Backpack's Token-to-Equity Program Raises Regulatory Questions

Crypto exchange Backpack is taking a bold approach with its new token-to-equity program, which allows users to earn equity in the company by staking its upcoming token. The program's creators believe that this structure will not trigger securities regulations, but industry experts remain skeptical.

According to Can Sun, co-founder and Chief Compliance Officer at Backpack, the conversion property is attached to an upcoming VIP program, which requires users to trade on the exchange, use other services, and lock up their tokens for a prolonged period of time. This separation is intended to avoid classification as a security.

The company is reportedly generating interest among SPACs and bankers who want to take Backpack public, with plans to raise $50 million at a pre-money valuation of $1 billion. While the program's legal strategy may be unprecedented, Sun notes that the company has a backup plan in place: registering the tokens as securities during an anticipated public offering.