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Aphelion Declared Utility Token

Aphelion went through a paid legal review and was declared a utility token per FINMA ICO guidelines.  Full report below:

February 20, 2018

Aphelion, Ltd.
Unit 5, Long Stone House
Main Street, Charlestown, Nevis


Paragraph 7.2 of the Application requests a: “Legal opinion recognizing your project tokens as utility tokens.” Before providing a response to this prompt, it is important to note that 7.2 of the Application does not provide a jurisdictional framework for analysis nor does the Application provide a definition as to what constitutes a utility token.

February 20, 2018 page 2

I also note, as context for the analysis that follows, that the Application does not require an opinion as to whether the APH token constitutes a security under the laws of the United States or any other jurisdiction. As such, this opinion letter does not evaluate whether the APH token constitutes a security pursuant to the law of any jurisdiction.

Given the amorphous definition of a “utility token” and the fact that the Application does not restrict its analysis to any specific jurisdiction, this letter will adopt the standards articulated by the Swiss Financial Market Supervisory Authority FINMA ICO guidelines published on February 16, 2018 (“FINMA Guidelines”).


As background, the FINMA Guidelines provide as follows:

3.1 Token Categories

There is no generally recognized classification of ICOs and the tokens that result from them, either in Switzerland or internationally. FINMA bases its own approach to categorization on the underlying economic function of the token.

Payment tokens: Payment tokens (synonymous with cryptocurrencies) are tokens which are intended to be used, now or in the future, as a means of payment for acquiring goods or services or as a means of money or value transfer. Cryptocurrencies give rise to no claims on their issuer.

Utility tokens: Utility tokens are tokens which are intended to provide access digitally to an application or service by means of a blockchain-based infrastructure.

Asset tokens: Asset tokens represent assets such as a debt or equity claim on the issuer. Asset tokens promise, for example, a share in future company earnings or future capital flows. In terms of their economic function, therefore, these tokens are analogous to equities, bonds or derivatives. Tokens which enable physical assets to be traded on the blockchain also fall into this category.

3 See the Swiss Financial Market Supervisory Authority FINMA ICO guidelines published on February 16, 2018, stating: (“There is no generally recognized classification of ICOs and the tokens that result from them, either in Switzerland or internationally.”)

under the laws of the Republic of the there is no generally recognized class

Seychelles or any other jurisdiction for that matter. Further, ification of tokens that exists internationally.3

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The individual token classifications are not mutually exclusive. Asset and utility tokens can also be classified as payment tokens (referred to as hybrid tokens). In these cases, the requirements are cumulative; in other words, the tokens are deemed to be both securities and means of payment.

3.2.2 Utility Tokens

Utility tokens will not be treated as securities if their sole purpose is to confer digital access rights to an application or service and if the utility token can actually be used in this way at the point of issue. In these cases, the underlying function is to grant the access rights and the connection with capital markets, which is a typical feature of securities, is missing. If a utility token additionally or only has an investment purpose at the point of issue, FINMA will treat such tokens as securities (i.e., in the same way as asset tokens).4


A. What is Aphelion?

In relevant part, Aphelion is self-described in its “White Paper” as follows:

Aphelion is a next-generation DApp and token protocol that will integrate with any other DApp. By leveraging the smart contract technology as a protocol with its own tokenized systems of escrow or building blocks, Aphelion users can finally eliminate the barriers and controls of the cryptocurrency exchanges and trading platforms. Aphelion empowers users to trade directly between themselves on the contract terms they choose. It delivers an innovative, tokenized escrow solution for users to instantly trade, transfer, send, and receive Aphelion approved currencies to anyone they want and anywhere they want.5

For clarity, the Aphelion “White Paper” defines what constitutes a DApp as follows:

A decentralized application or DApp, as it is abbreviated, has its backend code running on a decentralized peer-to-peer network. A DApp can have frontend code and user interfaces written in any language (just like an app) that can make calls

4 See FINMA Guidelines for enquiries regarding the regulatory framework for initial coin offerings (ICOs) Published 16 February 2018.

5P2P Digital Asset Distribution (visited February 19, 2018) https://aphelion.org/wp.html.

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to its backend. Furthermore, its front end (sic) can be hosted on decentralized storage such as Swarm or IPFS.

While Aphelion’s White Paper does not define what constitutes a “Smart Contract,” computer scientist, Nick Szabo described a “smart contract” as:

a computerized transaction protocol that executes terms of a contract. The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitration and enforcement costs, and other transaction costs.6

B. What Function Does APH Serve?

The Aphelion White Paper also describes the function of APH as follows:

An Aphelion token is the Liquidity Verification Device (“LVD”) powering the DEAL directly between users. . .

The Aphelion token (APH) offering does not represent a stock or sale of securities; the Aphelion token does not grant equity or voting rights; the Aphelion token does not grant ownership rights directly or indirectly to the Aphelion company, its physical, virtual, or intellectual properties; the Aphelion token does not grant a debt security and is not an instrument of debt; the Aphelion token does not pay a distribution, disbursement or interest payment to token holders. . .

Acting as a digital escrow or Liquidity Verification Device (LVD), the Aphelion token simultaneously captures terms from buyer and seller, reconciles the proposed smart contract, instantly verifies liquidity and settles the [Distributed Exchange Asset Ledger]. . . The APH tokenized DEAL is a protocol DApp residing directly on the blockchain, thus bypassing exchanges and allowing APH to be the Liquidity Verification Device and ultimately unlocking the promises of instant, secure, and total decentralization.

6 See Nick Szabo, Smart Contracts, 1994, http://www.virtualschool.edu/mon/Economics/SmartContracts.html. This definition was also used in the S.E.C.’s Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (visited February 19, 2018) https://www.sec.gov/litigation/investreport/34-81207.pdf.

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Based on materials you have provided under separate cover, APH has the following functionality:

The APH token functions as both an escrow device and a transaction payment facilitator on the Aphelion peer to peer trading platform. The token is required by both parties that are trading on the platform. The popularity of the APH token is dependent on who is using the Aphelion trading platform. No third parties are involved in the making the trades of digital assets. A function of token redistribution is slated for development which involves some portion of APH tokens to be refunded back to transaction participants. To be included in this token rebate, the parties involved must have conducted a transaction.

C. What Category of Token is APH Under the FINMA Guidelines?

In plain English, having reviewed the Aphelion White Paper and spoken with you, I understand Aphelion to function as a decentralized exchange for digital assets (cryptocurrencies specifically). I understand that APH “powers” the exchange of cryptocurrencies on the Aphelion DApp. When parties desire to exchange cryptocurrencies on the Aphelion DApp, they must provide APH and the APH is consumed as part of that transaction. Because the service Aphelion provides is that of an exchange, and the exchange of cryptocurrency assets is not possible without providing APH, which is in turn consumed, I believe that APH is properly categorized as a “Utility Token” under the FINMA Guidelines.

Based on everything that I have read and that we have discussed, APH is intended to provide access digitally to the Aphelion decentralized exchange. In turn, APH appears to constitute a consumptive use product permitting access to the Aphelion exchange, as detailed above. I base this understanding on following facts: 1) the sole purpose of APH is to confer digital access rights to an application or service and it can actually be used in this way at the point of issue; and 2) the underlying function is to grant access rights only and there is no connection to capital markets.


The law surrounding token categorization is emerging and unsettled. As such, it is possible that with time, the definition of a “utility token” may evolve to comprise a different definition than that set forth herein. As such, my opinion that APH does constitute a “utility token” is restricted 

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