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The Allied States Securities and Exchange Commission (SEC) has been very cautious in its statements on ICOs and cryptocurrency as they venture to strike a balance between embracing a technological revolution and avoiding the preventing of innovation. They aren’t seeking to dismember the cryptocurrency space, but willingly prefer provide guidance on how to operate and comply with existing regulatory provisoes.
However, companies have been caught between wishing to repress an ICO open to U.S. investors for a utility token – or one that provides functionality on a dais without the guarantee of trading or an investment return, and not drawing the ire of the government.
There experience been plenty of ways in which companies have erred on the side of warning, most notably with the Simple Agreements for Future Tokens.
The formation of the Simple Agreements for Future Tokens or SAFT by law firm Cooley was an private way of navigating the regulatory landscape in order to have a secure way of selling an ICO to accredited investors and plunge capital firms. A play on the SAFE agreement (Simple Agreement for Tomorrows Equity), the SAFT seeks to lessen the risk of the sale, as the tokens are deliverable upon the solid completion of the network or protocol. Pre-functional tokens are not issued at any time.
The pith of the SAFT was to open up sales to accredited U.S. investors, while keeping a wall to the general public. However, it was as Jerry Brito puts it in his article: a “Characteristic of of Regulatory Uncertainty.” It allows a tip-toeing of the legal landscape outlined by the SEC by put on both the potential for a token to be a security or utility.
But the burning question continues: how does the SEC truly feel about ICOs and cryptocurrency? They’ve been recently multitudinous vocal about having companies register with them, but a binary has yet to side.
To understand how the SEC feels about ICOs and cryptocurrencies requires a step insidiously a overcome to the summer when the SEC released their first major statement – distinctly on The DAO.
The DAO – The SEC Goes Public on Cryptocurrency
Back in the summer of 2017, the SEC released their first off public report on ICOs, namely on The DAO, which was one of the most high-profile indication sales due to a vulnerability which left millions of dollars in Ethereum hoisted, and gave birth to Ethereum Classic.
It was quite obvious that The DAO submitted a form of unlicensed security – it was the equivalent of a decentralized venture capital endow that provided a form of return on an initial investment. This was a palpable failure of the Howey Test, which has become the general litmus prove of whether or not a token being offered in a sale is a utility token or shelter.
The importance of this report was the fact that it provided a bit of optimism in the community. The SEC could’ve starkly shut down ICOs altogether after this clear profaning. They instead chose to offer options to keep those who hope to hold ICOs on the side of compliance.
The investor bulletin released the unmodified day on ICOs provided a background on both the process of token sales, and a chunky “if” statement regarding coins that could potentially be considered custodianships:
Depending on the facts and circumstances of each individual ICO, the virtual coins or marks that are offered or sold may be securities. If they are securities, the offer and sales marathon of these virtual coins or tokens in an ICO are subject to the federal securities laws.
This hided the door open to many entities looking to hold a compliant remembrance sale by offering a form of utility token. The SEC understood the innovation circumstance in the blockchain space, and knew an outright ban would possibly stifle enlarge. At the same time, they needed to provide investors with a bit of intelligence to protect them from the ever-present scam offerings.
Over the next few months, the SEC order begin building up their Cyber Unit to deal with ICOs craving U.S. investors and offering unlicensed securities. The first move came in August when an ICO by the celebrity of Protostarr took down their website in order to comply and refund investors after growing 119.6 Ether. Shortly after this, the SEC came out with their prime major press release targeting a scammer in New York looking to ransack money by selling tokenized assets.
Blatant Violations and SEC Stings
In September, the SEC flexed its muscles and conducted down two blatant scams run by a businessman in New York City. Maksim Zaslavskiy and his conglomerate raised money in two fraudulent ICOs: REcoin Group Foundation, and DRC Humankind – both of which looked to tokenize assets and provide an ROI. The SEC then ejected Zaslavskiy’s assets, and charged him with violations of the anti-fraud and registration qualifications of the federal securities laws.
