How To Make: Millions

IAN BALINA
HOW TO MAKE
MILLION S
with
SECURITY TOKENS
HOW TO MAKE MILLIONS with SECURITY TOKENS | 1

IAN BALINA
HOW TO MAKE
MILLIONS
with
SECURITY TOKENS
A BEGINNERS GUIDE
TO THE NEXT TRILLION DOLLAR INDUSTRY
#Hustle2Greatness
Table of Contents
Introduction 5
Why Security Tokens Are the Next Bubble? 12
What Are Cryptocurrencies and Tokens 16
s
What Are Initial Coin Offerings (ICO )? 21
What Are Securities? 25
Conclusion 43
Final Opinion 46
About the Author 48

Introduction
T
he gold-rush mentality that cryptocurrencies
created has often been compared with some of the
biggest bubbles in history. Some see a resemblance
to the Dutch Tulip mania of the 17th century
while others compare it with the dot-com bubble of the early
2000s.
As this last market cycle in the cryptocurrency market comes to

an end, with the all-time high being reached in January 2018
and the low being most likely decided in 2019, the question
arises:
What comes next?
The best way to answer this question is by trying to understand

the history of this newly formed asset class. We will look at two
significant events in the cryptocurrency market:
DD The Bitcoin bubble burst from a total market

capitalization of around $15 billion in November 2013
to $3 billion in January 2015;
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DD The Utility token bubble burst from $800 billion to
$100 billion in late 2018.
Bubble 1 - Bitcoin Market Cycle
This graph shows a view of the 2013 bitcoin market cycle.
In 2013 Bitcoin truly gained some steam. The flood of media

coverage and hype around the crypto asset drove its price
significantly. As Bitcoin was beginning to attract investors and
attention, especially in China, its price went from $68 to nearly
$1,200 in just five short months.
The spectacular rise came to an abrupt halt when China’s

central bank ordered payment processors to stop giving clearing
services to Bitcoin exchanges, earning this boom-bust cycle the
appropriate name of “the China bubble.”
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The final nail in the proverbial coffin was the Mt. Gox hack
announced in February 2014 that lost its clients over $450
million worth of Bitcoin.
The subsequent bear market would last until the beginning of

2015 when the rise of Utility Tokens would bring in a new era
of crypto asset speculations.
Bubble 2 - U tility Token Market

Cycle
This chart shows a view of the 2015 utility token fueled market
cycle.
In late 2013, Vitalik Buterin, a 19-year-old programmer and

cryptocurrency researcher wrote a white paper in which he

addressed the limitations of Bitcoin and proposed Ethereum
as an alternative.
His idea was to create a decentralized blockchain powered

platform that would enable other projects to build on top of it
and allow them to create and execute smart contracts. A smart
contract is a computer protocol whose purpose is to automate,
verify and enforce the terms of a contract. Think of them as a
vending machine. Traditionally, you would have to go through
a lengthy process to create, negotiate, and vet a contract.
With smart contracts, on the other hand, you drop the coin
(cryptocurrency) into the vending machine (ledger), and you
automatically get whatever you agreed upon in the contract.
With those ideas in mind, Buterin began the development

of the Ethereum platform. After a successful crowdsale mid-
2014, raising approximately $18,400,000, he and his team of
developers launched what will soon become the second most
valuable cryptocurrency in existence.
The unprecedented demand for Ethereum to invest in initial

coin offerings (ICOs) caused its price to reach a staggering
$400 in the first half of 2017 from just 50 cents. What followed
was a “Gold Rush” of ICOs that made the entire globe pay
attention to the cryptocurrency market. Most of them were
built on the Ethereum network.
Although we will dive deep into the subject of ICOs, a short

explanation will help you understand the utility token bubble
better.
An Initial Coin Offering is a fundraising method in which new

projects issue their cryptocurrency in exchange for funding. It’s
similar to an Initial Public Offering (IPO) used in the stock
market, from which the term derived. The difference between
ICOs and IPOs is that the former is not regulated and anyone
with internet access can be an investor. Moreover, the coins that
investors receive don’t provide ownership of the company that
started the project. Instead of purchasing shares of a company
like with an IPO, investors bet on the rise in the price of the
coin. They believe or expect that people would have use/utility
for it and thus the demand will increase. That’s how the term
Utility Token came to life.
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Although a new method of fundraising, ICOs raised an
astonishing amount of money. Reports show that ICOs raised
up to $6 billion in 2017 and over $7.8 billion in 2018. If that
surprises you, then you should also know that the investment
volume of ICOs in 2017 surpassed venture capital funding for
blockchain startups. And, it happened even though numerous
crowdsales took place in unregulated or poorly regulated
countries. So, it’s no surprise that more and more people became
interested in ICOs, fueling their meteoric rise.
But, as with any new revolutionary technology, the soaring

prices rarely reflect reality. Moreover, investors’ inexperience
and poor understanding of cryptocurrencies created a volatile
market. Alt-coins (any other cryptocurrency or token than
Bitcoin) would rise 300% in value in less than a week, then lose
90% of it in one or two months.
Things took a turn for the worse as multiple government

financial organizations either banned ICOs or issued judgments
that would affect the future development of this market.
China and South Korea, for example, banned ICOs due to

concerns over potential financial scams that the lack of
regulation may create.
The Securities and Exchange Commission (SEC) also went

after ICO startups for violating existing laws in the way
they raised funds. The organization issued several judgments
that require US-based ICOs and exchanges to comply with
regulations.
The last straw was the listing of Bitcoin futures on the

Chicago Board Options Exchange (CBOE) and the Chicago
Mercantile Exchange (CME) in December 2017 that gave
investors the possibility to bet on the decline of the Bitcoin
price. The bubble finally burst in January 2018, with Bitcoin
losing more than 80% of its value while the rest of crypto assets
registered over 95% losses.
If, in spite of the lack of regulation, ICOs managed to fuel

startups with a staggering $13.8 billion worth of investments,
what’s next?

