Cryptocurrency exchanges, particularly those that operate in strictly regulated jurisdictions, are well aware of the potential implications of securities laws for certain crypto assets. The United States is a great example – US-based exchanges tend to have a more conservative approach towards listing cryptocurrencies, in part because they don’t want to run afoul of securities laws.
ICOs and other token sale schemes have been closely scrutinized by US regulators, with the Securities and Exchange Commission chairman Jay Clayton going as far as stating that he hasn’t seen a single ICO that was not a securities offering. The agency has reached settlements and fined multiple ICO projects, including Paragon, SimplyVital and Gladius.
Even some crypto assets that weren’t initially distributed via ICOs or other similar models are potentially securities – perhaps the best-known example is XRP, which is closely associated with fintech company Ripple. The firm is the biggest holder of XRP by a huge margin and sells substantial amounts of XRP in order to fund its operations (for what it’s worth, these sales are not open to retail investors).
Now, a number of major cryptocurrency industry players have formed the Crypto Rating Council (CRC), a group that will assign ratings to various crypto assets. These ratings will range from 1-5, with a score of 1 indicating that the council believes the asset “has few or no characteristics consistent with a traditional regulated security” and a score of 5 indicating that the asset has “many characteristics strongly consistent with treatment as a security”.
Some of the founding members of the CRC council are Coinbase, Kraken, Bittrex, and Grayscale Investments. The council has developed a series of yes/no questions that are used to determine each asset’s score:
“These questions are derived directly from SEC guidance and case law and are designed to address important characteristics that inform whether an asset is or is not a security.”
Ratings for 20 crypto assets have already been published on the council’s website. Some assets that received a particularly high score include Maker (4.5), Polymath (4.5), and XRP (4). Meanwhile, 8 assets received a score of 3.75. The council says the scores are not final and could change in the future.