Colorado will explore the use of offering security tokens to fund capital projects under a bill signed Tuesday by Gov. Jared Police, which has forced the country to become the center of a blockchain economy.
The law directs the state treasurer to study the possibility of using tokens to fund capital projects and determine whether doing so would be in the best interest of the state. The treasurer has until March 1, 2023, to report his findings and make recommendations to three legislative committees.
Security tokens are defined by law as “digital, liquid contracts that can be verified and secured through the use of blockchain technology that establishes ownership rights to a fraction of a financial asset such as stocks, bonds, or certificates of participation.”
Bloomberg News
The Act also states that the offering of security tokens is a form of capital funding where the tokens are sold to investors in lieu of the sale of real financial assets to investors.
Colorado at the state level primarily issues participation certificates to fund capital needs due to a constitutional ban on issuing state public obligation bonds and voter approval requirements for direct or indirect debt that extend beyond one fiscal year.
The bill’s sponsor, State Senator Chris Hansen, a Democrat, said the use of the tokens could save the state money and expand the investor base for state debt.
“I see it as an opportunity to reduce fees and overhead and also to democratize bidding because if you use secure tokens you can make it available very much in ways that often don’t work with large bond offerings,” he said.
The law says that Colorado, which pays 2.01% for debt for 35 years when priced COPs in Novembercan “substantially” reduce the cost of capital funding by using tokens to boost state debt demands, including from “ordinary individuals,” and reduce the state’s dependence on institutional investors and “high underwriting costs, interest, and other transactional costs resulting from such dependence. “
Hansen said he has spoken to municipal bond underwriters and local bond attorneys, who have a lot of “good questions,” and who offer security tokens a chance “to add more tools in the tool kit” to state debt sales.
The Colorado Democratic governor has embraced digital innovation by signing legislation that exempts crypto transactions from state securities laws and hiring specialized blockchain architects in information technology offices.
In February, he announced plans to allow the use of cryptocurrencies for tax payment costs and the election campaign again accepted donations in bitcoin, ethereum, and other cryptocurrencies.
Talk about the use of blockchain in the municipal bond market is not new, however application to date has been rare and small.
