Backpack says it has found a legal workaround to a tricky problem: how to offer a token that can ultimately give users a stake in the exchange without turning the token itself into a U.S. security.
The exchange’s co-founder and chief compliance officer, Can Sun, told Decrypt that after Backpack hinted last week that its forthcoming token could let holders earn equity, industry questions poured in about whether that feature would trigger securities rules. Backpack’s answer, Sun said, is to separate the equity conversion from the token itself.
Instead of embedding conversion rights directly in the digital asset, Backpack plans to tie those rights to a VIP program. Only users who qualify as VIPs—by actively trading on the exchange, using other Backpack services and staking the token for a long lockup (Sun mentioned a one-year stake)—would gain the conversion benefit. “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 said. “It’s not a property of the token itself, it’s the property of a VIP program that we’re running.”
That legal engineering comes as Backpack is reportedly in talks to raise $50 million at a $1 billion pre-money valuation, according to Axios. Sun also said the firm has drawn interest from SPACs and bankers aiming to take Backpack public, though the team is waiting for the right timing. He added that the token supply’s unlock schedule will be tied to that timeline.
Backpack also has a fallback: if regulators deem the arrangement an unlicensed securities offering, the company plans to register an additional class of securities as part of a public offering. “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.”
Sun — who previously served as general counsel at the collapsed exchange FTX — argued the plan would have passed muster even under former SEC Chair Gary Gensler, who pursued aggressive enforcement against crypto firms. He pointed to a 2020 Coinbase filing (which Sun worked on at Fenwick) that explored tokenizing a “Class T common stock” for a public offering; the SEC asked Coinbase for legal analysis of how tokenized shares would differ from traditional stock, and Coinbase ultimately abandoned the idea “after further consideration.”
Backpack’s approach highlights how exchanges are trying to thread a narrow regulatory needle: offer innovative token benefits that reward users and drive engagement, while structuring those benefits in ways they hope avoid categorization as securities. Whether regulators will accept that distinction remains an open question.
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