Coin Center, a blockchain advocacy center, released an updated framework for securities regulation of cryptocurrencies. The current report is a revised version of the original report published in 2016. The report explores the question of cryptocurrencies fitting into the description of securities. The report examines cryptocurrencies, cryptographic assets, and tokens and presents a framework for security regulation. The new version will also analyze token functionality and distribution.
According to Peter Van Valkenburgh, the director of research at Coin Centre, “The framework is based on the Howey test for an investment contract as well as the underlying policy goals of securities regulation. We find that several key variables within the software of a cryptocurrency and the community that runs and maintains that software is indicative of investor or user risk.” He said cryptocurrencies which fall under the category of securities should be put under regulation.
Compared to the original report which discussed four software variables and three community variables, the renewed report discusses only three variables, decentralization, distribution, and functionality. “This, we think, still keeps the heart of our original analysis but puts it in simpler terms,” said Valkenburgh. These three variables are termed as ‘Token project variables that can affect user and investor risk’. These variables scrutinized in the report contains underlying subjects like consensus, transparency, airdrops, proof-of -burn, non-tokens etc.
In the report, Valkenburgh said that “These variables are explained in depth and mapped to the four prongs of the Howey test in order to create a framework for determining when a cryptocurrency resembles a security and might, therefore, be regulated as such. We find that larger, more decentralized cryptocurrencies— e.g. Bitcoin— pegged cryptocurrencies—i .e. sidechains—as well as distributed computing platforms— e.g. Ethereum—do not easily fit the definition of a security and also do not present the sort of consumer risk best addressed through securities regulation.”
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