This week some of the largest crypto exchanges in North America announced the creation of the Crypto Rating Council. This self-regulatory group seeks to add clarity to the crypto space through the introduction of a universal scaling system. If successful, future crypto investors will have a reliable way to determine the classification of a particular token.
Diverse Members from Across the Continent
The Crypto Rating Council includes a diverse membership from the crypto space. Anchorage, Bittrex, Circle, Coinbase, DRW Cumberland, Genesis, Grayscale Investments, and Kraken are recognized as the official founders.
More Clarity for the Entire Market
This crypto mega-group seeks to provide a platform to help exchanges, custodians, trading desks, investment firms, and investors determine if a token is a security. The council believes the added clarity is necessary to provide investors with more confidence.
According to the Crypto Rating Council website, the goal of the organization is to “consistently and objectively assess a crypto” to determine if it falls under the Securities and Exchange act of 1934. This service is crucial, especially when you consider that many investors find it difficult to determine if a digital asset is a security, a commodity, currency, or utility.
This confusion arises because of the vast diversity in the token market and the ever-changing legal framework. In the past, investors and companies have felt the wrath of the SEC for engaging in illegal securities offerings. This group feels like it can prevent future investors from getting burned.
The Crypto Ratings Council System
The Crypto Ratings Council system utilizes a combination of key factors in order to deliver a consistent, unbiased, and accurate rating based on a token’s contributing factors. To create the ranking system, developers incorporated the recent SEC guidance on the token classification and the Howie Test. Additionally, a litany of case law became part of the equation.
After these traditional litmus tests, the token undergoes a thorough technical analysis. These tests are necessary to determine its true functionality. Since today, there are more types of tokens than ever before, this rating system is ideal in simplifying the entire investment process.
The Crypto Rating Council utilizes a simple 1 -5 rating scale. Currencies, such as Bitcoin receive a rank of 1. Respectfully, tokens in the 1-2 range are not securities. For example, Bitcoin is a 1, whereas, Ethereum is a 2 on this scale. Basically, the more a token leans towards being a security, the higher it ranks on the scale.
Tokens that pay dividends, or give voting rights, rank 5 as securities. These tokens are going to include any token where you expect profits from the contributions of another party. This ranking also includes tokenized equities, securities, and various other debt instruments.
Crypto Rating Council is Active
The Crypto Rating Council issued its first ranking this week. The layout of the rankings is straight forward. Each company has a card that lists some details about the platform and its respective rank.
Self-Regulation is Coming
This month has seen the formation of multiple self-regulatory organizations. This latest news showcases how the industry will push through a framework to provide more clarity, even when lawmakers are unable to. You can expect to see this organization play a pivotal role in the development of future blockchain legislation.