The Blockchain Association has called on the Securities and Exchange Commission (SEC) to issue more formal guidance on cryptocurrencies. As such, it has outlined a proposed regulatory framework based on previous SEC comments.
Through a post on Medium, The Blockchain Association attempts to codify language issued by the SEC’s Corporation Finance Direction William Hinman. Titled The Hinman Token Standard, Blockchain Association suggests the following guidance:
“A project should meet the standards for decentralization if it more decentralized than the Bitcoin or Ethereum networks on June 14th, 2018.”
The logic behind this statement stems from Hinman’s clarification in June 2018 that bitcoin and ethereum were not considered securities. It follows that if bitcoin and ethereum were sufficiently decentralized on that date, then other projects should aim to meet that standard.
“This uncertainty has a stifling effect on investment”
The SEC has yet to issue any formal guidance on the issue. However, it has shut down various crypto projects and initial coin offerings (ICOs) it deemed illegal.
Further, the SEC chairman Jay Clayton publicly said: “I believe every ICO I’ve seen is a security.”
If cryptocurrencies are considered securities, they will be subject to much more stringent investor regulations. As the Blockchain Association explains, “we must know when tokens qualify as securities and when they do not so innovators know which regulatory regime applies.”
The contradicting statements and lack of clarity is stifling creativity and forcing promising startups out of the US.
“More decentralized than the Bitcoin or Ethereum networks on June 14, 2018”
The Blockchain Association’s proposed guidelines suggest the SEC stick to its conclusion that Bitcoin and Ethereum are sufficiently decentralized. Future policymaking should use this starting point as a foundation, they urge.
The association argues that this is a reasonable starting point with room for a somewhat centralized leadership when required.
Other proposals suggest implementing The Howey Test to cryptocurrency projects. The Howey Test outlines the definition of a security or investment contract and circles around the expectation of profit from a particular promotor or third-party.