Colorado recently passed legislation that will facilitate the sale and transfer of digital tokens in Colorado. Under the Digital Token Act, Colorado businesses will be permitted to effect transactions involving the sale and transfer between certain persons of digital tokens secured through a decentralized ledger or database, with a focus on the production, distribution, and consumption of goods (also known as a “cryptoeconomic system”), as opposed to the current centralized internet platforms and applications that serve as intermediaries of such transactions in cryptocurrencies. Not only will these transactions be exempt from the securities registration requirements under the Colorado Securities Act (CSA), but persons dealing in these digital tokens will be exempt from the securities broker-dealer and salesperson licensing requirements under the CSA. However, the exemption will not be self-executing; it will require a notice filing with the Colorado Securities Commissioner prior to any offer, sale, or transfer of the qualifying digital token to satisfy the exemption. The transactions remain subject to the antifraud provisions of the CSA.

In an area still generally unregulated at the state level and where the SEC has taken a more measured approach, the Digital Token Act has the potential to at least encourage other states, including foreign jurisdictions, to address digital tokens for purposes of their securities laws. While the Digital Token Act applies only to intrastate digital token offerings, it does permit the Colorado Securities Commissioner to enter into agreements with federal, state, or foreign regulators to allow digital tokens issued in the state to be issued in another jurisdiction, and vice versa. It is unclear what steps the Colorado Securities Commissioner may propose in influencing other states’ treatment of digital token offerings, especially if and when an offering crosses into other states, or whether any other state would necessarily follow Colorado’s lead. In the absence of current federal guidance, the Digital Token Act is at least a step towards providing some clarity in this area and hopefully less state enforcement.

Click here to read the full GT Alert on Colorado’s Digital Token Act and its potential impact.