Token Classification: The Key to Swiss Crypto Regulations. Understanding the classification of tokens is crucial because it determines the applicable regulatory requirements in Switzerland. Proper classification helps ensure compliance with relevant laws, such as AML regulations for payment tokens and securities regulations for asset tokens. Therefore, thorough analysis and correct classification of the token type are essential steps for any entity involved in issuing or managing tokens. Do not hesitate to contact me for more information on your crypto exchange or ICO project at connect@swissfintechpro.com
Token Classification
Used as means of payment for goods/services or value transfer.
Not considered securities.
Subject to AMLA if transferable on blockchain.
No claims on issuer.
Scenario: People use Bitcoin, a decentralized digital currency, as a medium of exchange for goods and services. Developers designed it to serve as a means of payment and value transfer
Key Characteristics: Bitcoin does not represent any claim on the issuer, and its primary function is as a currency and payment method. It is not considered a security
Provide access to a blockchain-based application or service.
Not considered securities if solely providing access rights.
Considered securities if they also serve an investment function.
Subject to AMLA if used as a means of payment.
Scenario: Ethereum is a decentralized platform that enables smart contracts and decentralized applications (DApps). Ether (ETH) is the native cryptocurrency of the platform and is used to pay for transaction fees and computational services on the Ethereum network.
Key Characteristics: Ether provides access to the Ethereum platform’s services, such as deploying and interacting with smart contracts. Its primary function is to serve as a utility within the Ethereum ecosystem, and it is not considered a security unless it also serves an investment purpose.
Scenario: Binance Coin is a cryptocurrency issued by the Binance exchange. It can be used to pay for trading fees on the Binance platform, participate in token sales on Binance Launchpad, and more.
Key Characteristics: BNB provides utility within the Binance ecosystem, such as reduced trading fees and access to exclusive services. Additionally, holding BNB can potentially provide economic benefits if the value of BNB increases, making it a hybrid token with both utility and investment functions.
Represent assets like equity, debt claims, or derivatives.
Considered securities.
Not subject to AMLA as means of payment.
Scenario: tZERO is a blockchain-based trading platform for digital securities. TZROP is a security token that represents an ownership stake in the tZERO platform, giving holders rights to a share of the company’s profits.
Key Characteristics: TZROP is a security token that represents equity in tZERO, similar to traditional stock. It provides holders with a claim on the company’s future earnings and is regulated as a security.
Token Summary Classification Table
| Token Type | Definition | Securities | Subject to AMLA | Means of Payment |
| Payment Tokens | Used for acquiring goods/services or value transfer; no claims on issuer | No | Yes (if transferable on blockchain) | Yes |
| Utility Tokens | Provide access to blockchain-based applications or services | No (if solely for access) / Yes (if investment function) | No (if solely utility) / Yes (if payment function) | Yes (if payment function) |
| Asset Tokens | Represent assets like equity, debt claims, or derivatives | Yes | No | No |
Token phase classification is crucial for comprehending the regulatory landscape of Initial Coin Offerings (ICOs) in Switzerland.
Each phase of a token’s lifecycle, from pre-financing to full operation, has distinct characteristics and regulatory implications. By identifying the specific phase of your token, you can better understand the applicable legal requirements and ensure compliance with Swiss financial regulations.
| Token Phase | Description | Securities | Subject to AMLA | Means of Payment |
| Pre-financing and Pre-sale | Claims to future tokens; tokens or blockchain not yet developed | Yes | No | No |
| Existing Tokens | Tokens already in circulation on a blockchain | No | Yes (if transferable on blockchain) | Yes |
| ICO of Payment Tokens | Tokens used as a means of payment | No | Yes | Yes |
| ICO of Utility Tokens | Tokens for access to services | No (if solely for access) / Yes (if investment function) | No (if solely utility) / Yes (if payment function) | Yes (if payment function) |
| ICO of Asset Tokens | Tokens representing assets like equity or debt | Yes | No | No |
Pre-financing and Pre-sale:
Description: In this initial phase, investors are offered claims to future tokens. The tokens or the underlying blockchain are yet to be developed. This phase often involves fundraising based on the promise of future token issuance.
Regulatory Implications: Tokens in this phase are considered securities because they represent a claim on future assets or services. However, they are not subject to AML regulations or considered means of payment as the tokens do not yet exist.
Description Tokens that are already in circulation on an operational blockchain. These tokens are fully functional and can be transferred and used within their intended ecosystem.
Regulatory Implications These tokens are generally not considered securities. However, if they can be technically transferred on a blockchain, they are subject to AML regulations and considered means of payment.
Description: Tokens issued specifically to be used as a means of payment. These tokens facilitate transactions and can be used to purchase goods and services.
Regulatory Implications: Payment tokens are not considered securities but must comply with AML regulations as they function as a means of payment.
Description: Tokens that provide access to a specific application or service within a blockchain-based platform. They enable users to interact with the platform’s features.
Regulatory Implications: Finma do not consider utility tokens as securities if their sole function is to grant access. However, Finma treat them as securities if they also serve an investment purpose. If they function as a means of payment, they are subject to AML regulations.
Description: Tokens that represent ownership or debt claims, similar to traditional financial instruments like stocks or bonds. They provide holders with rights to future earnings or assets.
Regulatory Implications: Finma consider asset tokens as securities and subject them to securities regulations. They do not function as means of payment and are generally not subject to AML regulations.
Understanding these phases and their regulatory implications helps issuers and investors navigate the complex landscape of ICOs, ensuring compliance with Swiss financial laws and protecting the interests of all stakeholders involved. Do not hesitate to contact me for more information on your crypto exchange or ICO project at connect@swissfintechpro.com
