US Financial Regulators Recognize ICO Tokens as Securities


The decision that was made the other day by the US Securities and Exchange Commission (SEC) should have a strong impact on the cryptocurrency market in the near future. The point is that the regulator has recognized the tokens that are used during the ICO, securities. Accordingly, since operations with such assets are carried out, they must fully comply with the norms of American legislation. Of course, if operations are conducted with the participation of companies registered in the United States.

The turnover at ICO has already exceeded $ 1 billion. According to Smith + Crown, various organizations have attracted more than $ 1.1 billion at the ICO since the beginning of the year. And there were not too many fundraising campaigns - about a hundred. In the second half of this year, another 100 organizations plan to hold an ICO and raise a certain amount of funds in the cryptocurrency. Accordingly, the volume of operations for the year may double.

The investigation of the American regulator, in the first place, concerned the activities of the participants of the project The DAO , who conducted one of the first ICOs and raised considerable funds. So far, no action is taken on this project by the US government (for the most part, this is about the possibility of punishment for illegal activities with securities). But no one knows what will happen next, although we can already say with certainty that state regulation (not only of the United States) of the circulation of digital means of payment will only increase.

The organizers of The DAO managed to raise about $ 150 million in cryptocurrency equivalent. True, because of the vulnerability in the DAO code, the attackers last year took away more than $ 50 million from
of this amount, provoking a crisis in the community of "ethers" (meaning the Ethereum cryptocurrency). However, in a short time, The DAO was able to develop and become the largest crowdfunding organization in the world. Last year, tokens holders could vote for various areas of the company's work, as well as get their share in the total capital.

According to financiers, DAO was very lucky that the regulator decided not to punish the organizers. He could well have done it, and all the actions of the Commission would fully comply with the norms of American legislation.

What is ICO in general ? So, the basis of the initial coin offering are tokens. Their release occurs by adding transactions with their description, quantity and unique ID to the blockchain. After the tokens are issued, any number of them can be sent to any wallet in the blockchain system. The ICO itself is the sale by the company of its tokens in exchange for stable (or relatively stable) cryptocurrencies. This activity is regulated mainly by market participants with authority. Before the ICO, a certain threshold is set, the amount of funds to be reached. If fees do not reach this threshold, all funds are returned to investors.

Just last year, the US Securities and Exchange Commission launched an investigation, the results of which should have helped to answer the question whether tokens are securities or not. The answer was positive, which means that the production of tokens, and their purchase and sale were to be carried out entirely and fully according to the procedure stipulated by the legislation, with registration of the issuer and disclosure of information about it.

According to RBC , a security can be such in the United States only if certain conditions are met. First of all, these are investments in capital, the presence of a joint venture, the expectation of profits and the limitation of participation in the management of the company. According to the officials, The DAO tokens fully met all the above conditions. For example, there is an expectation of profit. The fact is that the currency of the project was bought by the participants for Ethereum, and investors, of course, expect profits when conducting various cryptocurrency transactions.

True, cryptocurrency experts say that not all tokens of various organizations can be recognized as securities. The fact is that in some cases the investor does not make a profit and does not expect it. So, one of the main criteria for describing securities is missing. An example of the lack of profit is the ICO, conducted by one of the Mozilla founders for their browser based on the blockchain Brave. In this case, the token is entirely and completely dependent on the users of the advertising system viewing, that is, it is not a security.

In addition to Brave, there are other tokens that are not securities. For example, the Filecoin distributed network suggests using its tokens to pay for file storage services. That is, filecoin holders can pay a certain amount of file space on the company's servers with this cryptocurrency. Kik Messenger is going to release a Kin cryptocurrency so that users can make payments within the platform.

To understand all the variety of cryptocurrencies and their features is quite difficult now even for a specialist, not to mention the less savvy ordinary users. That is why, because of the diversity of cryptocurrencies, the Commission decided to exempt the organizers of The DAO and start an investigation regarding other tokens.

What does the ICO expect in the future?

In general, the work of the Commission simultaneously added to the concerns of the organizers of the ICO. But all this may lead to the fact that ICO will become safer for all participants. The regulator has yet to understand the token ecosystem. According to representatives of Filecoin, the Commission should develop a simple and at the same time reliable way of separating “chaff” seeds, that is, organizations with tokens that can be considered securities from organizations with tokens that do not fall under the definition of “valuable paper”. One of the ways to determine it is to see what the organizers of the ICO party promise. If we are talking about the fact that investors receive a certain share in the company and an opportunity to make a profit, then this is definitely a security. If not, then most likely not. Clearer criteria will be developed soon.

As far as can be judged, many who wish to conduct a public release of cryptomonet will not be alarmed by the desire to deal with a financial regulator. Probably, before the launch of ICO, the organizers will try to avoid falling tokens under the definition of “security”. At the same time, representatives of some organizations, while conducting ICOs, blocked access to their sites from American IP addresses. Now this tendency is only intensified.

As for Russia, now this part of the cryptocurrency market is not regulated at all. The departments of the Russian Federation only carefully study what is happening, trying to form their own opinion on this.

Regarding the global ICO market, the requirements of the regulator may affect it in a positive way. The fact is that in this case, the cryptocurrency market will receive quite clear rules unifying the work of many organizations. Most likely, there will be fewer fraud cases, since additional security measures will help to identify intruders in advance.

The problem now is that the ICO mechanism is not legislated anywhere. This means that not a single ICO member is in any way protected from fraudsters. If the organizers of the ICO turn out to be ordinary cheaters, swindlers, then investors will not be able to do anything. During the ICO, incidents often occur. For example, during the initial placement of tokens by Coindash, the investors' money went into the burglar wallet. Moreover, the attackers did not use any tricky technology, but simply hacked into a not too complicated website of the company, and placed their wallet on the main page instead of Coindash wallet. As a result, investors lost more than $ 7 million. Some of them blame the company itself, and rightly so. After all, if someone conducts an ICO, the organizers must ensure the safety of money sent by investors. To prevent such situations from recurring, experts consider it necessary to implement financial and legal regulation of ICO.

This viewpoint has opponents. For example, Pavel Durov believes that the Commission’s actions should have a negative impact on the competitiveness of American companies and start-ups. “Well, SEC simply banned US companies from taking part in the future global economy,” he said.

Indeed, even before the Commission’s announcement, the organizers of a number of ICOs warned that investors from the United States could not take part in the investment. Most likely, in order to avoid contact with the SEC, the organizers of the ICO will massively avoid working with the Americans. True, the same European Commission, most likely, after the United States will begin an investigation regarding the status of tokens and in the end, the initial placement of tokens will be regulated by the authorities of many countries.

Whatever it was, and cryptocurrencies are gradually recognized as an official financial instrument by more and more countries. Venture Beat journalists have described this as the end of the “wild west era” for cryptocurrencies. This has its advantages, but there are also disadvantages. So far, as far as can be judged, there are more pluses, but the future can give a lot of surprises.


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