Reviewing crypto regulation means throwing old questions

The first question facing the creators of policies dealing with the need for a reasonable crypto regulation is how to distinguish securities from cryptooases. The growing consensus in Congress and the Securities Commission is that the part of the paper between securities and crypto should be the degree of “decentralization” in the network or blockchain protocol on which criptoasets is issued.

This thinking is considered that the network is sufficiently decentralized – which means that one significant works of its consensus mechanism are not controlled by any person or group – Criptoaset migrates from securities for the CRIPTO Regulation.

But it is not clear that this is the best frame used.

There are good reasons for focusing on decentralization. If no one controls the network, then there is no one to carry the SEC registration load. And since investors cannot understand the “efforts of others” when investing in a decentralized project, cryptoasets would not meet the “investment agreement” test in the US Supreme Court in 1946. years Sec v. VJ Hovei co.

Former Garler Garler Garler relyed Wanderer to assert that almost all cryptoases’s securities. Thus, the issue of decentralization was often a focus when assessing the status of cryptoassets. The Bitcoin network was held as a protocol that has achieved sufficient decentralization, but almost any other protocol that came under sexual control failed to achieve that standard.

Many in the industry did not agree with Secular Analysis of Decentralization as applicable to specific cryptoasets. But Federal Courts did not make progress that tried disputes. This is because decentralization and its close control of relatives are facts and questions and circumstances. Reasonable arguments can often be performed both ways.

Lawyers with securities deal with a similar question when determining whether the seller of securities is an associate issuer.

Belonging has significant consequences: This means that the seller is facing insufficient responsibilities or economically difficult restrictions when selling securities on the market.

The answer turns on whether the seller controls, controls or in common control with the issuer. Sellers sometimes surprise that control, and therefore belonging, they are created at a very low level of ownership and influence.

Although it is usually certain to conclude a holder of less than 10% of the publisher’s stock, not associated, the answer is more than that threshold of Murke. Once the holder has more than 20%, the holder is usually, to sec, affiliates.

Similarly, if the holder is a clerk or director – even without authority to direct the issuer’s activities – that the person is generally considered associated.

In Gensler ERI, the industry often had no choice, but to deal with this field when it claims that the protocol is sufficiently decentralized that its cryptoases are not securities.

But we are no longer in that era. We can now separate the line between securities and non-securities by the statute or rule without reference Wanderer. Then the question is whether to remain tied to decentralization. Four reasons suggest that you don’t do this:

• Wanderer In addition, centralization is not a sign of security. The iPhone operates in the center of a solid controlled, highly centralized ecosystem, but no one would say that this is a reason to regulate it as security.
• The difficulty in said whether decentralization has occurred on use as a divided line, even if it is useful for other regulatory purposes. If the SEC can argue that the network did not achieve decentralization, the Agency will do so, and the industry will return to the Moras Gensler ERI.
• Decentralization changes. The protocol achieved to lose it if the consensus mechanism comes under one’s influence. Avoiding confusion would result in cryptoasets back and back to the status of securities.
• The test that focuses on decentralization necessarily excludes networks designed to be centralized. Decentralization is a business model element, where developers can believe that this is the best way to achieve network safety and resilience. But there are business models on which developers propose other means to achieve these goals. It does not make sense that your cryptoSeases is planted in the regulation of securities because they deal with a different road.

The better division line would focus on the property – and the essential nature of what we consider security – not a network in which the property lives.

The country trading in the New York Stock Exchange and long trading over the counter, have something in common that does not share cryptoasets: these securities represent legal and contractual requirements for property, revenue and winning for admission and government.

Bitcoin, Etherum and the vast majority of cryptoases trading on popular crint trading platforms.

That is why the Ordinance on the disclosure of the SEC is mainly irrelevant for the CRIPTO. There is no job that needs an examination to understand the investment value. There may be commercial activity, but even when the network control is centralized, in a vivid network activity is the product of uncoordinated decisions by users.

Similarly, many rules of securities trading are based on the fact that they include companies. We would not take care of a sudden pad or short sales if all that was important trading.

But because these events are affected by the accession approach to capital, regulates. Policy criminals want to punish manipulative activity in crypto markets, but SEC does not have a monopoly on deterring this behavior.

Predictability is the best reason for divider division to the nature of the asset, not its protocol. It is easy to determine whether the instrument is a request for property, income or profit business. Or it’s or not.

The approach that focuses on what the instrument represents, not the decentralization presented by his protocol, would give a better result for the development of the crypto industry.

This article does not necessarily reflect the opinion of the Bloomberg Industry Group, Inc., publisher of the Bloomberg Law and Bloomberg taxes or its owners.

Author Information

Joseph Hall Whether the partner in Davis Polka, a member of the company market and the head of its interdisciplinary risk of risk.

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