Cryptocurrency News

Security Tokens and Offerings

The issue of whether existing cryptocurrencies will be classified as securities by the SEC and other international regulators has weighed heavily on the minds of many crypto traders and projects.

If a crypto token derives its value from an external, tradable asset, it is classified as a security token and becomes subject to federal securities regulations, which are very strict with those who don’t abide by the rules.

The fears of crypto startups have recently become reality, with the SEC charging two companies with retroactive securities crimes recently.

A digital asset hedge fund manager was charged with misrepresentations and registration failures, marking the SEC’s first-ever enforcement action finding an investment company registration violation by a hedge fund manager based on its investments in digital assets.

The second company to be hit by the SEC was an “ICO Superstore” called Token Lot. In another milestone case, this is the first case charging unregistered broker-dealers for selling digital tokens after the DAO Report was published in 2017 advising dealers and investors that digital securities must be federally compliant.

However, while tokens that were sold in the manner of securities without being registered may well face a day of judgment, some forward-thinking projects have anticipated the problem and gone through the painstaking legal framework to develop, register, and release security tokens legally in cooperation with the SEC, while other projects are working to help with the process.

tZero

tZero is a security tradiing platform that also aids other companies with compliance. tZero makes DLR software that has been designed to ensure the activities of their securities licenses are compliant, transparent, and efficient from a perspective of cost and operations.

The project site states that it aims to revolutionize the market and fix the inherent inefficiencies of Wall Street so that financial processes are less beholden to traditional, institutional market structures.

The blockchain platform is considered an alternative lending system and is regulated by the SEC. The platform acts as a ‘dark pool’, more of a matchmaker putting traders together than a broker as such, and because it’s regulated it can provide services that other platforms may not be able to provide,  acting as an advisor and facilitating clearinghouse and verification services to other companies in the process of developing or releasing tokens and raising funds.

Custody – Good or Bad?

One of the issues with securities and security tokens is the question of custody.
While typically lauded throughout the space as the necessity that will help introduce the fabled institutional money and jumpstart crypto out of the current bear market, custody comes with its own set of issues.

For many, crypto is all about freedom.

Freedom from banks, freedom to transact peer to peer without government oversight. However, it has to be said that we can’t have it both ways – while banks are notorious for squandering the fortunes of entire nations on greedy, short sighted gambles, most everyday people entrust them with their funds without those funds being lost or stolen.

It happens, but it’s not the norm. Banks do provide a degree of safety as well as dominance, and it can be difficult to replicate that safety on one’s own. To own crypto you have to be your own bank, which is manageable enough for most. However, for those in control of large sums, you immediately paint a target on your back by storing it in crypto for the simple reason that it’s so easy and quick to transfer.

If you have crypto funds in a wallet or Trezor, no matter how complex your security system is all it takes is for some criminals to kidnap you to coerce the details out of you. There’s no bank to put the funds on 48 hour hold to confirm your identity, just the click of a button and your money’s gone. Sometimes it can be traced, other times not.

The solution here is a compromise of centrality, and to an extent we see this already with exchanges. Exchanges have security measures in place to prevent phishing, but at the same time the constant mantra that one shouldn’t keep their funds in an exchange is valid.

An even more centralized solution is crypto custody services, which I’m afraid is simply a fancy term for bank.

Does this leave us back at square one?

Security token holders aren’t just investors or speculators like with use(case)less cryptos – the token legally represents the value of a certain share or sake in the company, and as shareholders, security token investors have certain rights.

What if your custody services company is hacked? Is it going to be insured? Will there be some kind of government bailout? Many are concerned that we’re simply repeating the mistakes of the past with these services, but the majority of people in the space seem to agree that they’re necessary for some and don’t have to be used by others.

The fact remains that security tokens will keep the goverment regulators at bay while hopefully allowing people to invest in companies through crowdfunding ventures like ICOs, potentially revolutionizing the investment world. While only millionaires can participate in IPOs, reserving the most lucrative investing oppoertunities for those who are already members of the wealthy elite, anyone can buy securities if they go through the correct legal channels (brokers, etc).

Generally speaking, normal members of the public can’t buy securities in a company until wealthy private investors have already had the lion’s share (so to speak), buying up huge amouns of discounted shares in provate seed capital rounds before the shares go public.

