Crypto Rating Council
While there are many hurdles that need to be cleared in the world of blockchain, there continues to be a recurring question that has plagued companies big and small.
What makes a token/coin a security?
This is not a simple question to answer, despite the SEC’s continuing stance that the existing regulations are clear.
In an effort the help both, companies and investors alike, a group of industry leaders have formed, what they are calling, the ‘Crypto Rating Council’. This council has taken it upon themselves to create a framework designed to ‘objectively assess whether any given crypto asset has characteristics that make it more or less likely to be classified as security in the U.S. federal securities laws’.
The ‘Howey Test’, which refers to a set of rules determining if an asset is a security, was long ago established by the SEC.
As this test is still the primary basis, to this day, for determining an asset’s status, the Council has structured their own framework around it. The council indicates that this developed framework, as a whole, looks at these assets through the same lens as the SEC. In doing so, they state that there are dozens of yes/no questions that they apply when determining asset classification.
Various noteworthy companies involved with blockchain form the founding members of the Crypto Rating Council. The following are only a few, listed by Coinbase, to be taking part.
- Grayscale Investments
While the list of assets evaluated will continue to grow, the Council has launched their initial ratings with of 20 popular tokens/coins already evaluated.
Once looked at through their developed framework, the assets are given a rating, which indicates the likelihood of the asset being deemed a security. These ratings range from 1-5 (5 being the most likely to be deemed a security). In their initial 20 ratings, there were a few noteworthy assets living on the extremes.
A few assets receiving a 1 (not a security), include Bitcoin, Litecoin, and Monero.
A few assets at the other end of the spectrum (most likely a security), receiving a 4.5, include POLY, XRP, and Maker.
Unsurprisingly, the SEC has stated in the past that they do not view Bitcoin as a security, justifying the 1/5 it received. Also unsurprisingly, assets such as XRP received a 4.5/5. This is not unexpected, as Ripple is in the midst of an ongoing lawsuit which would see XRP deemed a security.
Why it is Needed
Clearly, despite the SEC saying otherwise there is still industry confusion with regards to what constitutes a digital security. If this were not the case, we would not see nearly as many instances of these assets being improperly distributed. It is also important to note that it is not just ‘mickey-mouse’ companies being caught doing this – there are also well funded teams still falling into the trap.
While the council does not hold any true authority, hopefully, they will be able to at least provide some level of guidance moving forward to companies looking to distribute a digital asset.
On behalf of themselves, and the others joining them in the Council, Coinbase commented in a blog post on their announcement. The following is what they had to say on the importance of legal characterization, along with expected growth moving forward.
“The proper legal characterization of a crypto token — as a currency, a commodity, a security, or something else — can have a meaningful impact on how crypto businesses operate. Whether a token is a security under U.S. federal securities laws, in particular, will significantly impact registration, licensing, and operating obligations for financial services firms that offer crypto services like exchange, investment management, or trading.”
“In the coming months, we expect to add more members, review more assets, and publish more and revised asset scores. As we continue to grow, we may develop similar tools for non-U.S. jurisdictions.”
In the past year, we have reported on various events entailing the SEC laying charges upon companies. These have primarily stemmed around the improper issuance of what the SEC believes are securities. The following are a few examples of this, along with companies that could have very well benefited from a service now being created by the Crypto Rating Council.
VeVue Signs Partnerswith CBX for Token Launch
The blockchain-based social media platform, VeVue announced plans to host an STO in the coming weeks. The company intends to expand the platform’s capabilities with the funds raised. Now content creators have a more lucrative alternative to consider moving forward.
News of the company’s intentions first broke via an October 14 press release. In the post, the company announces its new strategy and partnership. As part of the firm’s new crowdfunding approach, VeVue partnered with the hugely popular CBX exchange.
For its part, CBX will be responsible for the sales, token issuance, and distribution of the VUE token. CBX is one of the largest crypto exchanges based in the Middle East. The firm operates a fully compliant EU exchange. Developers integrated both AML and KYC protocols directly into its trading platform.
CBX recently launched a campaign with Alibaba competitor GoJoyin in which the platform secured over $10 million in funding. The experience gained in this campaign will be critical for VeVue STO’s success.
The VeVue STO will commence on October 28, 2019, at 4 pm PST. Interestingly, the event is scheduled to only last 48 hours. CBX intends to issue 5 million VUE tokens to qualified non-US investors. Vevue also announced that there will only be 100 million VUE tokens in total available to investors. Of these tokens, 35 million are reserved for investor purchases.
Vevue and CBX Unique Strategy
CBX and Vevue have a unique strategy for their crowdfunding efforts. The company intends to host an STO monthly moving forward. Additionally, these auctions will be Dutch-style. Basically, the official token price is set after taking in all bids.
Highest-Price VeVue STO
This strategy enables the firm to receive the highest price for the total offering. For example, investors place their bids which include the price and quantity they desire. The firm will then accept the top 5 million bids for the tokens.
VUE Token Benefits
VUE token holders receive a portion of gross revenue collected via the VeVue social media app. Consequently, investors actively earn from VeVue’s ecosystem. The App provides content creators with a revenue-generating outlet. Here, users can create and monetize content such as videos easily.
VeVue Transaction Fees
Vevue charges a 5% transaction fee on the monetized content. This fee then enters into the dividend pool from which STO investors receive payments daily. Importantly, dividends are paid in VUE tokens. This unique strategy encourages users to create high-quality content to earn more tokens.
