In June of 2018, SEC Director of Corporate Finance, William Hinman, made remarks at the Yahoo! Finance All Markets Summit that effectively classified Bitcoin and Ether as not being securities. Although these remarks are not binding regulations or laws, the recently formed Blockchain Association, a trade association out of Washington DC, wrote a Medium post outlining what they call the “Hinman Token Standard.” Some of the main points for this standard, which they will push to be the basis for future regulations and laws, include:
- Securities are regulated because of information asymmetries. Decentralization makes all information available to everyone, so markets are fair
- Decentralized currencies and assets pass the Howey Test because they do not rely on the efforts of one small group
- The article includes a chart with eleven questions to determine the level of decentralization of a project. A few of those questions include:
- Is it marketed and sold “for a price that reasonably correlates with the market value of the good or service in the network”?
- Is there “a central third party whose efforts are a key determining factor in the enterprise”?
- “Do persons or entities other than the promote exercise governance rights or meaningful influence?
- Are independent actors setting the price or is the promoter supporting the secondary market for the asset or otherwise influencing trading?
- Is the application fully functioning or in early stages of development?
The Blockchain Association is calling for the SEC to issue more formal guidance and believe that their Hinman Token Standard should be the foundation for future policies.
You can listen to more from the Blockchain Association’s Director of External Affairs, Kristin Smith, who recently want on the Unconfirmed Podcast with Laura Shin:
The Medium post does note and Blockchain Beach does echo:
This post does not constitute legal advice and should not be relied on by any person. It is designed for general informational purposes. Developers, purchasers, investors, and any other participant in a token system should consult their own counsel.