In his Feb. 8 opinion piece for CoinDesk, Santander’s Julio Faura suggests that “utility tokens are a nasty idea” because it might be a “lie to ourselves” to suggest initial coin offerings (ICOs) weren’t actually selling securities.
Rather, in Faura’s opinion “we should collectively work on a framework to create a clearly defined scheme for ICOs, recognizing from the very beginning that they’re securities.” And, this “ICO process should be designed together with regulators to suits law .”
Faura’s opinion piece doesn’t exist during a vacuum. during a report dated Feb. 5, Goldman Sachs’ global head of investment research suggests that investors in 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 ever get implemented, given it requires complete buy-in from capital markets and regulators, so it might be a non-starter from day one.
Why would existing financial institutions and regulators scuttle existing methods of raising capital or plan to squeeze ICOs under traditional law , albeit considered a purchase of securities?
Answer: they might not. Ripple – a corporation partially funded by Santander InnoVentures – offers a glimpse of how traditional banks and financial markets will compete using blockchain technology and “coins.”
Faura’s opinion piece paints all ICOs with an equivalent brush by claiming all of them actually offers securities subject to U.S. Securities and Exchange Commission (SEC) scrutiny. that’s simply not the case.
Indeed, does Faura wonder why the SEC has not knocked on Ripple’s XRP “digital asset” door? albeit there was no formal ICO to launch that arguably centralized token, it now trades on 18 exchanges where individuals can purchase the XRP coin. Indeed, after raising nearly $94 million of risk capital , Ripple probably doesn’t need an ICO.
One ICO left untouched by the SEC was “gate-keeped” by the firm of Perkins Coie and involved the sale of a utility token that raised $35 million in under a minute’s time. Brave’s token creates a digital advertising ecosystem tied to consumer attention – which is why it’s dubbed the essential Attention Token. Such an ecosystem would definitely be an upgrade from the present digital advertising scheme wedded to the online ecosystem of 1995.
All told, it seems that the SEC and other regulatory bodies have actually taken a really measured approach during this area – aggressively that specialize in obvious fraudsters first so as to discourage subsequent fraudsters, while letting the technology play out a touch within the wild.
Not surprisingly, the plaintiff’s bar has been doing an honest job learning the slack in those instances when the SEC has not yet moved. See Davy v. Paragon Coin, Inc., et al., Case No. 18-cv-00671 (N.D. Cal. January 30, 2018) and Paige v. Bitconnect Intern. PLC, et al., Case No. 3:18-CV-58-JHM (W.D. Ky. January 29, 2018).
Recent 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 was “very significant.” His co-witness, Commodity Futures Trading Commission chairman Christopher Giancarlo, went thus far on say there was “enormous potential” that “seems extraordinary” for blockchain-based businesses.
Yet, during his testimony, Chairman Clayton said the SEC would still “crack down hard” on fraud and manipulation involving ICOs offering an unregistered security. this is often according to prior messaging as long as Chairman Clayton requested on December 11 that the SEC’s Enforcement Division “vigorously” enforce and recommend action against ICOs which will be in violation of the federal securities laws.
Chairman Clayton said the SEC was “working the beat hard” to clamp down on ICOs, but chose to not answer an issue posed of him by Senator Mark Warner of Virginia, namely whether the SEC will “go back” and scrutinize earlier ICOs.
In other words, there could also be some ICOs, just like the one for BAT, that the SEC won’t attack, notwithstanding Clayton’s comment within the hearing that “every ICO I’ve seen may be a security.”
The prospect that some 2017 ICOs raising many many dollars won’t be addressed by the SEC provides a transparent “nudge wink” that not all ICOs come under SEC regulatory control.
As with XRP and BAT, within the future, there’ll likely be more tokens built on disruptive blockchain initiatives that escape SEC scrutiny given they’re not perceived as securities.
The fact that the SEC has not yet moved on them – despite moving against Munchee, Inc. weeks after the Munchee MUN offering – signals the SEC will temper its enforcement activities when faced with a disruptive blockchain initiative that begets true intrinsic value.
In other words, utility tokens could also be an honest idea in any case .