • Convenience – companies can raise funds easily through Security Token Offerings (STOs) – a fundraising mechanism resembling Initial Public Offerings (IPOs) – although it doesn’t require them to become public.

USPC is revolutionizing the real estate industry with its unique approach to offering a reliable and regulated investment product on blockchain.

 

Necessary Disclosures
Informational Purposes for Discussion Only

This general analysis is for general informational purposes only and does not constitute a prospectus, an offer document, an offer of securities, a solicitation for investment, or any offer to sell any product, item, or asset (whether digital or otherwise). The information set out in this general analysis is for community discussion only and is not legally binding.

No Responsibility or Obligation Regarding the Provision or Maintenance of Information

USPC and its affiliated persons and their respective shareholders, members, officers, directors, managers, employees, counsel, advisors, consultants, and agents (“Representatives”) reserve the right, in their sole and absolute discretion with or without notice, to alter any and all of the information of this general analysis.

You acknowledge that: (1) the information contained in this general analysis is subject to change without notice, and no one shall assume from the lack of any updates to this general analysis that the contents of this general analysis have not changed since the date of this general analysis; (2) this general analysis could become outdated due to changing circumstances; and (3) USPC or any of its Representatives does not hereby obligate itself in any manner to periodically or otherwise to update the information in this general analysis or to maintain the availability of any information in this general analysis.

No Advice

Nothing in this general analysis constitutes business, finance, legal, or tax advice. You agree to consult professional advisers before engaging in any activity related to the information provided in this general analysis.

Not an Offer for Any Securities or Investment

This general analysis does not constitute an offer of securities, a prospectus, an offer document, or solicitation for an investment of any kind. Information contained in this general analysis is not an offer to sell securities or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

You acknowledge that: (1) this general analysis and the information shown herein is not an offering of any securities nor a solicitation of an offer to buy any securities and (2) this general analysis and the information herein shall not be construed as any description of the business of USPC or any of its Representatives in conjunction with any offering of securities.

Nothing Legally Binding

This general analysis does not constitute or imply a contract or an offer to enter into a contract. This general analysis is provided solely for informational purposes only and does not constitute any binding commitment by USPC or any of its Representatives. No person is bound to enter into any contract or binding legal commitment in relation to anything in this general analysis.

No Liability, No Representation and Warranty Regarding Information

Neither USPC or nor any of its Representatives shall be held liable for any use of or reliance on the information described and/or contained on this general analysis. USPC and its Representatives do not and do not purport to make, and hereby disclaims, all representations, warranties or undertaking to any entity or person (including without limitation warranties as to the accuracy, completeness, timeliness, or reliability of the contents of this general analysis, or any other materials published by USPC or its Representatives). To the maximum extent permitted by law, USPC and its Representatives shall not be liable for any indirect, indirect, special, exemplary, incidental, consequential, or other damages or losses of any kind, however caused and on any theory of liability, whether in contract, strict liability, or tort (including, without limitation, any liability arising from default or gross negligence on the part of any of them, or any loss of revenue, income or profits, and loss of use or data) arising in any way from the reading of this general analysis, including but not limited to the reliance upon or the use of the general analysis (including, without limitation, inaccurate information, errors, omissions, outdated data, etc.) or otherwise arising in connection with the same.

No person has been authorized by USPC or any of its Representatives to give any information or make any representation or warranty regarding the subject matter hereof, either express or implied, and, if given or made in this general analysis, in other materials or verbally, such information, representation or warranty cannot and should not be relied upon nor is any representation or warranty made as to the accuracy, content, suitability or completeness of the information, analysis or conclusions or any information furnished in connection herewith contained in this general analysis and it is not to be relied upon as a substitute for independent review of the underlying documents, available due diligence information and such other information as you may deem appropriate or prudent to review. USPC and its Representatives expressly disclaim any and all liability for express or implied representations or warranties that may be contained in, or for omissions from or inaccuracies in, this general analysis or any other oral or written communication transmitted or made available to you.

Any historical information or information based on past performance included herein is for informational purposes only and has inherent limitations and is not intended to be a representation, warranty, or guarantee of future performance. Projected performance data shown constitutes “forward-looking information” which is based on numerous assumptions and is speculative in nature. Actual results may vary significantly from the values and rates of return projected herein.

Your Responsibility to Verify Information

You will have the sole responsibility for verifying the accuracy of all information furnished in this general analysis. There shall be no recourse against USPC and its Representatives in the event of any errors or omissions in the information furnished, the methodology used, the calculations of values or conclusions.

No Affiliation

USPC or its Representatives does not imply any affiliation with, or endorsement by, any third party. Such references in this general analysis are for illustrative purposes only.

Regulatory Approval

No regulatory authority has examined or approved, whether formally or informally, of any of the information set out in this general analysis. No such action or assurance has been or will be taken under the laws, regulatory requirements, or rules of any jurisdiction.

Legal Compliance

You will and shall at your own expense ensure compliance with all laws, regulatory requirements and restrictions applicable to you.

Join The Waitlist

USPC is slated to launch in late March, 2023, and we’re currently building our waiting list for early supporters who want to get in on the action.

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USPC Now Live On DigiFinex!

We’re excited to announce that USPC is now live on the DigiFinex exchange. This is an important milestone for USPC as it marks our first listing on any crypto exchange. This also represents a major victory for tokenized real estate, as it demonstrates the potential for decentralized real estate investing!

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