Some cryptocurrency experts believe that Security Token
Offerings (STOs) are a viable alternative to venture capital
financing, surpassing ICOs. Investors receive securities, such
as shares or equity in the form of a token. In a way, if you look
at Bitcoin as digital money, then you could consider Security
Tokens digital ownership.
Bubble 3 - S ecurity Token Bubble
When you invest in an ICO, you are purchasing a digital coin

in an attempt to speculate on its future value and demand.
However, you don’t get any ownership of the company creating
the platform.
Security Tokens, on the other hand, allow almost anyone to buy

assets that have value and prove ownership using the token as a
form of registry. It can be shares of a company that are tokenized
or ownership of a real estate property. If it has value, then it
can be tokenized and allow people to easily prove, transfer or
share ownership with the underlying blockchain functioning as
a registry.
Our opinion is that security tokens will be the most significant

innovation in the financial system since publicly traded stocks.
The security tokens space is moving very slowly. There is no
need to FOMO (fear of missing out) into security token
investments.
DD Over 256 Trillion in Real Assets
There is an estimated $256 trillion worth of real assets in the

world, most of it comprised of real estate and fine art. Security
Tokens offer the chance to trade nearly everything with value
in record time over record distances by any1one with internet
access. The potential is tremendous, and it opens a whole new
marketplace.
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DD Over $69 Trillion in Global Stock Exchanges
There are 60 major stock exchanges throughout the world

ranging in size and value. All of them combined are worth
around $69 trillion.
The New York Stock Exchange is the largest exchange, with a

bewildering $18.5 trillion in market size. That accounts for close
to 27% of the total market for global equities. In comparison
small stock exchanges like the ones in Malta, Cyprus or
Bermuda are estimated to be worth between $1 billion to $4
billion in value.
Imagine that you could take all the stocks that these exchanges
are trading, tokenize them and put them on a blockchain.
If nearly everyone in the world could turn into a potential
investor, this financing option would bring a huge amount of
value to a company’s bottom line. Instead of giving out coupons
the company could offer tokenized shares and encourage buyers
to care about the company’s profit margins as much as they do.

Why Security
Tokens Are the
Next Bubble?
Real Assets and Real Money
O
ne of the primary arg uments of cryptocurrency
critics is that digital coins have no real intrinsic
value. That’s were Security Tokens can make a real
difference.
Utility Tokens are a method of paying for access to products or

services, Security Tokens have inherent value - the underlying
asset that it represents.
Whether you do a price to earnings ratio for tokenized shares

or a simple price evaluation of your used car token on the
second-hand market, the value of the token will be as easy or
complicated to calculate as the underlying asset.
12
Providing Liquidity to Illiquid
Securities
The tokenization of non-liquid assets, such as fine art, precious

metals, sports teams, real estate, and so on could change the
way investors value and think about their assets.
Instead of owning a Monet, for example, you could invest as

little as $2,000 in a $200 million Monet fund that has several
of his artworks. The same goes for a $35 million mansion in
Beverly Hills - you just buy a fraction of the token that has the
mansion as an underlying asset and earn a fraction of the rent.
In addition to giving access to multi-million-dollar assets

that historically had limited commerce and liquidity, their
“tokenization” also gives the regular Joes and Janes the
opportunity to diversify their investment portfolios in
unprecedented ways.
Opening Up Capital Markets

Globally
STOs offer a whole new world of possibilities as they provide

quick, easy, and affordable access to a broad investor market.
Imagine a Chinese citizen willing to invest $1,000 worth of

Yuan in Tesla shares. Their opportunity to invest in Tesla is
limited due to their limited access to the American investment
market.
With STOs, on the other hand, you don’t need more than an
internet connection to invest as much as you would like in your
preferred company in a matter of seconds.

The exposure to capital markets will grow immensely and truly
create an economy that serves the many and not just the top
1%. Everyone will be able to put their hard-earned money to
work for them.
DD 24/7 Trading on Secondary Markets
The stock markets are only opened for six or seven hours during
the weekdays. Companies often take advantage of this schedule
and release information on Friday after 4 pm when the markets
are closed.
Security Tokens, on the other hand, can be traded 24/7 on

secondary markets, creating unprecedented liquidity.
The possibilities become endless. You could, for example,

automate dividends and voting rights using the programmable
aspect of Security Tokens. Moreover, you could adjust them
based on certain desired behaviors. You could also increase
dividends and voting rights for investors that held a stock for
longer than 5 years, incentivizing them to hold the shares for
extended periods.
DD Smart Contracts Will Replace the Middleman
Smart contracts will replace middlemen like lawyers or

arbitrators as they allow the standardization and automation
of contractual obligations. There’s no more need for a third-
party to initiate and approve the agreement if the algorithm has
determined that the contract has been fulfilled and payment
has been done automatically.
DD The Interest in Security Tokens Is Growing
In 2018, the crypto retail craze cooled off and prices retraced
to sane levels. With the market slowing pace, institutional
investors have started to show an interest in it. Given the
nature of these sophisticated investors, a natural flow to more
traditional valuation methods will follow, and Security Tokens
will be at the front of the list.
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After a brief analysis of the history of crypto assets and
their possible future, it is time to dive into an in-depth
presentation of the crypto world. From the difference between
Cryptocurrencies and Tokens to what ICOs, Securities, STOs
are and what concerns might arise in the future, we will take
a close look at the state of cryptocurrency and address all the
major themes.

What Are
Cryptocurrencies
and Tokens
What Are Cryptocurrencies?
C
ryptocurrencies, such as Bitcoin, Litecoin or Monero
to name just a few are meant to be sovereign global
money and store of value. They are independent of
a platform and can be used to pay for any service or
product just like the United States Dollar.
Although the main goal is to be global money there are many

types of cryptocurrencies depending on additional properties.
They can be decentralized like Bitcoin or centralized like Tether.

