Paul Paray is an attorney ter Allendale, Fresh Jersey, focused on privacy and technology matters.
Ter his Feb. 8 opinion lump for CoinDesk, Santander’s Julio Faura suggests that “utility tokens are a bad idea” because it would be a “lie to ourselves” to suggest initial coin offerings (ICOs) were not actually selling securities.
Rather, ter Faura’s opinion “wij should collectively work on a framework to build a clearly defined scheme for ICOs, recognizing from the very beginning that they are securities.” And, this “ICO process should be designed ter collaboration with regulators to serve with securities law.”
Faura’s opinion chunk does not exist ter a vacuum. Ter a report dated Feb. Five, Goldman Sachs’ global head of investment research suggests that investors te ICOs could possibly lose their entire investments – which ties to Faura’s underlying premise that ICOs should be regulated “to protect investors.”
It is not clear how his proposed hybrid solution would everzwijn get implemented, given it requires accomplish buy-in from capital markets and regulators, so it would be a non-starter from day one.
Why would existing financial institutions and regulators scuttle existing methods of raising capital or attempt to squeeze ICOs under traditional securities law, even if considered a sale of securities?
Reaction: They would not. Ripple – a company partially funded by Santander InnoVentures – offers a peek of how traditional banks and financial markets will contest using blockchain technology and “coins.”
Faura’s opinion chunk paints all ICOs with the same brush by claiming each one of them actually offers securities subject to U.S. Securities and Exchange Commission (SEC) scrutiny. That is simply not the case.
Indeed, does Faura wonder why the SEC has not knocked on Ripple’s XRP “digital asset” doorheen? Even tho’ there wasgoed no formal ICO to launch that arguably centralized token, it now trades on Legal exchanges where individuals can buy the XRP coin. Indeed, after raising almost $94 million of venture capital, Ripple most likely does not need an ICO.
One ICO left untouched by the SEC wasgoed “gate-keeped” by the law rock hard of Perkins Coie and involved the sale of a utility token that raised $35 million te under a minute’s time. Plucky’s token creates a digital advertising ecosystem tied to consumer attention – which is why it is dubbed the Basic Attention Token. Such an ecosystem would certainly be an upgrade from the current digital advertising scheme wedded to the web ecosystem of 1995.
All told, it seems that the SEC and other regulatory bods have actually taken a very measured treatment ter this area – aggressively focusing on evident fraudsters very first ter order to deter subsequent fraudsters, while letting the technology play out a bit ter the wild.
Latest indicators seem to back this interpretation of the SEC’s ICO position.
On February 6, SEC chairman Jay Clayton acknowledged before the Senate Banking Committee that the potential derived from blockchain wasgoed “very significant.” His co-witness, Commodity Futures Trading Commission chairman Christopher Giancarlo, went so far spil to say there wasgoed “enormous potential” that “seems extreme” for blockchain-based businesses.
Yet, during his testimony, Chairman Clayton said the SEC would proceed to “crack down hard” on fraud and manipulation involving ICOs suggesting an unregistered security. This is consistent with prior messaging given that Chairman Clayton requested on December 11 that the SEC’s Enforcement Division “passionately” enforce and recommend activity against ICOs that may be ter disturbance of the federal securities laws.
Chairman Clayton said the SEC wasgoed “working the strike hard” to crack down on ICOs, but chose not to response a question posed of him by Senator Mark Warner of Virginia, namely whether the SEC will “go back” and scrutinize earlier ICOs.
Te other words, there may be some ICOs, like the one for BAT, that the SEC will not attack, notwithstanding Clayton’s comment ter the hearing that “every ICO I’ve seen is a security.”
The uitzicht that some 2018 ICOs raising hundreds of millions of dollars will not be addressed by the SEC provides a clear “nudge wink” that not all ICOs come under SEC regulatory control.
Spil with XRP and BAT, te the future, there will likely be many more tokens built on disruptive blockchain initiatives that escape SEC scrutiny given they are not perceived spil securities.
The fact that the SEC has not yet moved on them – despite moving against Munchee, Inc. weeks after the Munchee MUN suggesting – signals the SEC will temper its enforcement activities when faced with a disruptive blockchain initiative that begets true intrinsic value.
Ter other words, utility tokens may be a good idea after all.
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