Questions have been surfacing recently about whether security tokens will scale upwards in 2018, an issues in the blockchain that many view differently.
Last week, the CEO of StartEngine began the second annual ICO 2.0 Summit by pleading for regulation on behalf of the definition of “security” tokens. He told the crowd that valuable security tokens are coming, but in the meantime, regulators need to understand that not all tokens are security tokens.
His message is one of the myriad of opinions offered on the regulatory status of security tokens for both the USA and around the world. As blockchain evolves, officials have been differing about how to classify crypto. As governments and financial regulators discover more information about blockchain, most blockchains and associated agencies are acting conformingly so as to not be shut down by regulators.
One consequence of this is that several exchanges are delisting tokens that are being deemed or are likely to be classified as security tokens. That is partially because dealing with security tokens takes a lot of time and effort. Not only do exchanges have to make sure they maintain proper licenses, they also have to deal with a constantly changing legal landscape. The exchanges have to dedicate a disproportionate amount of time and effort into dealing with the regulatory obligations of security tokens just to maintain compliance. They have to keep up with constantly changing demands from regulators.
This was the case when regulators demanded that exchanges delist security tokens in Asia. We saw this in Hong Kong earlier in 2018. Hong Kong’s Securities and Futures Commission (SFC) reported that they sent warning letters to 7 exchanges demanding that the exchanges delist security tokens. The move was allegedly part of a larger effort by the SFC to warn investors about the risks associated with cryptocurrency and investing with the ICO fundraising model.
Gatecoin also announced that security tokens would be delisted after news surfaced about the SFC letters. Gatecoin is one of several blockchain entities that acted compliantly in response to regulation.
A second consequence of the revved-up regulation on security tokens is that blockchains like tZero are centering their project around security tokens. Overtstock.com’s tZero is creating an internal Alternative Trading System (ATS). These trading systems have a special designation- they are not to be confused with exchanges although they bear similarities (i.e. tokens are traded on each platform).
Often times, accredited investors are the only ones who are able to access to ATS. This has caused concern in the blockchain community because platforms like ATS that are only open to accredited investors come off as too exclusive. We will probably see the blockchain community go back and forth on whether Alternative Trading Systems are a good placement for security tokens, or if the platform is too elitist.
More dust needs to settle in this constantly changing regulatory landscape before security tokens really start to make groundspeed. Reluctance from exchanges to list tokens that have a muddled status with financial regulators may change as updates to regulations are made. Once a clearer picture is painted, exchanges may allow coins once delisted to come back on. That possibility is not certain, and it would not happen for quite some time even if it were to occur. It seems that we are approaching the point that some standards have to emerge and be accepted by community in order for security tokens to become a reality. Polymath is doing their work in establishing security token standard ST-20 and they are building a platform which will allow investors to issue tokens with KYC and compliance built in. Here is their The Ultimate Guide: How To Launch A Security Token With Polymath (Part 1)
The new kid on the blockchain is Cryptocurrency & Blockchain Regulatory Task Force, lead by Braeden Anderson.
In his article Breaden says.
Blockchain has changed the world in miraculous and groundbreaking ways. The crypto-experience provokes strong emotions — feelings of freedom, empowerment, and financial revolution. Industry experts, developers, investors, and enthusiasts have fallen in love with blockchain technology and the perceived liberty it brings, myself included. But love at times, has a funny way of clouding our vision and frustrating practical thought. Enthusiasm and excitement turns to anarchy, fantasies and delusions of a world without banks and governments. Have you heard this before? Of course, you have. And in all honesty, even I may have believed it for half-a-second — but then I remembered that I live in a place called reality. Naïve and delusional storytellers have actually convinced themselves and others that cryptos will conquer armies and turn the world’s most powerful banks to dust… “Poof””
The interest in this area is so intense that in a very short time Breaden and his colleagues have assembled a team of 33 industry leaders from legal advisers and business builder, to blockchain experts and financial professionals.
The organization has set the following goals.
- Collaborate with industry professionals in the blockchain, finance, legal, and regulatory space to foster smart regulation in the cryptocurrency and blockchain space.
- Analyze recent SEC and CFTC decisions and enforcement actions
- Draft comment letters to the SEC and CFTC regarding emerging regulations, recent decisions, and new regulatory proposals
- Share ideas and spread wisdom through thoughtful debate
- Provide strategic advice to ICOs and blockchain start-ups
- Analyze recent SEC and CFTC decisions and enforcement actions
- Draft of comment letters to the SEC and CFTC regarding emerging regulations, recent decisions, and new regulatory proposals
- Sharing ideas and spreading wisdom through thoughtful debate
- Identifying and investigating fraudulent ICOs
- assuring that blockchain & cryptocurrency market participants are in compliance with existing regulation.
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