An Overview of Tokens and Their Legal Status Under Turkish Law

The concept of 'token' is being used more and more as digital technologies and financial innovations advance rapidly nowadays. While the term 'token' is used in the context of cryptocurrencies and blockchain technology to refer to digital assets that carry value within a certain system or platform, it is also important to consider the legal and economic dimensions of this term. This article will present a detailed overview of the functions of the concept of 'token' and discuss its legal status under Turkish law.

I) What is a Token?

Although the terms 'cryptocurrency' and 'crypto token' are often used interchangeably, they are not considered the same from technical perspective. Although cryptocurrencies and tokens use distributed ledger technology, there are important differences between these two digital assets.

Cryptocurrency is a digital currency, usually operating on its own independent blockchain, whose main purpose is to act as a medium of exchange. Token, on the other hand, is a digital asset created using smart contracts on an existing blockchain and offers platform-specific governance and services. A token can be listed on multiple exchanges, reaching various audiences and entering different markets.

There are different types of tokens depending on their functions and areas of use. Some of these are as follows:

1) Utility Tokens

The primary purpose of utility tokens is to provide access to the goods or services of a blockchain platform, and these tokens are not considered as an investment instrument in the traditional manner.

Utility tokens are usually created through a process called Initial Coin Offering (ICO). ICO defines the process of offering a newly created token or crypto asset for sale in exchange for cryptocurrency in order to raise funds for projects. Unlike the public offering, the purchased token or crypto asset does not give its owner the legal rights such as becoming a shareholder in the company or the project. One of the key points of ICO is the "whitepaper" which is an official document containing a detailed description of a new project. It explains in detail the purpose of the project, its functioning, technical details and how the project is generally processed.

The most popular examples of utility tokens in recent times are "Fan Tokens". Fan tokens are tokens that are generally produced to offer some advantages to their owners such as priority ticket purchase options or the right to participate in surveys. These are usually available on cryptocurrency exchanges, fan token platforms or on the official sites of sports clubs. One of the most common fan tokens in Turkey is the "Fenerbahçe Token” [1], a collaboration between Fenerbahçe Sports Club and Paribu, a digital asset trading platform.  In the whitepaper of Fenerbahçe Token, the project details such as the amount of the offering and the advantages that token holders will benefit from are explained.

As per the statements in the whitepaper, the aim of Fenerbahçe Token is to increase Fenerbahçe's fan interaction, to enable fans to play a more active role in the future of Fenerbahçe Sports Club by enabling them to have a role in the Club's activities, including but not limited to surveys/voting. Fenerbahçe Token holders will be able to benefit from advantages such as the opportunity to travel with the team in away matches, priority ticket purchases, the opportunity to watch matches in special tribunes, participation in autograph signing ceremonies, influencing decisions by participating in surveys to be conducted and custom shirt designs.

2) Security Tokens[2]

In contrast to utility tokens, security tokens have a real monetary value. As investment instruments, they are subject to strict securities regulations.

3) Non-fungible Tokens (NFTs)[3]

They represent unique and non-divisible digital assets, such as art and collectibles.

II) Legal Status of Tokens under Turkish Law

When we look at the general practice in the world, the legal status of tokens can fluctuate depending on their intended use and the characteristics of the token. While some tokens may be considered as securities and therefore may become subject to capital market regulations, others may be used as means of payment or to provide access to services of a specific platform. In particular, the question of classification of digital assets as commodities or securities is critical as it has direct tax implications, and effects on investor protection and market transparency.

The regulation published in the Official Gazette on 16 April 2021 by the Central Bank of the Republic of Turkey prohibits the use of crypto assets as a payment instrument and restricts token trading transactions by Turkish crypto asset service providers. The decision prevents crypto assets from being used directly or indirectly in commercial transactions and from being accepted as a payment method. Therefore, the use of any cryptocurrency other than Turkish Lira in transactions with crypto assets is prohibited.

Although the Law Amending the Capital Markets Law which entered into force on 2 July 2024 has significant provisions on crypto assets, there is no explicit definition for tokens under Turkish Law. But, according to the amendment, crypto assets are defined as "intangible assets that can be created and stored electronically using distributed ledger technology or a similar technology, distributed over digital networks and can express value or rights", and it follows from this definition that tokens created using distributed ledger technology may also be considered within this scope.

Although the classification of crypto assets whether as a commodity or security is still a topic of debate under Turkish Law, the above-mentioned amendment on the Capital Markets Law authorises the Capital Markets Board (SPK) to regulate and supervise crypto assets. The amendment stipulates that crypto assets may be considered within the scope of capital markets legislation and regulated within this framework. Therefore, the classification of crypto-assets whether as commodities or securities and the details of how this classification will be clarified and determined by the regulations of SPK.

In American law, the Commodity Futures Trading Commission (CFTC) has defined Bitcoin as a convertible virtual currency[4] and has stated that virtual currencies such as Bitcoin are classified as commodities. In terms of tokens, the United States Securities and Exchange Commission (SEC) applies the Howey Test to determine whether a particular token is classified as a commodity or security. This test, which has emerged with the "SEC v. W.J. Howey Co.” [5] case, specifically evaluates whether investment instruments should be considered as "investment contracts". The Howey Test is used to determine whether digital assets and tokens, crypto assets, should be considered assecurities. If a token or digital asset meets the requirements of the Howey Test, it must be regulated and subject to under US securities regulations and comply with the relevant laws.

Tokens are digital assets created on distributed ledger technologies and used for various purposes. Their legal status may vary from country to country, and it is of crucial importance for both the parties who offer and purchase these digital assets whether certain types of tokens are classified as commodities or securities. Although some steps have been taken to regulate and supervise crypto assets in Turkey with the recent amendments to the Capital Markets Law, further regulations and guidelines are expected in the coming period to clarify the legal status of tokens.

[1] https://www.fbtokenofficial.com/assets/pdf/Fenerbahce_Token_Whitepaper.pdf

[2] e.g., POLY, TZRO, DS.

[3] e.g., Bored Apes, Crypto Punks.

[4] https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoinbasics0218.pdf

[5] SEC v. W.J. Howey Co., 328 U.S. 293 (1946)