The Death of the ICO: Has the US SEC Closed the Global Window on New Tokens?

Saturday 11 May 2020, 11:20 PM AEST - 1 week ago

The United States Securities and Exchange Commissions vigor in pursuing initial coin offerings, or ICOs, has become a major boogeyman within the crypto community.

Most recently, the case against Telegram ended with that company abandoning its planned open network and Gram tokens, which raised $1.7 billion. The question before the crypto community is now: Have we witnessed the death of the ICO?

The answer is yes, in that, with all due fear of predictions, we will never see the likes of 2017s ICO boom again. That vision of an ICO is indeed dead.

This is not the end for new tokens. But, until laws change comprehensively, the massive capital raise that leads to a token that trades freely seems like a thing of the past.

Birds-eye view of SEC registration

The SEC came out of two landmark laws passed at the height of the Great Depression. The commission has substantial power over the sale of securities — a broad category of investments that generally entail either stake in an entity or debt to it. They are distinct from commodities, which will be described later. One of the SECs most significant powers is seemingly simple: Anyone offering securities to the U.S. public must register that offering with the SEC.

SEC registration requires a company disclose a great deal of its financial information, as well as decision-making power to the public. Not surprisingly, many companies dont want to. Not that long ago, the assumption was that SEC registration had nothing to do with crypto. That has changed in the past three years.

Since cryptocurrencies dont fall more obviously into the rest of the potential definitions of securities, their classification depends on the much-contested term investment contracts. What exactly constitutes an investment contract is determined by the Howey Test, a critical result of the ruling in SEC v. W.J. Howey Co. (1946) that remains the basis of the definition of a security today:

For purposes of the Securities Act, an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promot ...

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