A Bitcoin and altcoin analyst has made statements about the implications of the upcoming regulation on the cryptocurrency industry. The Coin Bureau server, known as Guy, explains what factors the U.S. Securities and Exchange Commission (SEC) can use to determine whether a cryptocurrency should be classified as a security. Here are the details…
Analyst points to SEC’s altcoin classifications
Guy first cites a recent lawsuit against a former Coinbase product manager. Building on the SEC’s recent complaint, it points out that the following criteria can put a crypto project at regulatory risk:
- The first is to be based in the United States. Of the nine cryptocurrencies that the SEC classifies as securities, five are located in the United States. This puts them within arm’s reach of the editor.
- Second, running an ICO, especially one where the founders and/or team hold a substantial amount of the initial or future supply of the token.
- Third, an incomplete platform or protocol. According to the analyst, the SEC does not like crypto projects that raise money before anything is built. But once everything is built, there is less reason to raise money.
- The fourth red flag on Guy’s radar is when team members make public statements about the project’s potential to increase in value. This includes social media posts, blog posts, and specifically what was said in the whitepaper. According to the analyst, even retweets are enough to attract the attention of the SEC.
- Another area of concern are projects that claim to be run democratically through a decentralized autonomous organization (DAO) that are dependent on or influenced by a small percentage of members holding a disproportionate amount of tokens.
- Liquidity mining can also influence the SEC’s decisions
Many projects are at risk
“If I am right about this criterion, then many crypto projects are at risk,” the analyst says. That’s because Chainalysis recently discovered that voting power in most DAOs is heavily concentrated among a handful of token holders. The latest regulatory vulnerability on Guy’s radar affects liquidity mining in the decentralized finance (DeFi) space. For example, while the explicit terms of the DFX Finance (DFX) project seem to have prompted the SEC to designate it as a security, it states that lending and borrowing protocol Aave (AAVE) can avoid such strict regulatory action. The analyst uses the following statements:
Token issuance as part of liquidity mining programs. This last criterion is not entirely clear and may be specific to DFX Finance given that the team is open about future appreciation of the DFX token if people have provided liquidity to the protocol. Only the most decentralized DeFi protocols can escape the SEC scourge. An example of this would be a project like Aave.
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