Backpack Exchange is advancing a controversial proposal to distribute equity rights to users who stake its upcoming token, a move that hinges on a complex VIP status rather than direct token ownership. The plan, confirmed by co-founder Can Sun, requires participants to trade on the platform, utilize additional services, and lock their tokens for a prolonged period to qualify for the equity distribution.

While the strategy aims to bypass current U.S. regulatory frameworks that classify tokens offering a direct claim on company success as securities, the approach has drawn immediate scrutiny from industry observers. Sun, a former general counsel at the collapsed FTX exchange, argues that the equity rights are not inherent to the digital asset but are instead a feature of a separate VIP program. "The token could be floating out there to anyone, but if you don't use Backpack, if you don't stake it for a year, then it has none of those rights," Sun explained. "It's not a property of the token itself, it's the property of a VIP program that we're running."

The structural separation between the token and the equity rights comes as Backpack engages in discussions to raise $50 million at a pre-money valuation of $1 billion. Sun indicated that the company is exploring a public offering, with interest from SPACs and investment bankers, though the firm is waiting for the optimal timing. The timeline for unlocking token supply is expected to align with these broader capital market activities.

Recognizing the persistent regulatory headwinds, Backpack has prepared a contingency plan for the "worst-case scenario." Sun stated that the company intends to register the tokens as securities during an anticipated initial public offering (IPO). "The remedy for an unlicensed securities offering is registration," Sun said. "We're just going to register an additional class of securities on our IPO. That cures it in the worst-case scenario."

This defensive posture relies heavily on a specific legal precedent from the traditional finance sector. Sun pointed to a 2020 filing Coinbase submitted to the SEC, which he worked on while at law firm Fenwick & Taylor. Prior to Coinbase's direct listing on the Nasdaq, the exchange attempted to register a "Class T common stock," a tokenized equity class designed to function alongside traditional shares. The SEC requested legal analysis on whether tokenized shares differed from traditional stock, but Coinbase ultimately abandoned the initiative, citing a need for "further consideration."

Regulatory Implications and Market Sentiment

The Backpack proposal represents a significant test of how regulators interpret the intersection of utility tokens and equity rights. Under the current enforcement posture of the SEC, led by Chair Gary Gensler, any instrument that offers a financial return or claim on a company's success typically triggers securities laws. By decoupling the equity claim from the token itself and attaching it to a behavioral requirement—trading volume and lock-up periods—Backpack attempts to argue that the token remains a utility asset, while the equity is a separate contractual right.

However, the market reaction remains cautious. With the Crypto Fear & Greed Index currently at 14, indicating extreme fear, investors are highly sensitive to regulatory risks. The attempt to replicate a model that Coinbase discarded suggests that while the legal theory is sound in theory, the practical execution faces significant hurdles. The fact that Sun, a key architect of the FTX collapse, is now leading this legal strategy adds a layer of complexity to the narrative, as the industry remains wary of regulatory compliance failures.

Backpack's strategy underscores a broader trend in the crypto sector: the increasing reliance on legal engineering to navigate a fragmented regulatory landscape. Whether the "VIP program" distinction will hold up under regulatory scrutiny remains an open question. If the SEC challenges the arrangement, the company's fallback option to register the tokens as securities during an IPO suggests a willingness to pivot to a traditional compliance framework, albeit at the cost of the token's utility narrative.

Source: Decrypt | Analysis by Rumour Team