Coinbase said in a Tuesday blog post, Aug. 11, that it received Financial Services Permission from the Financial Services Regulatory Authority of Abu Dhabi Global Market, allowing it to arrange investment deals and provide custody as it establishes an international tokenization hub.
- The company described the permission as the regulatory foundation for launching tokenized securities.
- It also said securities registered and issued in ADGM would be backed by underlying shares, with verified token holders receiving "full shareholder rights, including dividends and voting."
Coinbase
Four prospectuses approved by the FSRA one week before the announcement describe how those rights would work in practice. They are indirect, conditional and administered by Coinbase-controlled entities, a review by The Coinformer found.
Four Coinbase prospectuses were approved before the announcement
The FSRA's public register shows four prospectuses issued by Coinbase Onchain SPV Ltd and approved on Aug. 4.
The securities track Apple, Alphabet, Meta and Nvidia, using the tickers AAPLc, GOOGLc, METAc and NVDAc.
The four documents use the same legal structure and contain the same provisions governing ownership, voting, dividends and redemptions.
Each security initially represents a beneficial interest backed by one corresponding share held in a segregated custody account at Alpaca, a U.S. securities broker.
- However, the documents classify the products as certificates representing financial instruments and state that they "do not constitute direct investments" in the underlying shares.
Holders have no direct vote
Coinbase's announcement says verified holders will receive full shareholder rights, including voting.
- The prospectuses state that holders "do not have direct voting rights" in the underlying companies. Instead, a holder who has completed Coinbase's vesting requirements may send written voting instructions to the issuer.
The request must arrive sufficiently far in advance of the shareholder meeting and the holder must pay the issuer's fees and any related expenses. The issuer must then endeavor to vote the corresponding shares as instructed where doing so is legally and practically possible.
But it's not required to notify holders of shareholder meetings or solicit instructions. The terms also say the issuer is not responsible if a voting request is not carried out or if it doesn't exercise a vote attached to an underlying share.
Dividends are reinvested after fees and taxes
Coinbase's announcement says holders receive dividend rights, although a footnote clarifies that dividends are automatically reinvested.
The prospectuses state that holders won't receive cash dividends or other distributions from the underlying companies directly.
- Coinbase Onchain SPV will instead generally use the money to acquire additional shares, increasing the amount of underlying stock represented by each token.
Coinbase charges a distribution fee equal to 5% of the gross dividend before withholding, deductions or reinvestment. U.S. withholding tax is currently 30% for non-U.S. holders unless reduced under an applicable tax treaty.
Token holders therefore receive the remaining economic benefit through additional underlying shares rather than a cash dividend.
Secondary buyers must become vested to exercise rights
The primary offers described in the prospectuses are limited to authorized participants classified as professional clients or market counterparties.
Other investors, including retail investors where legally permitted, may acquire the securities through blockchain networks or decentralized finance markets. They initially become unvested holders and must satisfy Coinbase's vesting conditions before exercising voting or redemption rights.
Those conditions may include identity and anti-money laundering checks, verification that the holder controls the relevant wallet, sanctions screening and the nomination of one or more bank accounts.
Unvested holders retain economic exposure to the underlying shares but are not entered in the legal register as owners of the securities. Coinbase Onchain SPV holds legal title on their behalf until they become vested.