SEFToken Inc. is in the news for coming up with the “inaugural” covered warrant, a new form of tokenized instrument.
What is a Covered Warrant?
It’s is an investment instrument that works quite like an option. When you buy a covered warrant, you basically buy the right to sell or purchase a security at a specific price for a particular period.
More About the Announcement
SEFtoken new offering was announced in a press release. According to the PR, the tokens will be available on the Ethereum blockchain. They’ll be issued in association with the Securitize platform, and users will be able to convert the tokens into equity at the famous Aussie exchange, Mercari.
The company intends to give global investors a chance to issue US-compliant digital securities. The PR said:
“The use of the covered warrant structure in the digitized security token era of 2019 introduces a critical structural enhancement to the industry overall, and we are pleased to be able to grant potential investors with actual asset ownership,” said SEFtoken director Brian Price, in a statement. “Through our SEFtoken structure, we are committed to providing investors with what they are demanding, namely transparent and compliant ownership of a credible asset.”
What’s the Point?
Covered warrants are designed to issue and sell digital securities in a compliant manner. The current laws in the country (Australia) do not allow companies to issue digital shares. This is why there is a need for digital warrants. They can be backed by equity, allowing investors to get the same benefit as directly investing in the shares.
This is how the company explains the concept:
“This model has been developed instead of a more straightforward securities token offering (STO) where the underlying asset is tokenized. An STO for an already incorporated company would not be regulatory compliant across both jurisdictions since most exchanges (crypto or otherwise) do not have the infrastructure to maintain shareholder registry and trade tokens using dApps or “smart contracts” and DLT, as yet.”
SEFtoken is looking at raising above $31 million with the help of an SEC-compliant offering that’s doesn’t need registration. This will be available to all accredited investors, abroad and in the US.
“If the offering hard cap is met, that ownership means SEFtoken holders will own 47 percent of the underlying asset and as a block will become the largest shareholder of the asset,” said Price.
Carlos Domingo, the company’s CEO, is hopeful that this move will “help showcase blockchain technology’s potential to unlock illiquid assets in a compliant way for asset holders.”
In the “year of the security tokens”, this new form of tokenized instrument paves the way for potential investors to be compliant. The hype is there but we’re not yet sure if the concept will deliver, too.