Security Offerings could change all of that, legally allowing the public to take part in buying shares alongside the institutional investors at the same price, risk, and opportunity level as each other and finally levelling the playing field a little for people with a keen eye for promising companies and ideas who want to get in on the ground floor instead of waiting

Kind of like an ICO, but, you know… not illegal.

Crypto Is Coming!

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Is Mass Detokenization On The Way?

For the last while, the “tokenization of everything” has been a constant theme in crpytocurrency, and it’s had people justifiably excited. I even wrote about it in my Tokenization of Everything post.

We’re now seeing projects democratizing art, real estate, cars, securities, and more, enabling people to buy a token representing the value of any asset you can care to imagine.

Those types of ventures are all still safe – even with buying a token representing highly regulated securities, you’re not actually buying the securities themselves, much like a Bitcoin ETF doesn’t buy you any actual Bitcoin, just an investment vehicle that represents the price of Bitcoin and either pays out or charges accordingly.

The problem comes with other coins that are not, in fact, representing the value of an asset but rather the value and performance of a company or project itself.

Tokenising a house and allowing customers to buy tokens and profit off the increase in the property value? Great.

Tokenising the company running that venture and allowing customers to profit off the increased revenue of the company? Well… that’s pretty much just a security. And it’s a big no-no unless regulated by the government.

DigiPulse Detokenization – The First of Many?

https://twitter.com/zackvoell/status/1025921050020859911

The Digipulse CEO recently announced in a blog that 98% of all tokens connected to the project would be burned. The ICO was a year ago and raised over $1 million, and after very heavy losses the market cap is now at $335,000.

So why ‘detokenize’ now at a massive loss?

The CEO states that because the token had not been used by enough people for its intended purpose (rights to a prepaid digital asset vault) but simply for speculation instead, the project would burn tokens by December 2018.

And that pissed off everyone who had ever bought and caused an enormous panic sell, obviously. The CEO basically killed the project in terms of the token value which immediately plummeted from $0.20 to $0.02 after the announcement that they had no future and would be destroyed.

The service provided by DigiVault is not in any apparent danger, which is interesting – the project is going ahead as planned, but without the token.

While the CEO stated that the users were to blame, many others have been quick to point out that killing the speculative token is a good way to avoid fines and criminal charges from government regulators if and when such tokens are officially classed as securities.

Securities Classifications Could Set Off a Wave of Burned Projects

The SEC has released a cheat sheet on securities classifications called the Howey Test.

In SEC vs. Howey (how we got the “Howey Test”), an investment contract was defined as:

  1. It is an investment of money
  2. There is an expectation of profits from the investment
  3. The investment of money is in a common enterprise
  4. Any profit comes from the efforts of a promoter or third party

Coinsavage wrote an article asking what would happen if tokens were classed as securities, finishing with the following interpretation of the SEC rules:

  1. Bitcoin is most likely NOT a security
  2. Ethereum MIGHT be a security
  3. Ripple (XRP) is PROBABLY a security, but also has the resources to come into compliance
  4. Regulators don’t want to destroy crypto but do want to protect consumers and investors
  5. Coinbase is in the process of gaining a securities dealer license
  6. If Coinbase is successful then the negative consequences of many cryptos being labeled securities would be greatly mitigated (would avoid a mass dump scenario as exchanges scramble to unload “securities” from their non-registered exchanges)

SEC Chairman Jay Clayton said in no uncertain terms that ICOs and new projects would not be given special treatment when it came to regulation. Even though it’s on the SEC to make up their mind and outline clear regulations on what does and doesn’t constitute a security, crypto projects still stand to be retroactively fined and prosecuted, potentially even jailed, if found to have sold securities without a license.

While it seems unreasonable, those are the rules of the game. Execs from crypto hedge fund MultiCoin Capital have stated that half of the top ten cryptocurrencies may well be securities and therefore liable to prosecution.

Seemingly in all the excitement, ICOs forgot that legal compliance might come back to haunt them. Probably there was a general feeling of safety in numbers, but now it seems that the SEC and other regulators are putting the foot down and capable of going after all ICOs found guilty of non-compliance one by one.

So what happens?

Well, mass detokenization is one possibility, though not necessarily one that will completely safeguard project founders from harm if they are found to have sold securities at some point – however, not being in active breach of the regulations would work in their favor and reduce the penalties.