They can enable privacy like Monero or offer smart contracts
like Ethereum.
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Supply and demand dictate the price of a particular
cryptocurrency on the exchange. The higher the adoption the
more stable the coin. “Stable coins” are the exceptions to the
rule as they peg their value to the US Dollar and are controlled
by one company. This company increases or decreases the supply
of the coin to keep the price stable.
What Are Utility Tokens?
What are the differences between cryptocurrencies and Utility

Tokens? Let’s try to dig deeper and look at some examples.
A coin has to fulfill one or more roles in its native ecosystem to

be called a Utility Token. It could be value, stake, voting rights,
or anything that allows the owner to participate in that specific
ecosystem.
Utility tokens function as an incentive to participate in an

ecosystem or community. They could be compared to in-app
purchases for a game or a game token used to play in an arcade.
A utility token also serves as future access to a product or
service similar to a software license (a permit to use a particular
software, for example, paying Microsoft to use windows.)
Making it basically a digitized software license.
Steem, for example, is a Utility Token used to reward good

videos or comments on Steemit, a blogging and social media
platform similar to YouTube. This system incentivizes people
to participate in this ecosystem with high-quality content and
comments.
Or imagine someone would want to create a token based on the

Uber model. People would need the “Uber Token” to pay for
the ride (the app would automatically convert any currency to
the Uber coin.) Investors would bet that the price of the token
would rise because the more people use the service the more
demand for the coin it creates. More demand means higher
price. Simply put, people buying the coin early on expect the
future utility of the Token to increase as more customers use
the service and thus grow the value of their investment.

The bigger the system gets, the more utility the token has
leading to more demand for the token. The price is based on
speculation, and there is no book value to utility tokens.
What Are Security Tokens?
Security tokens also called digital securities, smart securities,

programmable securities, or crypto securities are changing the
status quo of capital markets by moving toward an architecture
built on distributed ledger technology. They will lead to
efficiencies for all parties involved. Issuers will benefit from
lower cost of capital and compliance, investors benefit from the
improved market depth and increased liquidity, and regulators
will benefit from improved visibility and enforceability
Let’s say that you are a pilot and want to buy a $12 million jet
to offer a transport service for the rich. But you don’t have that
kind of money. What do you do?
You could start a company, look for one or two investors and
share the profits through complex contracts. Moreover, the
investor would have his money stuck in your business for a long
time.
Or, you can create a token that has the company that owns the jet
as an underlying asset and sell it to hundreds of small investors.
A smart contract will then allow you to easily automate the
distribution of the profits. You suddenly have unprecedented
access to investors worldwide. Not to mention, those interested
in your business will be able to invest from the other end of the
world with ease and sell their share of the plane just as easy
once they decide it no longer serves their purpose.
So back to the question, what are Security Tokens?
Security tokens are a digital representation of a real-world asset

in the form of a token. The token allows you to trade the value
of an underlying asset, which traditionally had been indivisible
and illiquid, such as the aforementioned plane or Beverly-Hills
mansion.
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Unlike utility tokens, security tokens have intrinsic value. They
have real-life use cases, profit and losses calculated out, revenue
shares, etc. They are not necessarily dependent on the sentiment
of the marketplace, but only on their specific branch.
Security tokens will make it so assets can be more reasonably

priced. When a security cannot be easily converted to cash
for its fair market value, a liquidity premium is demanded by
investors. When the liquidity premium is high, the asset is said
to be illiquid, and investors demand additional compensation.
Security tokens will create an illiquidity discount (make the
asset more easily convertible for cash.)
By taking an existing financial instrument and starting to

maintain shareholder balances on a distributed ledger like
blockchain for the purposes of transparency and liquidity, you
are practically creating a token. Tokenization is the process of
issuing digital tokens that represent the shares of an underlying
financial instrument on Distributed Ledger Technology (DLT)
The anticipation of future profits in the form of dividends,

revenue share or, most commonly, price appreciation is the
primary reason for contributors to buy tokens. The tokens serve
as an investment contract ensuring the ownership structure of
the underlying asset.
While Utility Tokens represent the ecosystem of an underlying

business model, Security Tokens serve as the actual ownership
in the company facilitating the sale of goods or services
Benefits of security tokens
DD Issuers
Security tokens open access to a larger pool of capital. They allow

for the removal of a middle man, which lowers fees, speeds up
deal execution, hinders financial institution manipulation, and
allows for automated service functions. They reduce the cost of
fundraising as there is no need to pay legal, administrative, and
compliance costs.

DD Investors
For investors, security tokens will eliminate scams. They will

provide investors with financial rights like equity, dividends,
profit share, voting, and buy back rights. They will lower the
barrier to entry by reducing capital requirements. They will
allow for a targeted investment thesis. You could potentially
go long in real estate in Manhattan and hedge your position
by going short in Brooklyn. Global markets will be accessible
24/7. There is rapid settlement and increased liquidity, and you
are legally entitled to your asset if it is stolen.
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What Are Initial
Coin Offerings
(ICO s )?
ICO s Are Crowdsales For

Cryptocurrencies
I
nitial Coin Offerings (ICOs) are the cryptocurrency
version of crowdfunding. Just like with traditional
crowdfunding, the “investor” doesn’t own a part of the
business. He gets access to the product or, in our case, the
coin.
Creators usually offer a fixed supply of a currency or a token

that people can use as a payment method within an online
platform the issuer is building. This online platform is the
“engine” that then drives the demand for the existing currency
and thus increases the price for early investors, driving their
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profits. Unlike traditional investments in startups and growth
company fundraisings, the investors can sell their tokens almost
immediately on online exchanges. Secondary markets provide
additional investor protection, as it is easier to get in and out of
the investment than with traditional startup shares.
An important distinction that one needs to note is that compliant

ICOs are not Security Tokens. While strict compliance laws
make it paramount for STOs to conform to regulations, a
security token is a digital representation of a real-world asset
that is legally-bound by its very nature.
What’s The Problem With ICO s ?
81% of ICOs Are Scams

