A secondary digital asset exchange is an opportunity for holders of digital assets to realize their gains. These markets are facilitated by issuers (APs) and are open to investors. The regulations that govern the handling of digital asset securities will shape the manner in which they are distributed and handled by financial institutions, infrastructure providers, and financial institutions themselves.
secondary digital assets differ from traditional securities in that they are traded in small amounts. They are sold to a buyer for real currency. The price of the digital asset reflects the market value of the goods or services that were exchanged for the digital asset. In contrast, traditional securities are sold once, and the buyer’s expectation of capital appreciation and profit is based on the promise of future delivery. Moreover, in the primary market, the purchaser’s relationship to the issuer is more direct. Unlike the primary market, the secondary market is a marketplace in which the issuer does not control the distribution process. This means that digital asset transactions can be reliable and secure.
When a developer retains a stake or interest in a digital asset, other purchasers may conclude that the developer has an influence on the value of the asset. Moreover, the issuer of the digital asset has an obligation to use the proceeds of the sale to enhance the network. While this may not lead to an investment contract, it does suggest that the owner has a reasonable expectation of profits from the AP’s efforts.
The Howey test is a framework that is used to analyze a digital asset transaction. It examines the form of the digital asset, the circumstances surrounding its creation, and the investor’s expectations of profit. Whether a digital asset is a security will depend on the application of federal, state, and local securities laws. However, it will also be important to consider the nature of the AP’s efforts in promoting the asset and the network, as well as the manner in which the digital asset is marketed and offered.
During the initial phase of development, a digital asset is often captive to third party curation. For example, a purchaser of a digital asset in early stages of development will generally be investing in a common enterprise, rather than the intellectual property rights to the digital asset. Additionally, the value of a digital asset is often not directly correlated with the underlying goods or services that were exchanged for it. As a result, a digital asset is less likely to be an investment contract than a security.
Similarly, the APs responsible for overseeing the network make managerial decisions that have a significant effect on the success of the enterprise. Consequently, the value of the digital asset is tied to the AP’s efforts, as is the likelihood of the AP’s continuing to monetize the value of the digital asset. Depending on the AP’s performance, the buyer can expect to be paid in the form of capital appreciation, return through selling in the secondary market, or both.