Dragon Coin — Security or Utility?

Dear Dragon Community,

It has come to our attention that a question has been raised about whether the Dragon Coin (DRG) is considered as a security or a utility token. Let us start by assuring our community, and customers, that we aspire to maintain a high level of transparency while we unravel, build and roll out our business; this includes strictly complying with all applicable laws and regulations in the jurisdictions we wish to do business in.

In order for us to live up to the standards we have set for our business we have consulted various professional advisors with regards to the structure of our token, and its primary functionality as a utility token and not as a security. We will explain the structure and utility of the Dragon Coin and its functions within our platform. We wish to provide our community with peace of mind.

In Hong Kong, the regulation of financial markets that are intended to serve the retail investor market are supervised by the Securities and Futures Commision (“SFC”) which originates its powers to supervise and regulate from Part II Division I of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (“SFO”).

As the proceeds from tokens sales have increased considerably, various regulatory authorities in other jurisdictions have issued statements and guidelines on the regulatory implications of such token sales. The SFC has responded to this by issuing a statement on 5 September 2017, addressing the issue of initial coin offerings (another C.1. term for a token sale) (the “Statement”). The SFC Statement outlines in specific, three types of terms and features of digital tokens in ICOs that might constitute ‘securities’, namely:

Tokens may be regarded as ‘shares’ if they represent equity or ownership interests in a corporation, for example where the token holders are given shareholders’ right, including the right to receive dividends and the right to participate in the distribution of the corporation’s surplus assets upon winding up.

Tokens may be regarded as ‘debentures’ where the digital tokens are used to create or to acknowledge a debt or liability owed by the issuer, for example an issuer may repay token holders the principal if their investment on a fixed date or upon redemption, with interest paid to token holders.

Tokens may be regarded as an interest in a ‘collective investment scheme” (“CIS”) if the token proceeds are managed collectively by the ICO scheme operator to invest in projects with an aim to enable token holders to participate in a share of the returns provided by the projects.

The SFC Statement also contains a cautionary statement to remind the parties engaging in ICO activities to seek legal and regulatory advice on the impact of the securities laws on their respective token sale, and a statement to investors highlights the high risk of investing in token sales. In order to remain compliant with all applicable laws and regulations, we have sought advice from local advisors on this issue.

On the basis of our analysis of the Dragon Coin, and legal advice that we sought, we believe that the DRG may not possess the key features and characteristics associated with “securities” including but not limited to shares, stocks or debenture under Schedule 1 of the SFO are present in the context of the Token Sale.

First, shares and stocks convey to the owner an ownership interest in a company. DRG are not designed to confer any ownership rights, economic rights or intellectual property rights to their holders of the Platform or the Company. Such rights are exclusively retained by the Company.

Secondly, shareholders are usually entitled to dividends or a share of profits from a company. In contrast, holders of the DRG holders will not be entitled to and will not receive any profits or dividends from the Company.

Lastly, shareholders of a company are usually entitled to exercise voting rights and have certain management powers over the company. In such case DRG holders are will not govern the development of the Platform or the Company. The DRG only confers on their holders an exchange value mechanism to be used for services within the Platform.

Once again we would like to assure our community of our commitment to maintaining a high level of transparency, and we appreciate the ongoing support from our community & customers through the final stages of our Token Sale. If you have any further questions feel free to join our community on Telegram and we will do our best to answer any questions you many have to your satisfaction.

Team Dragon

Website: https://drgtoken.io

Telegram: https://t.me/joinchat/FSgY4RI3tNfalmD2sbIZRg