Bitconnect is perhaps the biggest scam the crypto world has
ever seen. It was a project that was promising insane returns in
the form of United States Dollar (USD) for buying and storing
the Bitconnect coin for a certain period. The concept was rather
straightforward: investors would trade in Bitcoin in return for
the Bitconnect coin (BCC.) And, because the only way to buy
BCC was with Bitcoin, its spectacular rise in 2017 made it
possible for the Bitconnect team to pay out those high returns.
In the end, it all came crumbling down, exposing Bitconnect
for the scam that it was and losing over $2.5 billion in market
capitalization in the process.
Bitconnect is just the most famous example, but the numbers

paint a grim reality. According to a report by ICO legal advisory
firm Satis Group LLP, a staggering 81% of ICOs are considered
to be scams. Simply put, the developers never intended to fulfill
the project’s commitment with the funds they raised through
ICOs.
Another 11% of ICOs managed to raise the necessary funding,

but their creators abandoned the project before their tokens
were listed on an exchange. And, that’s one of the most
significant problems with ICOs: legitimate ones with real-life
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use cases are eclipsed by scams. Given these conditions, it is
almost impossible to determine if a project failed or if it was a
scam from the very beginning.
ICO Investors Don’t Have

Any Rights
Given the nature of ICOs and the lack of regulations, it was to
be expected that the market would be flooded by scam artists
trying to make a quick billion bucks. It doesn’t help either
that issuers lack disclosure requirements and investors have no
rights whatsoever. Investors have no control rights to enable
them to steer projects and hold management accountable for
their actions. Often, there were no restrictions on who could
invest in an ICO, violating KYC/AML and accreditation laws.
That is where Security Tokens bring a tremendous advantage.

The combination of the scalability of token sales with the
investor protection of regulated securities is making STOs the
perfect investment vehicle.
Why The SEC Calls Most ICO s

Securities?
The Howey Test

The Howey Test is the standard methodology put in place by
the Supreme Court to determine if something is a security and
if it must be subjected to specific regulations. The ICO must
meet all of the following criteria for the SEC to consider it a
security:
DD The investment involves money or assets;
DD Investors expect to make a profit;

DD Investors pool their money or assets together in a
common enterprise;
DD Profits are influenced by the efforts of a promoter or

third party;
The last point might prove to be a loophole for some projects

as many ICOs depend on the actions and initiatives of its
community/investor base to generate profits.
The SEC’ s Definition of

Securities
On the 16th of November 2018, the Securities and Exchange
Commission (SEC) declared two ICOs, Paragon and AirToken,
to be securities and ordered them to pay a fine of $350,000. In
addition, they have been asked by the US SEC to refund $12
million and $15 million respectively to investors.
The US SEC’s ruling makes sense as the two ICOs checked all
four boxes of the Howey Test. Let’s take Paragon as an example:
Investors purchased their tokens using digital assets (crypto).
The investors expected they would profit from any rise in the
value of PRG tokens as Paragon primed purchasers’ reasonable
expectations of profit through statements on internet forums,
blogs, e-mails, and social media.
The investment of digital assets is in a common enterprise.
Investors’ profits depended on the efforts of others. In this case,

Paragon and its agents would manipulate token supply, burn
PRG tokens and support the secondary markets to create a
favorable ecosystem that would boost its value. Talking about
any financial gain, increase in token value or exchanges makes
a token a security.
With that in mind, one question begs to be asked: if the SEC

has classified most ICOs as securities, then what are securities?
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What Are
Securities?
Securities Are Tradable

Financial Instruments
T
he legal definition of a security varies greatly from
country to country, but generally, it is defined as a
tradable financial instrument that derives its value
from another asset. You can classify securities into
debt, such as bonds, ownership like stocks, and future rights to
ownership such as options and futures.
The US SEC ruled Bitcoin and Ethereum to not be securities

in mid-2018. The main argument was that, because the two
platforms are decentralized, investors don’t rely on third parties
to make a profit. While the news came to great relief to the
crypto community, SEC officials claim that some ICOs might
be declared securities and would have to follow the same
regulations as stocks, meaning that they will have reporting
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requirements to protect investors and market integrity. Securities
can also payout dividends or interest if the underlying business
is generating profits.
Securities Have Been Around For

A Long Time
What’s the first thing that comes to mind when you hear the
word “stocks.” Most probably, you think about the companies
listed on major stock exchanges like Nasdaq or the New York
Stock exchange. You may be surprised to learn that things didn’t
always function like that and that it took a few decades for the
first stock to be traded.
While the history of stocks isn’t the purpose of this guide, it

may be useful to know that the first stock was issued in 1602.
If that sounds like it was a very long time ago, then you should
also learn that the first bond dates back as far as 1517.
Let’s jump ahead a few centuries to the Stock Market Crash

of 1929. Soon after that, the Securities Act of 1933 was
established, powering the Common US Securities Laws from
1933 and 1934. These laws required increased transparency
in financial statements so that investors can make informed
decisions about investment. The law also established a
framework against misrepresentation and fraudulent activities
in the securities market. The Securities Exchange Act of
1934 (SEA) was passed the following year with the purpose
of increasing financial transparency and accuracy of security
transactions on the secondary market, resulting in less fraud
and manipulation.
The Security Exchange Commission (SEC) was authorized

by the SEA to act as its regulatory arm. The SEC monitors
the different security markets and market participants, such as
the conduct of CEOs, brokers, traders and investment advisors
operating on the stock, bond, and OTC (over the counter)
markets.
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Who Creates Securities?
There are multiple ways to create a security, but all of them

must have an Issuer. An issuer can be a company raising funds
for future expansion, for example, by doing an Initial Public
Offering (IPO) on the stock market. The issuer can also be a
governmental organization like the treasury taking on debt by
creating and selling bonds on the market.
A transaction of a security is completed only after the issuer

sets the terms of their specific security and the investor pays the
requested amount, herby receiving ownership of the security.
What Are Primary And

Secondary Markets?
The process of issuing a security is done on primary markets

as it is the first trade for this specific financial instrument. An
IPO, for example, is by definition always the first trade of shares
and always done on primary markets.
After the security has been issued on a primary market, original

investors can sell them on secondary markets, which are typically
exchanges where other investors can buy and sell the security.
What Are Private And Public

Securities?
If the issuer and investor trade a security without the help of

a publicly available market, like the stock market, then we are
talking about private security.

