eToro’s new listing looks like a security, but the firm is not worried about regulatory uncertainty

Quick Take

  • eToro announced Monday it would offer trading of BNB, aka Binance Coin, on its platform
  • The move came as a surprise to some who say the token resembles a security
  • Still, eToro’s Mati Greenspan said the firm isn’t worried about regulators clamping down

eToro, a registered securities broker with 10 million users, on Monday announced that it would list Binance's BNB token, bringing the total number of cryptos available on the brokerage's platform to 13.

Holders of BNB, the native token of cryptocurrency exchange Binance, can use the token to trade at a discount on the exchange. It's one of the few cryptos that's seen its price increase since the beginning of the year, as per CoinMarketCap data. At last check, it was trading at $9.38 per token, up from $8.60 in January. Binance issued BNB through an initial coin offering, a process similar to an initial public offering. The firm raised $15 million from the sale. 

The addition of BNB to eToro's platform came as a surprise to some market observers who say some aspects of its design resemble a security. Regulatory agencies, like the SEC in the U.S. or the FCA in the UK, typically have the authority of the buying and selling of securities.

"BNB Coin is quirky in that it likely includes a promise from Binance, if not formally in a contract then [by implication] through the company's public statements, to repurchase the coin using a portion of profits made by the platform over the prior quarter," Preston Byrne, an English solicitor and fellow of the Adam Smith Institute, told The Block in an email. 

Byrne says this setup is similar to a dividend, a type of payment publicly traded companies offer shareholders. 

"This looks a lot like a dividend, a type of payment normally associated with shares, and might, if the regulator woke up on the wrong side of the bed one morning, be viewed as "securities equivalent to shares" even though BNB Coin is not, in form, an equity security," Byrne said. 

In the U.S., companies facilitating the trading of securities must comply with SEC regulations. Still, the agency hasn't provided much guidance on which coins in the $200 billion crypto market are securities. As such, many firms have been slow to add new coins. In the U.S., Robinhood, and Coinbase only support the trading of six cryptos. In the UK, Byrne says regulators haven't applied securities laws to any ICO. 

"If I had to hazard a guess, I suspect Binance and eToro have analyzed the risk of enforcement from UK regulators and concluded the risk exists but is very low," Byrne said. 

Mati Greenspan, a senior market analyst at eToro, shared eToro's thought-process behind listing BNB in a phone interview with The Block.

"We've seen thousands of ICOs over the course of 2017," Greenspan said. "And they were all trying to get this magic formula for a utility token, but Binance was one of the only ones to nail it."

As such, Greenspan doesn't think regulators will deem the token a security. Still, SEC chair Jay Clayton notably said in February that he believed "every ICO I've seen is a security." Binance held its ICO in July 2017. Notably, the SEC set up a new division to talk to ICO startups, a move some market observers believed was an indication the agency would take a softer approach to the market.

The SEC has publicly taken action against a number of ICO projects, but most were run by seemingly bad actors. Centra, which raised $32 million, provides one example. The SEC went after the project's founders, charging them with fraud. 

Greenspan told The Block he wasn't certain if the coin would be available to trade in the US. But he'd be open to the idea. 

"I personally wouldn't be afraid of doing that," he said. "Speaking from my point of view, if the regulator says you shouldn't offer that, then what is the big deal."

"They're not going to put anyone in jail for that," Greenspan added.

To be sure, Greenspan said the firm would not offer BNB to U.S. investors if regulators were to take issue with the move.

"While eToro’s trading platform isn’t yet on offer to U.S. users, when we do launch into the country, we’ll only offer tokens that mean we’re fully compliant with local regulations," Greenspan added, through a spokeswoman. 

This post has been updated from its original form. 

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