The cryptocurrency industry, particularly in the United States, has been battling with regulators over the classification of tokens as securities. There has been a lack of clarity regarding what kind of tokens fall under securities and what issuers need to do to avoid having their crypto assets violate securities laws.
Some top cryptocurrency exchange companies have come together to create a system that can be used to classify tokens and see their status in relation to securities laws. Coinbase, Circle, and Kraken are some of the exchanges that are involved in the project. The system makes use of points based criteria to determine whether a crypto asset constitutes security using pointers from the Securities and Exchange Commission's (SEC) guidelines. The system was announced via a blog post from Coinbase on Monday.
According to the blog post, the analysis derived by the system will give members a score which they can use to make decisions about whether they can engage with a token. It will allow these members to simultaneously consider the status of several tokens as they seek to make informed investment and business decisions. The framework for the system was put together by an organization formed by the firms involved named the Crypto Rating Council. These exchanges came together to assist investors and companies that are looking to provide support for certain digital assets but are unsure of the legal standing of these assets.
The system rates tokens on a scale of one to five to determine how much of security the given tokens are. One reflects that the token is far from being considered a security, and five shows that the provided token has a lot in common with what the SEC defines as security. The system is designed to address one of the issues that have plagued the crypto industry, which is whether crypto-assets can be classified as securities and whether securities laws should be applied to the asset class.
Such a system has become a necessity following the several battles that the SEC has engaged in with crypto related firms following ICOs which the regulator deems to violate its guidelines. Many investors have lost their funds to speculative ICOs which has led the SEC to step up its efforts to combat ICO related scams. This effort has led to several crypto businesses being charged by the regulator, some of which are running legitimate token offerings.
The Crypto Rating Council will help both investors and token issuers to see where a token lies and prevent any possible violations of the law. It will also assist the industry as a whole become more transparent in its dealings and arms investors with all the information they need before engaging with any asset. This transparency will be vital in the asset class’s endeavor to achieve mass adoption.
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