For example, shares issued by a privately held company, such
as a startup to venture capital investors are considered private
securities. This type of security is rather hard to gain access to
and significantly less liquid. The lack of large or public secondary
markets makes finding a trading partner increasingly difficult.
Public securities are financial instruments that are listed on

public markets like the New York Stock Exchange (NYSE).
The existence of large liquid secondary markets makes finding a
trading partner quite easy. However, access for entities to issue
their securities on the public market is restricted and they must
first fulfill an entire list of regulatory requirements.
What Are Shareholder Rights
Securities, by law, give their owners certain rights, whether

we’re talking about economic, control, information, litigation
and or physical delivery rights when it comes to commodity
derivatives.
Let’s take a closer look at each of them.
What Are Economic Rights?

Your economic rights differ based on whether a financial
instrument is equity, debt or both.
When it comes to equity, investors have the economic right of

receiving part of the profits by being paid dividends. On the
other hand, if the owner of the security receives a fixed income
regardless of the issuer’s profitability, then the security is debt-
like. If a security has the characteristics of equity and debt, such
as revenue participation notes and preferred stock, then we are
talking about quasi-equity or hybrids.
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What Are Control Rights?
As an investor, you might want to retain a certain amount
of control over management and the general direction of the
company. Influence over important decisions that determine
the future of a company is a key characteristic, especially if you
want to minimize risk. That’s where control rights under the
form of voting rights can play an important role. Equity owners
may have the right to participate and vote in a shareholder
meeting. These meetings are called annual general meetings
and happen, as the name suggests, once a year.
Some companies choose to have multiple stock series with

different voting rights.
A common stock gives one share the right of one vote and a
proportion of the dividends, depending on the total number of
shares. But, early founders often issue dual shares to preserving
control of the company over later stage investors. Dual share
class stocks are often called Class A and Class B and represent
two different types of shares with different control rights.
Google is a good example of having multiple stocks publicly

traded. Back in 2014, Google split its stocks and created two
classes: A and C - GOOGL, respectively GOOG. The reason
was simple: founders wanted to retain as much control over the
company as possible. Although the difference in price between
the two is quite small, there’s one crucial distinction: voting
rights.
Class C shares (GOOG) have no voting rights while Class

A shares (GOOGL) have one voting right. There are Class B
shares too, but they are not publicly traded. Google insiders
own them, each having ten votes.
Debt usually doesn’t grant control rights.

What Are Information
rights?
Depending on the jurisdiction and type of security, the
issuer has an obligation to disclose certain information with
existing or future investors. These requirements are sometimes
guidelines, but in most cases are legally binding and can have
serious consequences if not met.
DD Privately Held Securities
Although not as strict as publicly listed securities, the company

still has to report certain details of its operations to shareholders.
Annual reports like audited financial statements, the cap table
(shareholder registry,) and so on are just some examples of the
type of information these records must contain.
DD Listed Securities
When issuing a public security, companies must also file with

the Securities and Exchange Commission (SEC) a document
called prospectus that contains all relevant information and
disclosures. Investors then use this document to make an
educated decision about whether to invest or not.
Once the security becomes publicly traded, the issuer has the
obligation to provide reports such as quarterly and annual
financial reports, a profit warning and any information that
might affect the price of the security. All these measures are
to keep investors informed, but also to prevent insider trading.
DD Litigation Rights
Shareholders play an essential role in the governing of a

company. Because they own a small portion of it, they also
have the right to affect change within the company, including
actions against it. Such is the case of a derivative suit, where
the shareholders can take legal action on behalf of the company
against a third party. It is an instrument shareholders use to
expose fraud or when they think the management should or
shouldn’t do something.
30 | IANBALINA.COM
When it comes to equity instruments, litigations usually happen
after an investor registered an economic loss from buying
or selling shares based on false information provided by the
company’s management. A common cause of litigation rights
is when the issuer misleads or fails to disclose information
affecting the securities price or a corporate governance failure
like misusing capital. If the investors decide to start a civil
action against the managerial wrongdoings within the company
to recover said losses, then they will file a derivative suit.
These suits are rather common in the USA and quite rare in
Europe as bringing legal action against management for breach
of duty is more difficult there.
When it comes to debt instruments, the most common cause is

the failure of the issuer to pay interest to investors. The inability
of paying owed interest on debt means the issuer has defaulted.
DD Physical Delivery Rights
As far as futures and options contracts go, one of the parties

promises the delivery of an underlying asset on an agreed future
date. The other party, therefore, has the right to physical delivery
which is a right exclusive to commodity derivatives.
How Are Securities Regulated?
Regulators goal is to ensure a safe environment for market

participants by making sure that information is factually correct
and different investors are treated fairly.
Regulations, therefore, limit who can sell, invest, give advice,

and exchange securities.
DD Who Can Sell Securities?
Only actors that have been approved by their countries’ specific

regulatory agencies can sell securities.

In the European Union (EU), a broker or trader needs to be
accredited by the relevant authority and be part of an investment
firm. An investment firm also needs to fulfill the requirements,
both regarding entities similar to the United States’ SEC and
the specific market place (e.g. Frankfurt Stock exchange.)
A broker-dealer in the US needs to register with the SEC and

join a “self-regulatory organization” before being allowed to sell
securities.
Financial service firms in the UK need to register with the

FCA - Financial Conduct Authority.
DD Who Can Buy Securities?
The main actors in the EU security market are sophisticated

and professional investors. Accredited investors are the norm
in the US, such as banks, high-net worth individuals, financial
institutions, and so on.
DD Who Can Advise or Provide Guidance on Deals?
Some companies will offer “advice” or “guidance” for people

who wish to invest their money. If a company informs you on
“what you should invest in” then this is considered to be “advice”.
Companies in the UK, for example, need to be authorized by
the FCA and follow the consumer protection rules to advise on
deals.
Companies that offer broad information, such as the available

investment options, but without recommending a specific type
of action do not need to be accredited by the FCA as they only
offer “guidance”.
A nominated advisor (NOMAD) company for the Alternative

