Following Hydrominer's initial coin offering of the H2O token late in 2017, Stadler Völkel Attorneys at Law are again advising Hydrominer IT-Services GmbH in connection with an initial coin offering. This time, Hydrominer, who are known for using hydropower for their mining activities, are issuing the probably first security token pursuant to Austrian law.
Hydrominer IT-Services GmbH operates several mining facilities in the Alpine region of Austria and is one of the first companies to have recognized the potential of initial coin offerings as a form of corporate financing. At the end of last year, the company had launched their H2O token which can be exchanged for mining services since March 2018. The special feature of Hydrominer is the fact that their mining facilities receive green electricity from hydroelectric plants that are no longer state-subsidized. This contributes to sustainable mining which requires the use of large amounts of electricity. Due to the cheaper electricity prices—green electricity from small hydropower plants that are not subsidized anymore is usually purchased at the market price of 3-5 euro cents per kilowatt hour—mining can be done economically also in Austria.
Stadler Völkel on the ICO
Oliver Völkel, Partner at Stadler Völkel Attorneys at Law, is structuring the transaction: "We are pleased to support Hydrominer with the issuing of what is most probably the first security token in Austria, following the successful initial coin offering of the H2O token. The new H3O tokens are profit participation rights which get tokenized. The profit participation rights give the investors the right to a share in the profit of the enterprise. In addition, the security tokens represent certain rights that otherwise only shareholders have. As soon as the profit participation rights are tokenized, they become securities in the sense of the capital markets laws. For the pre-sale, which starts in March, Hydrominer relies on an exception to the prospectus requirement, so only large investors can participate. We hope that the capital market prospectus for the involvement of smaller investors will be approved by the FMA in the coming months. That would be a big step in the right direction for the capital market in Austria.", says Völkel.
"We are very glad to be able to advise on the issuance of what is probably the first security token in Austria, and we are even more pleased that we have had the opportunity to support numerous ICOs and ITOs subject to Austrian law and gain the reputation and trust in the FinTech community as highly specialized partner for ICO consulting." says Arthur Stadler, partner at Stadler Völkel Attorneys at Law.
What is an Initial Coin Offering?
The terms Initial Coin Offering or Initial Token Offering comprise various forms of corporate financing. Common to all forms is that a coin or token is issued as a new cryptocurrency based on the blockchain technology. In an ICO, a company offers its coins or tokens for sale or exchange for other cryptocurrencies. Depending on how the coins or tokens are structured, this may involve the issuance of securities or investments, or the sale of digital assets. Depending on this, the issuing companies have to follow a different legal framework. As a rule, participants in an ICO usually have no right to a dividend, interest or repayment of their investment. This is different with so-called 'security tokens', i.e., tokens that grant their owners exactly these rights. An overview of different ICO models can be found here (German only).
Details of the Hydrominer H3O ICO
As part of the Initial Coin Offering, the Austrian company Hydrominer IT-Services GmbH will issue a certain amount of profit participation rights. The first step, also known as pre-sale, will start in March 2018 and is aimed at larger investors who would like to invest EUR 100,000 or more. The general public offer will not be made until a capital market prospectus has been published that was approved by the Financial Market Authority. With the approval of the capital market prospectus, investors are entitled to the issuance of one H3O token per profit participation right. H3O tokens are ERC20 tokens based on the Ethereum blockchain. With the issue of the tokens, the profit participation rights get tokenized, meaning that the rights from the security are dependent on the possession of the token, thus the H3O security token is created. The H3O token is freely transferable. Profit or other distributions are made by first converting the amounts to be distributed in Ether and then transferring them directly to those addresses on the Ethereum blockchain where the H3O tokens are located. The participation rights are designed so that the owners of the tokens participate in the long-term development of the company. The H3O thus represents a completely new form of token. Details can be found on the website of the Issuer under http://www.hydrominer.org/h3o-presale/
Stadler Völkel Attorneys at Law
Stadler Völkel Attorneys at Law (www.svlaw.at) specialize in the law of blockchains and virtual currencies. The law firm has successfully supported several initial coin offerings in the past and regularly advises Austrian and international companies and banks on legal issues related to cryptocurrencies. The firm seeks to be a pioneer in establishing new technologies and is committed to increasing the acceptance of cryptocurrencies and their underlying blockchain technology. The law firm regularly organizes events on these topics (videos on YouTube) and has contributed to the development of the Blockchain Roadmap of the Federal Ministry of Science, Research and Economy (Link). In addition, the law firm is active in scientific research and teaching a course on cryptocurrencies and blockchain at the University of Vienna.