SEC Chair’s Remarks on ICOs
During the Blockchain Association’s annual policy summit on Tuesday, SEC Chair Paul Atkins conveyed that a wide range of initial coin offerings (ICOs) could be classified as non-securities transactions, positioning them outside the regulatory reach of the Securities and Exchange Commission (SEC). Responding to inquiries from Decrypt, Atkins expressed a desire to foster an environment where such offerings would not meet the SEC’s criteria for securities definition.
Token Taxonomy and Regulatory Implications
Atkins had previously introduced a token taxonomy that categorizes cryptocurrencies into four basic groups. He highlighted that three of these—network tokens, digital collectibles, and digital tools—should not be regarded as securities by default. His assertion on Tuesday extended this classification to ICOs related to these three categories, suggesting they would remain unregulated. The only area the SEC intends to oversee pertains to tokenized securities, which represent traditional securities and are subject to SEC regulations.
Atkins noted, “ICOs transcend all four topics,” implying that three categories fall under the regulation of the Commodity Futures Trading Commission (CFTC), while the SEC will zero in on tokenized securities.
This potential regulatory shift is promising for businesses looking to capitalize on token sales to generate funds, possibly revitalizing the ICO landscape which faced regulatory scrutiny during its peak in 2017.
Historical Context and Future Outlook
The SEC had crackdown measures in place under President Trump’s administration, targeting various ICO issuers on allegations of selling unregistered securities, thus stifling the market. However, Atkins’ recent comments suggest a revival of ICOs might be on the horizon, even without comprehensive market structure legislation. Under his taxonomy, a bulk of digital tokens would likely evade SEC oversight, potentially directing regulation to the more lenient CFTC.
Tokens deemed non-securities could encompass those associated with decentralized blockchain networks, those inspired by internet phenomena, and tokens providing functional benefits, such as event tickets or membership rights. Such classifications would allow for their use in ICOs more freely. Specific developments like the SEC’s Project Crypto could facilitate ICOs through exemptions and safe harbors.
Industry Developments
Despite a pending Senate bill aimed at standardizing the crypto market that would authorize ICO frameworks, industry participants are already advancing with initiatives. For example, Coinbase recently launched a new platform for ICOs, following its acquisition of Echo, a token launch service, for $375 million in October. This new venture makes tokens developed through their platform accessible to retail investors in the U.S.