Investment Market (AIM) has first to be registered by the
London Stock Exchange (LSE). The admission of new issues
to AIM are regulated by the NOMAD project. A NOMAD
is usually a firm of investment bankers that acts as a regulator
under the license of the LSE. This unique situation happens
because the AIM is an exchange regulated market.
32 | IANBALINA.COM
DD Who Can Run a Marketplace or Exchange?
Faster speed and lower costs than ever before have made
Multilateral Trading Facilities (MTFs) the norm in the EU. A
good example of an MTF is the LMAX Exchange in the UK,
which offers spot foreign exchange and precious metals trading.
MTFs need to have a license from the relevant authority. For
example, the FCA issues the license in LMAX Exchange’s case.
Similar to MTFs, the United States has Alternative Trading

Systems (ATS), which are mostly regulated as broker-dealers
and have to be licensed by the US SEC.
DD USA Security Regulations
As per the Security Act of 1993, Security Tokens in the USA

need to follow these four regulations: Regulation D, Regulation
A+, Regulation CF, and Regulation S
Regulation D
For an offering to avoid being registered by the SEC, the issuer
needs to fill out “Form D” after the security has been sold. The
issuer can publicly advertise his offering in compliance with
Section 506C.
Section 506C states that only accredited investors are allowed

to participate, and all information provided in the offering is
“free from false or misleading statements”.
An accredited investor under financial regulation law has special

status and can invest in securities that are not registered with
financial authorities. This privilege is given to individuals or
entities that satisfy requirements regarding net-worth, income,
asset size, governance status or professional experience. One or
more of these conditions need to be met:
The investor must have an annual income of at least $200,000

or $300,000 for joint income (you and your spouse) for the last
2 years. Furthermore, the expectation of future earnings must
be at least the same.

A net-worth exceeding $1 million, excluding the value of the
primary residence, will also grant you the status of an accredited
investor. This net-worth can be individually or jointly with a
spouse.
An entity can be an accredited investor if it is a private business

development company or organization with more than $5
million in assets.
The issuer has to verify, and the investor needs to provide

all relevant documents that have relevance for proving the
accredited status. Such documents include balance sheets, credit
reports, financial and bank account statements. Attachments
can extend to tax returns, W-2 forms, pay stubs, and even
letters from reviews by CPAs, tax attorneys, investment brokers
or advisors.
https://icodog.io/security-tokens/overview-of-us-regulations-of-security-token-
offerings/
34 | IANBALINA.COM
Regulation A+ (Mini-IPO)
This exemption takes a lot more time and is the most expensive
compared to any other options but allows the issuer to be
SEC-approved. The security can be offered to non-accredited
investors through a general solicitation for up to $50 million in
investment.
https://www.seedinvest.com/blog/jobs-act/raising-capital-reg-a-mini-ipo

Regulation CF
This regulation enables eligible companies to offer and sell
securities through crowdfunding.
The rules:
DD Require all transactions under Regulation Crowdfunding

to take place online through an SEC-registered
intermediary, either a broker-dealer or a funding portal
DD Permit a company to raise a maximum aggregate

amount of $1,070,000 through crowdfunding offerings
in a 12-month period
DD Limit the amount individual investors can invest across

all crowdfunding offerings in a 12-month period
DD Require disclosure of information in filings with the

Commission and to investors and the intermediary
facilitating the offering
Securities purchased in a crowdfunding transaction generally

cannot be resold for one year.
Regulation S
This regulation is relevant for offerings made outside of the US
and is therefore not required to register as mentioned under
section 5 of the 1033 Act. The issuer still needs to follow the
guidelines and regulations of the country where the security is
supposed to be offered.
Summary
Regulation D is one of the most popular ways to raise capital
for start-ups. It is excellent if you want a quick hassle-free way
to raise as much money as you want from accredited investors.
36 | IANBALINA.COM
Regulation A+ is good to do if you want to raise less than $50M
from non-accredited investors, but you have to jump through a
lot of hoops with this one.
Regulation CF is good to do if you want to do a minimall raise

of less than $1.07M.
Regulation S is right if you are going to raise outside the US.
What Are Security Tokens?
Security Tokens are digitally represented proof of ownership. If

you own the token, then you own the underlying asset as well
and the blockchain acts like an immutable recordkeeper.
In addition to having the same characteristics of the underlying

asset, like the right to receive profits from dividends, the token
also has the advantages of a cryptocurrency. Some of these
advantages can include:
DD The reduction of friction through easy trade over the

internet;
DD The possibility of programming smart contracts,

replacing third parties;
DD Easy divisibility as assets can be split into smaller pieces

for investors to share
In contrast to cryptocurrency, Security Tokens still have

to follow regulations like stocks, bonds and other types of
securities. Also, if someone steals your security token, you are
legally entitled to reinstatement of the stolen asset.

What Are Security Token
Offerings (STO)?
When it comes to shares, Security Token Offerings are basically

the same as IPOs with the primary difference being the way
distribution is done (online) and the subsequent location of
the secondary market (globally). An STO is also significantly
faster and cheaper than IPOs when done under regulatory
frameworks such as Regulation D, S or A+.
Regulations protect an investor when participating in an STO

by granting economic, control, information, litigation and
physical delivery rights.
In other words, an STO is a legal and much cleaner way of

fundraising, compared an ICO.
An organization can legally provide tokens to buyers with

benefits like dividends, profit shares, and voting rights.
A security token can still keep the attributes of a utility token,

by using it for native transactions in an organization’s service
or product.
Where to Trade Security Tokens?
TZero
The online retailer Overstock (NASDAQ:OSTK) launched
its subsidiary tZERO at the beginning of 2019. TZERO is
the first licensed blockchain enabled alternative trading system
(ATS) where investors can trade Security Tokens.
By including token issuance, management, and trading solutions,

