Hybrid Security Tokens – What are they and What are they not?

NEWS  – Crypto and Security Token Exchange INX to Raise $130 Million in Landmark IPO: INX Limited, a crypto exchange startup, plans to raise up to $129.5 million through an IPO, in the first security token sale registered with the U.S. Securities and Exchange Commission. No, that’s not a typo for “ICO,” the initial coin offerings that tested the limits of securities law during the go-go days of 2017. IPO means IPO here: INX, which is domiciled in Gibraltar, filed a draft F-1 (the SEC’s prospectus form for foreign issuers) with the agency on Monday and will market the tokens to retail and institutional investors through the initial public offering. Read more.in the Coindesk article (from the Off Chain roundup newsletter).


If you are not confused, then you are not reading carefully.

INX is a startup domiciled in Gibraltar and yes, it will be an IPO in the Us. INX is looking to raise capital following the U.S. Securities and Exchange Commission (SEC) standard procedures for a security offering.

However, the investors that buy the registered INX security will be receiving a Token that is NOT Equity.


  • INX Token is NOT Tokenized Equity


  • INX Token is a Profit-Sharing Token. According to public information, INX token holders are entitled to 40% of the company`s net cash flows. See here.
  • INX Token is a Utility Token with the INX exchange. Token holders have the option to use it on the INX Exchange to pay transaction fees.
  • INX Token holders’ claim for breach of contract will be senior to the rights of the holders of the ordinary shares of the Company in liquidation

The INX Security Token, is an example of a hybrid Token. It resembles the Tzero Token – TZROP – which promises a quarterly dividend of 10% of the company’s adjusted gross revenue, subject to the Board of Directors approval. Dividends can be paid in USD, BTC, ETH or TZROP. Tzero also has left open the possibility of additional utility functionality on the Tzero platform, but it is not specified and the seniority over ordinary shareholders, in case of bankruptcy, is not guaranteed (correct me if I am wrong).

However, Tzero didn’t go through an IPO. There were actually three phases to the Tzero platform capital raising. First, with a Hong-Kong private equity firm, GSR capital, who initially intended to invest $400mil and until now has invested only $5mil (details here). Then through a typical ICO that had a prolonged pre-ICO private sale and a lengthy total ICO sale (it became an STO in Spring[1]) Tzero raised $134 million with the sale of 19.25 million TZROP tokens.

TZROP Security Token Offering Highlights

Presale Price:             $5 – $6.75

Presale dates:             Dec 18, 2017 – Jan 29, 2018

Main sale Price:         $10

Main sale dates:        June 09, 2018 – Aug 09, 2018

Country of origin:     USA

Fundraising Goal:     $250, 000,000

Funded:                     $134, 000, 000

Accepted:                  BTC, ETH, USD


Stay Tuned

Watch the exchange space, as there are additional major players in the pipeline: Coinbase Prime, Fidelity Digital Assets, Bakkt, and Six Digital Exchange.

Watch also the emergence of hybrid securities, hybrid assets that are enriching the capital structure as we know it but also creating confusion.

It is clear that the INX and Tzero security tokens are not tokenized equity. The token holders have no voting rights, have no option for a class action, cannot legally review the books and records of the companies, and most importantly do not have ownership of a portion of the company. INX token holders are given seniority in case of liquidation but are they protected in case of a restructuring or a workout since they have no voting power? What will they gain if the company is acquired in a favorable deal? The devil is in the details, as always.

The market doesn’t know how to value and trade these tokens that are a new generation of structured products that pool various cash flows and rights into one hybrid structure.

[1] Following the SEC review.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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