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The Token Taxonomy Act – What You Need to Know

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The Token Taxonomy Act

This week, lawmakers introduced potential legislation which could alter the classification of security tokens forever. The Token Taxonomy Act seeks to provide more clarity in the sector. If passed, security tokens would see exemptions from many of the current securities regulations. This legislation would allow security tokens to achieve their maximum potential in the market.

Token Taxonomy Act – V2

The Token Taxonomy Act first emerged last year, but due to house scheduling conflicts, lawmakers were unable to vote on the bill. This piece of legislation seeks to provide security token investors with more freedom in the market. In addition to exemption from many securities regulations, the bill would amend the Securities Act of 1933 and the Securities Exchange Act of 1940 to specifically acknowledge blockchain-based investments.

When you consider that these regulations were put in place long before the digital economy (or computers) existed, it makes sense that this legislation requires updating. The new act gives blockchain investments their own legislation, specific to the industry. Also, the amendments would affect the SEC’s jurisdiction over security tokens in general.

Token Taxonomy Sponsors

The bills original sponsors, Warren Davidson and Darren Soto, are no strangers to the cryptomarket. These representatives want to give investors the green light to further security token use and development in the US market. Speaking on the bill, Davidson explained how the bill could facilitate growth in the space. Also, he described how the legislation would position the US as one of the optimal countries for blockchain investments.

Warren Davidson via Twitter

Warren Davidson via Twitter

Updated Version

The updated language in this version of the bill includes many sought after specifications including strengthening consumer protections. The bill also includes clear token classifications to be used in the market. Token classification is a hot button issue in the market currently.

Token Classification Concerns

Investors and companies seek more clarification from lawmakers regarding the classification of token types. There are plenty of reasons for this desire. A token's classification affects everything from taxation to the ability to transfer ownership. The Token Taxonomy Act allows security token investors more flexibility by accurately addressing these concerns.

SEC Concerns

Now that the SEC started cracking down on what they consider illegal securities, it’s more important than ever, for both companies and investors, to have a clear understanding of what type of token is in use. In the past, the SEC made statements in which the Howie Test was the main recommendation for determining a tokens classification.

More Clarity is on The Way

Considering that the Howie Test was developed in 1946, it’s no wonder that both lawmakers and investors want something more up-to-date as a reference. Recognizing this desire for a clearer alternative, two SEC officials released a classification guide this week called the Framework for Investment Contract Analysis of Digital Assets.

Token Taxonomy Act

Security tokens reshaped the blockchain space. For the first time in history, traditional investment firms can utilize blockchain crowdfunding techniques with regulatory protections in place. You can expect to see the Token Taxonomy Act gain traction as the market's expansion continues.

David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including