tZERO offers a cost-effective service. Issuers save huge amounts
38 | IANBALINA.COM
on research and regulatory cost. TZERO integrates regulations
directly in the token creation protocol. Overstock’s founder,
Patrick Byrne called Security Tokens an “innovation of historic
proportions.”
TZERO has raised $270M at a $1.5 billion valuation, and

its tokens will be issued in accordance with SEC regulations.
Token holders will receive a 10% dividend of adjusted gross
revenue quarterly, after meeting the conditions mentioned in
the offering memorandum and being approved by the board.
OpenFinance
OpenFinance Network offers a U.S. regulated trading platform
for digital alternative assets and token-based securities, allowing
for a streamlined compliant process for secondary market
trading.
Security Token Issuance Platforms
Securitize
Securitize is a platform that enables compliant Digital
Securities liquidity and insurance on the blockchain.
Issuers can use the platform and tools provided by Securitize to

manage their digital security. Its smart contracts are designed
to support the token information on the Ethereum blockchain.
Polymath
What Ethereum (ETH) is for ICOs, Polymath wants to be
for Security Tokens. Similar to Ethereum’s ERC-20 token,
Polymath has developed its ST-20 token standard on top of
Ethereum.

Polymath’s platform provides all required legal and technical
solutions to tokenize stocks, bonds or any other asset form on
the blockchain and uses its own native POLY token for all
economic operations.
Harbor
Harbor is an all-encompassing blockchain based platform
for digital securities such as private equity, funds, commercial
real estate, and so on. It uses its Ethereum based permission
token named R-Token for transfers that take place only when
approved by an on-chain Regulator Service (SEC regulation
compliant).
Its purpose is to provide a wealth of liquid investment

opportunities as well as making the process of tokenizing an
existing company’s shares easier.
Where to Find STO s ?
SharesPost
With 250 private company partners and $4.5 billion in
transactions, the SharesPost marketplace is a handy tool to
research and trade traditional and digital securities of private
growth companies.
STOMarket
If you are looking for a directory of Security Token Offerings,
then STO Market is the ideal place to visit. With partners like
Securities and Polymath, the website should have a firm grip on
the pulse of the STO market.
40 | IANBALINA.COM
Bank to the Future
Bank to the Future, is a global online investment platform, can
only be accessed by professional investors with a yearly income
of at least $200,000 who are willing to invest at least $1,000
every year.
Possible Concerns With Security

Tokens
Several concerns regarding Security Tokens can arise. ICOs

have been doing their utmost best to avoid being classified as
a security and for very good reasons. ICOs depend heavily on
creating a network effect to foster a community. Restrictions on
who can invest and how the tokens can be exchanged severely
hinder projects to create an effective community.
STOs, on the other hand, are not as dependent on network

effects, but a small community will definitely not be helpful and
Security Tokens that depend on a platform will have the most
to suffer.
Fewer investors and exchanges and a smaller network effect will

have a negative influence on liquidity for secondary markets as
well.
When you file paperwork with any authority, you are removing
your decentralization. Having to follow regulations negates
the advantages of a decentralized system. Therefore, instead
of allowing Security Tokens to develop at their full potential,
this technology will be limited to being just an iteration of
traditional securities.
Not to mention, pushing the economics of your token from

the many into the hands of the few will reflect on percentage
gains for the short and medium term. Instead of fast and wild
returns, returns will be more calm and expected.

If you don’t have the stomach to attract the crypto community
and share in the risk-reward level with them, the argument is
that you should ultimately undertake a public offering in some
jurisdictions.
On the other hand, STOs can be a compromise for

attracting institutional investors, while we work toward full
decentralization.
42 | IANBALINA.COM
Conclusion
A
s we’ve outlined at the beginning of this guide,
we’ve been so far through two bubbles during the
Evolution of Crypto Assets.
DD Bubble 1 - The Bitcoin Bubble
From the creation of Bitcoin in 2009 to late 2013, Bitcoin’s price

exploded from $0 to over $1,100 and then fell over 80%. This
bubble created the first wave of cryptocurrency millionaires.
DD Bubble 2 - The Utility Token Bubble
From the low of the first bubble in 2014, Bitcoin’s price exploded
yet again from under $200 to over $20,000. That’s a 100x return
on your investment. But the real winners were ICOs, creating
unimaginable returns. The IOTA token, for example, was at the
top with a whopping 10,000x increase in price from its ICO
to its peak in 2017, outperforming Bitcoin by a hundred times.
The ICO “gold rush” raised up to $6 billion in 2017 and $7.8

billion in 2018 according to the website ICO Data.
43
This bubble created the second wave of cryptocurrency
millionaires.
DD Bubble 3 - The Security Token Bubble
With over $256 trillion in real assets of which $69 trillion is

in global stock exchanges, Security Tokens seem to be the next
logical step.
DD Why Security Tokens Are The Next Bubble?
With Security Tokens representing real assets and real money,

this new technology will bring never before seen liquidity to
illiquid securities and open up the capital markets to the entire
world. Security Tokens make investing in any kind of assets just
as easy as sending an email.
DD What’s The Problem With ICOs?
ICO’s are being plagued by an avalanche of scammers. With

reports showing that 81% of ICOs are scams, not having any
investor protection and rights turns out to be a significant
problem.
Adding to the list of problems, ICOs are starting to get in

trouble as the US SEC calls most ICOs securities.
DD What Are Securities?
Securities are tradable financial instruments and have been

around for a very long time.
DD What Are Shareholder Rights?
Securities grant their owners legal rights, which include

economic, control, information, litigation, and physical delivery
rights.
DD What Are Security Tokens?
Security Tokens are “tokenized” assets that are digitally recorded

on a blockchain or more broadly on a distributed ledger.
44 | IANBALINA.COM
Their main use-case is to allow investors to easily trade assets
all over the world with the same protection as normal securities,
like the right to receive profits in the form of dividends, revenue
share or price appreciation.
DD What Are Security Token Offerings (STOs)?
Security Token Offerings are simply ICOs that offer Security

Tokens, with all its advantages, instead of Utility Tokens.
DD Where To Trade Security Tokens?
Online trading platforms like Overstock’s tZERO or

OpenFinance Network are a quick and easy way to gain access
to the security token market.
DD Possible Concerns With Security Tokens
The regulations and limitations that come with being classified

as a security allow sophisticated investors to enter the market
but can have negative effects on liquidity and the ability of the
projects to create a much-needed network effect.