Another possibility is that cryptocurrencies will, instead of being forced to comply fully with existing laws, will be given a lighter touch in acknowledgment of the fact that new tech needs new rules. This is a possibility, but not in keeping with the statements of SEC chairman Jay Clayton, who speaks for regulators in the US and whose influence may extend even further.Finally, there’s the lights at the end of the tunnel – securities licensing and decentralized exchanges.

Coinbase is filing for a license enabling it to sell tokens listed as securities if and when that happens, which may provide a much needed safe haven for those currencies to flee. Of course, ICOs will still have to file for compliance and potentially pay retroactively for having sold securities in the first place, but a place to legally list and sell the token means the difference between a payout with a lot of expensive legal paperwork and simply shutting down hundreds of multi-million and multi-billion dollar projects completely, burning investors and founders alike.

For those uninterested in complying with the government, there’s another option – anonymously established ICOs with tokens listed on decentralized exchanges hosted on the blockchain – uncensorable by the government, unkillable, untraceable if handled the right way.

With no-one in charge of the exchange or perhaps even the project, a token can be classed as a security but leave regulators nobody to prosecute. Consumers would need to trade anonymously with VPNs or encrypted browsers, but it’s a possibility.

Big changes may be coming to the crypto space in terms of detokenisation and reclassification of cryptocurrencies, but where there’s a will there’s a way – that’s pretty much what cryptocurrency was invented for.

Remember folks, Crypto is comin!

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The Raven’s Dispatch – Aug 23, 2018 – Is Mass Detokenization On The Way?

The “tokenization of everything” hits a speed bump

“TOKENIZE THE WORLD” was the ICO battle cry of 2017 and the subsequent drive to democratize art, real estate, cars, securities, and more, has enabled people to buy a token representing the value of any asset you can care to imagine.

So why are we talking about detokenization? The Digipulse CEO recently announced that 98% of all tokens connected to the project would be burned because the issued tokens are being used for speculative investment and not the built in platform. This is an issue for MANY tokenized projects. Will other companies follow suit? Read our entire piece Is Mass Detokenization On The Way.

The overall cryptocurrency market was rather stable this week floating between $205bln to $207bln representing a 1% increase, with an obvious pump and dump yesterday. Fun times ya’ll. But look closer and you will note the top 5 struggled, being held up by the King, Bitcoin.

Livecoinwatch

Bitcoin (BTC): Crypto twitter was all over the place this week. $3k Targets, $11 targets, people capitulating, etc. Very entertaining. Week to week price action found a channel between $6,300 and $6,500, then pumped to $6,680 and subsequently dumped back to $6,400. Not taking into account the PnD Bitcoin experienced 1.5% growth.

Ethereum (ETH): There’s been little love for Ethereum this month. Down 45% since July 24th, there doesn’t seem to be any reprieve in sight for Vitalik’s love child. ETH currently sits at $274 as of this post experiencing a decline of 6% week to week. Curse you ICOs!!

Project of the week QUIZANDO (QUIZ): Social platforms have provided creative people with a soapbox in which to spread their views, opinions, likes and dislikes across the world. To make any revenue from the audiences they need to work hard at getting endorsement deals, look for related affiliates and constantly promote products.

This is where Quizando comes in. The Quizando project is a state-of-the-art quiz delivery system enabling players to participate in a gaming ecosystem that rewards them with cash prizes. Quizando wants to help influencers monitize their influence easily and without the need to be a business expert or turning their channels into a constant adverts.

Want to learn more? Check out our feature on What is Quizando, and learn how you can put your Quiz knowledge to work for you. Intelligence Pays! Sponsored Content.

WHAT’S NEW AT CRYPTO IS COMING

What Is Quizando? – The Quizando project is a state-of-the-art quiz delivery system enabling players to participate in a gaming ecosystem that rewards them with cash prizes. Are you a quiz master?

What is ChromaWay and Are Hybrid Database The Future? – ChromaWay is a Swedish blockchain startup that has been working on secret blockchain related research and projects since 2011.

Is Mass Detokenization On The Way? – For the last while, the “tokenization of everything” has been a constant theme in crpytocurrency, and it’s had people justifiably excited. So why are projects bruning their tokens?

Blockchain company Seven Stars Cloud Group signs exclusive $24b deal with China’s Largest Electric Bus Operator – A groundbreaking $24 billion deal between China’s largest electric bus operator (NTS) and Seven Stars Cloud Group (Nasdaq:SSC) was recently signed which will create financing products through SSC’s blockchain ecosystem.

