Binance May Have Violated Securities Laws With 'Stock Tokens': German Watchdog

Binance May Have Violated Securities Laws With 'Stock Tokens': German Watchdog

In brief

  • Earlier this month, Binance introduced crypto tokens tied to the price of Tesla and Coinbase stock.
  • A German financial watchdog called BaFin says they’re probably not all that different from stocks, from a regulatory perspective.
  • A German financial watchdog called BaFin says the crypto exchange Binance may be in violation of securities laws, thanks to recently introduced tokens tied to the price of Tesla and Coinbase stock.

    The tokens represent fractionalized shares, which Binance claims are “fully backed by a depository portfolio of underlying securities.”

    Binance, the world’s largest crypto exchange by trading volume, launched these tokenized stocks earlier this month in an attempt to capitalize on hype: Tesla CEO Elon Musk has become an active crypto advocate over the past year, and the company put $1.5 billion in Bitcoin at his direction back in February. The price of Coinbase stock is closely tied to the rest of the crypto market, since the exchange’s profit margins are directly tied to trading volume and the fees it extracts from those trades.

    Binance also plans to introduce tokens representing shares of Apple, Microsoft, and the Bitcoin-rich tech company MicroStrategy.

    The Financial Times reported last week that European regulators were taking a close look at these stock tokens.

    In BaFin’s new note, published today, the watchdog says it has “reasonable grounds” to suspect that Binance issued securities without the required documentation.

    This isn’t Binance’s first rodeo—it’s already under investigation by the CFTC, which suspects the exchange may be letting US customers access its main trading platform (only the US version of Binance is meant to be accessible in the states).

    The exchange did not respond immediately to request for comment.

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