Final Opinion
S
ecurity Tokens are the next big wave in my opinion.
Even the most advanced stock exchanges in the world
today take up to two days to clear purchases. Using
blockchain, this could be reduced to just minutes.
We are researching into the infrastructure being created around

security tokens. The rewards for building a dominant system
for security token exchange could be massive as there are $256
trillion dollars worth of real-world assets that could potentially
be traded.
An example of a transformative application of security tokens

is the application of blockchain to the real-estate market.
Consider what email did to snail mail. People would think
twice about sending mail because of the painstaking process.
Now people are sending emails with memes. It did not just
transform the “how” mail is sent but also the “what” is sent.
Security tokens have the potential to do the same for finance.
Thank You!
46
Thank you!
I know reading this entire guide in its entirety wasn’t easy. But
the good thing is you took action and finished it. The number
one thing that stops people from achieving financial freedom
and lifestyle is that they don’t take action. They don’t start and
finish things.
You have just separated yourself from 95% of people in the

world by seeking this information. Now the question is will
you separate yourself from the 95% of people that read this
guide and execute on everything here and create the financial
freedom and lifestyle you desire?
By definition, not everybody can be great. Great things will

always remain for the great. To achieve greatness, you have to
go out and take it. It won’t just fall in your lap.
I hope I have inspired you to actively learn more about Security

Tokens. Be sure to follow me on social media, where I’m active
daily. Especially on YouTube and Instagram.
Telegram: ianbalina.com/mastermind
Instagram: @diaryofamademan
Facebook: facebook.com/ianbalina
YouTube: youtube.com/user/diaryofamademan
Snapchat: @diaryofamademan
Twitter: @diaryofamademan
Thank you!
Ian Balina
#Hustle2Greatness

About the
Author
48
I
an Balina is a Blockchain Investor, Advisor, and
Evangelist. He has built three million-dollar businesses
from the ground up, and appeared in The Wall Street
Journal, Forbes, CNBC, Huffington Post, The Street,
INC and Entrepreneur Magazine for his work in analytics,
cryptocurrencies, and entrepreneurship.
A former Analytics Evangelist at IBM, Ian has brought a

data-driven, “money-ball” approach to investing in blockchain
startups, called “Token Metrics”.
Ian is a founder and General Partner at 100X Advisors a

blockchain investment and advisory firm. In 2018, 100X
Advisors traveled to over 35 countries evangelizing blockchain
while investing in 15 different blockchain startups in 15 different
countries. Originally from humble means, Ian is dedicated to
giving back through his philanthropic efforts with Children of
Uganda and Black Girls Code.

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IAN BALINA

HOW TO MAKE MILLIONS with SECURITY TOKENS | 1

Why Security Tokens Are the Next Bubble? 12

What Are Cryptocurrencies and Tokens 16

What Are Securities? 25

About the Author 48

As this last market cycle in the cryptocurrency market comes to

What comes next?

The best way to answer this question is by trying to understand

DD The Bitcoin bubble burst from a total market

Bubble 1 - Bitcoin Market Cycle

This graph shows a view of the 2013 bitcoin market cycle.

In 2013 Bitcoin truly gained some steam. The flood of media

The spectacular rise came to an abrupt halt when China’s

The subsequent bear market would last until the beginning of

Bubble 2 - U tility Token Market

In late 2013, Vitalik Buterin, a 19-year-old programmer and

HOW TO MAKE MILLIONS with SECURITY TOKENS | 7

His idea was to create a decentralized blockchain powered

With those ideas in mind, Buterin began the development

The unprecedented demand for Ethereum to invest in initial

Although we will dive deep into the subject of ICOs, a short

An Initial Coin Offering is a fundraising method in which new

But, as with any new revolutionary technology, the soaring

Things took a turn for the worse as multiple government

China and South Korea, for example, banned ICOs due to

The Securities and Exchange Commission (SEC) also went

The last straw was the listing of Bitcoin futures on the

If, in spite of the lack of regulation, ICOs managed to fuel

HOW TO MAKE MILLIONS with SECURITY TOKENS | 9

Bubble 3 - S ecurity Token Bubble

When you invest in an ICO, you are purchasing a digital coin

Security Tokens, on the other hand, allow almost anyone to buy

Our opinion is that security tokens will be the most significant

DD Over 256 Trillion in Real Assets

There is an estimated $256 trillion worth of real assets in the

There are 60 major stock exchanges throughout the world

The New York Stock Exchange is the largest exchange, with a

HOW TO MAKE MILLIONS with SECURITY TOKENS | 11

Real Assets and Real Money

Utility Tokens are a method of paying for access to products or

Whether you do a price to earnings ratio for tokenized shares

The tokenization of non-liquid assets, such as fine art, precious

Instead of owning a Monet, for example, you could invest as

In addition to giving access to multi-million-dollar assets

Opening Up Capital Markets

STOs offer a whole new world of possibilities as they provide

Imagine a Chinese citizen willing to invest $1,000 worth of

HOW TO MAKE MILLIONS with SECURITY TOKENS | 13

DD 24/7 Trading on Secondary Markets

Security Tokens, on the other hand, can be traded 24/7 on

The possibilities become endless. You could, for example,

DD Smart Contracts Will Replace the Middleman

Smart contracts will replace middlemen like lawyers or

DD The Interest in Security Tokens Is Growing

HOW TO MAKE MILLIONS with SECURITY TOKENS | 15

What Are Cryptocurrencies?

Although the main goal is to be global money there are many

They can be decentralized like Bitcoin or centralized like Tether.

What Are Utility Tokens?

What are the differences between cryptocurrencies and Utility

A coin has to fulfill one or more roles in its native ecosystem to

Bubble 2 - U tility Token Market

Bubble 3 - S ecurity Token Bubble