What is Neon Exchange (NEX) – NEX is a platform for payment services and decentralized crypto trade. NEX aims to combine the performance of centralized exchanges with the trust and security features of decentralized exchanges

Blockchain Law Study group Formed in South Korea – In South Korea, lawmakers, industrial experts and judges are teaming up to form a fresh working group which will endeavor to discuss and propose solutions for issues surrounding the blockchain technology.

South Korea Still Unsure on How To Handle Cryptocurrencies – South Korea just held a session of its National Assembly with the sole purpose of discussing blockchain adoption and ICOs guidelines.

Ever Wonder Why Governments Tend to Bully Cryptocurrencies? – Stop picking on crypto, you bullies!

Bitmain Expansion: Multi Billion IPO on the Horizon – Cryptomining giant Bitmain is about to go public in what could be one of the biggest Initial Public Offerrings ever.

Kuwait Finance House Becomes First Bank Using Blockchain in The Country – The Kuwait Finance House (KFH) has confirmed it completed a cross-border transaction with the use of Ripple technology.

Hacker ordered by Federal Court to pay the bail in cryptocurrency – Cryptocurrencies are getting steady acceptance in judicial quarters. In a recent case, a Federal judge allowed an accused hacker to pay bail amount in cryptocurrency.

CRYPTOCURRENCY NEWS FROM AROUND THE INTERNET

SEC Denies Nine More Bitcoin ETFs – Please, we all knew this was gonna happen. The U.S. Securities and Exchange Commission (SEC) on Wednesday rejected applications for nine bitcoin-based exchange-traded funds (ETF) from three separate companies.

China shuts down blockchain news accounts, bans hotels in Beijing from hosting cryptocurrency events – The two incidents are the latest instances of China’s continuing crackdown on cryptocurrencies, which began last September with bans on local exchanges and ICOs.

AppleJeus: macOS users targeted in new Lazarus attacks – Researchers have uncovered a new campaign by the infamous Lazarus group which targets cryptocurrency exchanges in order to spread malware to Windows and macOS users.

Half Of The Remaining Non-Minted Bitcoin Supply Is ‘Spoken For…’ – The CoinShares team analyzed data from an ING survey and found that there are 99 million people who intend to own Bitcoin but don’t yet.

90% of Employees at Major Crypto Exchange Binance Receive Salary in BNB – At the Liechtenstein Cryptoassets Exchange (LCX), Binance CEO Changpeng Zhao told TechCrunch founder Michael Arrington that 90 percent of the exchange’s employees receive their salaries in BNB.

‘Bitcoin Jesus’ Is Having a Hard Time Winning Over True Believers – Roger Ver, the virtual currency advocate often referred to as Bitcoin Jesus, is finding it tough to win converts to the supposed second coming of the the world’s biggest cryptocurrency.

Big Investors Deny Involvement In Crypto Miner Bitmain’s Pre-IPO Funding –  SAY WHAT?! Tencent Holdings and SoftBank Group are both disputing their involvement in a widely reported pre-IPO investment round for Chinese cryptocurrency mining giant Bitmain.

SoftBank Denies Reports of Bitmain Deal; Bitmain Still Silent – Hmmm this is not looking good for Bitmain. Japanese telecom giant SoftBank has denied media reports of its involvement in a pre-IPO funding round of bitcoin mining rig manufacturer Bitmain.

Here’s How You Can Validate An ICO Using Your Chrome Browser – Cryptocurrency and blockchain is a world filled with excitement and new technology, but like your Mother always warned, if something seems too good to be true then it probably is.

Wall Street’s Crypto Caution Risks Coinbase Gaining ‘Unassailable’ Position – Cryptocurrency trading revenue is primed to explode within the near future, and Wall Street is running out of time if it hopes to stop industry giant Coinbase from gaining an indomitable market position.

Nvidia is sliding after cutting its guidance and saying its crypto boom is over (NVDA) – Nvidia shares are down more than 4% Friday on trading after the chip maker cut its third-quarter revenue guidance and warned that it’s crypto business is going to zero.

Thanks for joining us this week. If you have something interesting you would like to submit reach out to us at info@cryptoiscoming.com. And don’t forget, Crypto is Coming!

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