Regulation Crypto Assets: Policymaking by Crypto, for Crypto – The FinReg Blog

When a blockchain developer raises funds to build a new blockchain-based protocol, it often does so by selling a cryptocurrency, or token, that, as the theory goes, will at some point in the future be used to access the protocol that eventually gets built. The fundraising resembles a traditional initial public offering, whereby a company raises money by selling shares to the public and invests the proceeds back into the business. Just as the value of those shares increases as the company grows, the value of the token should increase as more people use the protocol, even though tokens are not formal equity in the developer. But while they may not be equity, offers and sales of these tokens have historically been treated as investment contracts, which fall within the statutory definition of a security under the federal securities laws.

Because the Executive Branch has been captured by the crypto industry, that common sense interpretation may soon end. On August 18, the Securities and Exchange Commission proposed Regulation Crypto Assets, a sweeping regime that would allow many public token offerings to proceed without Securities Act registration and give existing crypto projects a self-certified path out of securities-law treatment. The proposal delivers much of what the industry has spent years seeking: easier access to retail investors, immediate token liquidity, broad preemption of state securities laws, and a mechanism for exiting federal securities regulation altogether. Welcome to policymaking by crypto, for crypto.