The confusion about XRP security status and other ICO tokens got a step closer to closure as the United States Securities and Exchange Commission released its long-awaited guidance for token issuers.
In the United States, there are complains of a lack of clear regulatory stance for cryptocurrency tokens launched during Initial Coin Offerings (ICOs) by blockchain and cryptocurrency startups. Questions like “is Ethereum security?”, “what is xrp security status?”, or “are ICOs securities?” have become commonplace in the cryptocurrency community.
Though the SEC has tried in the past to clarify these questions, it has done little by way of a comprehensive guide that clearly distinguishes which ICO tokens are securities and which ones are not. The ICO Token guidance titled “Framework for “Investment Contract” Analysis of Digital Assets” is the closest the SEC has gotten to clarify xrp security status as well as other ICO tokens.
The Making of the SEC Framework for ICO Tokens
As Smartereum reported last year, the SEC through its Director of Corporation Finance William Hinman promised a “plain English” guidance or token issuers to understand what makes an ICO token security or not. Speaking about the guideline at the time Hinman explained:
“We’ll elaborate on that in a very plain English way, so ‘do I think I have a security offering,’ look at that guidance and you should be able to sort things out.” He explained that the guidance will bring together separate analysis surrounding security tokens like the Howey test and Gary analysis.
He also gave a simple example of the security token scenario:
“If someone’s offering an instrument for money or other consideration to a third party, and that third party expects the offerer to generate a return or so something that will increase the value of the coin or token or whatever they want to call it, and there’s that expectation of return, we’re generally going to see that as a securities offering.”
The SEC’s fool’s guide document about ICO tokens was published on Wednesday, April 4, more than 5 months after it was first mentioned.
SEC Admits All ICO Tokes are Not Securities
A widely held belief within the cryptocurrency community is that the SEC somehow considers tokens issued during ICOs as securities and it would be a matter of time before they clamped down ICO tokens. The SEC on their part as done little to address this in the past leaving xrp security status and other ICO token security status in unclear. Even when the SEC reportedly said ethereum is not a security, it was not a documented exemption of ETH rather through a speech referenced in its letter.
The document published yesterday indicated that not all the tokens issued during ICOs meet the conditions to be securities. The guidance described some blockchain networks and tokens that are considered to be under the securities regulations and those that are not.
The content of the SEC ICO Token Guidance
The guideline for the security status of tokens was a mirror of the Howey test with a focus on blockchain and cryptocurrency application. According to the document, a token is a likely security if there’s an expectation for profit and if a central group is creating or supporting a market for a token. Other considerations include the use of the token; if it has a specific use case or merely speculative or a store on value.
SEC Guidance Doesn’t Answer All Questions
Although the SEC guidance is a step forward, it does not still fully answer some of the questions on the lips of cryptocurrency enthusiasts. Firstly, it doesn’t specifically state the commission’s position on specific projects like the xrp security status, ethereum security status, etc.
In its report, cryptocurrency news outlet Coindesk outlined a number of other shortcomings of the latest SEC guideline. One is that it does not clearly define how “active participants” or how a token can cease to become a security token. It noted that the framework was the commissions guide for implementing the dated Howey Test and is silent about the SEC security status of ICO tokens issued outside the United States.
SEC ICO Guidance Not A Legally Document
Though helpful, the SEC framework is at best a guide and not a legally binding regulatory reference document.