Next Level Social Media
Traditional social media doesn’t allow users the opportunity to earn from their content contributions. In fact, the current social media giants provide content creators with zero payment for their efforts.
Social Media Heat
VeVue’s timing is impeccable as social media giants such as Facebook continue to confront lawmakers over a myriad of concerns. Facebook, in particular, appears to be in the target of regulators after announcing plans to issue its own native cryptocurrency called the Libra.
A Better Social Media Alternative
VeVue appears to have unlocked a better way to social media for everyone. Providing users with an opportunity to earn tokens for their content is a smart concept that has proved to be a great alternative in the past. You can expect to hear more from VeVue in the coming weeks as its STOs hit the market.
CFTC Labels Ether a Commodity
The crypto community got some exciting news this week after the Commodity Futures Trading Commission (CFTC) Chairman stated that Ether (ETH) is a commodity. The news follows similarly worded statements from SEC officials in the past.
The news came via an Oct 10 statement from acting CFTC Chairman Heath Tarbert. In the post, the Chairman announced that he believes Ether is not a security at this time. The news comes at a critical point in Ethereum’s development.
The news is a huge win for the Ethereum community. Currently, Ethereum is the second-largest cryptocurrency in the world by market cap ($20 billion). The ruling is important because it means Ether falls under CFTC regulations and not SEC securities regulations. Consequently, the decision allows financial institutions to offer a wide array of new products and open up entirely new markets moving forward.
Ether Futures and Derivatives
In the past analysts pointed out that the Ether derivatives market suffered due to the lack of transparency. Tarbert now says that you can expect to see both Ether futures and derivatives markets in the very near future. Surprisingly, he stated that these financial tools would hit the market in less than a year.
According to the Chairman, Ether is a case of a transformative token. Basically, the token started as a security during the ICO event. At that time the enterprise was playing a controlling role over the digital asset. As time progressed, the Ethereum enterprise faded to the background as the cryptocurrency decentralized. Now the token serves as a utility.
Additionally, Tarbert described the reverse scenario in which a utility token slowly develops into a security. In this situation, you start off with a fully decentralized organization. Over time, the enterprise steps back in to take more control. Consequently, this creates a scenario where investors seek profits from the efforts of others. Now the token is a security.
Notably, SEC officials stated that they do not consider Ether a security in its current state. However, both the SEC and CFTC did point out that during the company’s ICO, Ether acted as a security. Luckily the SEC declined to fine the Ethereum development team for its ICO.
Bitcoin is a Commodity
Falling along this line of thought, Tarbert explained that Bitcoin is also a commodity. This statement coincides with the SEC’s decision to decline to label Bitcoin as a security. Analysts consider these actions as a precursor to this week’s news.
PoW to PoS
Also, Ethereum developers announced a shift from the Proof-of-Work (PoW) consensus algorithm to a more energy-efficient alternative, a Proof-of-Stake (PoS) consensus mechanism. PoS systems don’t require your PC to do heavy computations. Instead, users earn rewards for “staking” tokens in their wallets. In this manner, PoS tokens use far fewer resources.
Ether Moving Forward
The Ethereum community has much to celebrate moving forward. The cryptocurrency continues to see development across the entire sector. You can expect to see the Ethereum community expand as more ETH-based products enter the market in the coming months.
SEC Seeks Input on ‘Boston Securities Token Exchange (BSTX)’ Proposal
Launching Markets – BSTX
The Boston Securities and Token Exchange (BSTX) has recently filed a proposal for various rule changes with the SEC. These changes would allow for BSTX to launch what would be the market’s first digital exchange supporting full-fledged digital securities.
The Boston Securities and Token Exchange is a by-product of a partnership between tZERO and BOX Digital. This pairing of companies launched the joint venture in mid-2018, with the intent to develop the first fully regulated digital exchange in the U.S.
BSTX is expected to utilize blockchain technology provided by tZERO, while BOX representatives work towards establishing regulatory clearance. With each providing different areas of expertise to BSTX, both tZERO and BOX have made it clear that this is a joint venture, with each having a 50% say.
The proposed rule change discussed here dates back to late June, 2019. At the time of the filing, it was viewed as having the potential to create a ‘rulebook’ for the operation of such exchanges in the United States. Only now, months later, is the SEC making the filing available for public commentary.
A few of the noteworthy attributes of their proposed exchange are as follows:
- Asset ownership recorded using a private blockchain
- Trading enabled through use of BSTX tokens
- Whitelisted clients
At the initial time of its filing, we took a brief look at BSTX and their plans, including the use of an in-house token developed by the exchange.
In their filing, made public by the SEC, the BSTX begins by outlining their plans and intentions for the proposed exchange.
“BSTX would operate a fully automated, price/time priority execution system for the trading of “security tokens,” which would be equity securities that meet BSTX listing standards and for which ancillary records of ownership would be able to be created and maintained using distributed ledger (or “blockchain”) technology.”
Boston Securities and Token Exchange (BSTX)
Operating within the United States, BSTX is a proposed digital securities exchange, which was founded in 2018. The company looks to become the first exchange of its kind, supporting full-fledged digital securities.
CEO, Lisa Fall, currently oversees company operations.
In Other News
Whether it be through the backing of others, or through their own endeavours, tZERO remains hard at work, establishing the digital securities sector.
We were recently fortunate enough to have interviewed tZERO CEO, Saum Noursaheli. In this exclusive interview we discuss past and future events pertaining to the company. Make sure to check out the following interview to learn more!