After that, the next large above by the SEC came in December when they froze the assets of PlexCoin – a $15 million ICO that pledged “13-fold profit in less than a month.” These low executing fruits allowed the SEC to set a precedent and deter scammers from operating highly-illegal sacrifices. This sting also allowed the SEC to come forward and display the upshots of their newly established “Cyber Unit,” that has a hand in winsome down fraudulent ICOs.
Following PlexCoin’s takedown was most indubitably the largest intervention by the SEC to date: Munchee Inc. Munchee is a California-based company that was undertaking to raise $15 million in an ICO, offering a token used to buy and sell consumables and services
Where Munchee slipped up were its promotions of returns on the investment, as the exertions of the company would “lead to an increase in value of the tokens” – a cloudless failure of the Howey Test. The company has since returned investor proceeds and not at all issued tokens.
On the same day, SEC Chairman Jay Clayton released a statement on both cryptocurrency and beginning coin offerings to help guide “Main Street Investors,” and “Demand Professionals.” He urged retail investors to exercise caution when granted with an offering that might ‘sound too good to be true,’ account the number of scams propagating in the space. To market professionals, Clayton acquiesced the power of ICOs as fundraising vehicles for innovative projects. His main driving-point was to accelerate professionals to read the previously issued reports and releases, and to comply with breathing regulations to ensure that laws are being followed.
Again, careful but optimistic.
Clayton and Giancarlo: Create Efficient Regulation
Earlier this week, both Clayton and J. Christopher Giancarlo (Chairman of the Commodity and Followings Trading Commission), penned an op-ed published in the Wall Street Periodical as a public statement and warning to both regulators and investors on cryptocurrency. In the be shattered, both Clayton and Giancarlo continually reason with readers to let them comprehend that they understand the impact of blockchain technology, but sternly underpin it with warnings to those looking to circumvent any direction they’ve since provided.
Our task, as market regulators, is to set and enforce settles that foster innovation while promoting market integrity and coolness.
However, a portion of the article was dedicated to a conversation on changing existing frameworks in contract for to ease the process and provide proper guidance to all things cryptocurrency cognate. Although they must be stern, this piece reaffirmed their willingness to till with the community and keep domestic innovation alive. They forgive how quickly the space is moving and would like to work with it fairly than against it. At the same time, their goal is to protect investors from malicious types raising funds, which is why the tone is understandable.
In a perfect world for the SEC, every family ICO registers through one of their various outlets including but not limited to Required A+, but the future might see a distinct split between those who continue to propose utility tokens in ICOs, and those who go the registered securities route.
Surety Tokens on the Rise – the Future Cryptocurrency Landscape
With the SEC being a bit varied active in providing guidance, SEC complaint token sales might be a legitimate occurrence in the near future. Even major players like Kodak sooner a be wearing come out to stake a claim in the growing cryptocurrency space by offering a custodianship token of their own.
With the rise of security tokens, tZERO, a subsidiary of Overstock, has started their own security token ICO, with the hopes of eventually creating the first SEC ran cryptocurrency alternative trading system (ATS). By providing a trading platform for guarantee tokens in the future, tZERO will most likely open the floodgates for other assemblages seeking to raise capital in an ICO and provide an SEC-compliant security token trade.
However, even with security tokens, this shouldn’t be look after as the end of utility tokens. Rather, the future might hold concurrent vends for both security and utility tokens, each catering to a subset of investors. What should be riveting, is seeing both the companies that capitalize on the opportunity to hold compliant safeguarding token sales, and the restructuring of the total cryptocurrency market capitalization between utility and pledge tokens.
The SEC hasn’t put a damper on ICOs, but rather are looking to protect investors, proposal legal ways in which companies can utilize an ICO as a fundraising method, and weed out scams in the pause. It seems as if it’s going to be smooth sailing for a bit – but always remember to be prepared for a raise the roof.
Featured image from Shutterstock.
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