The U.S. Security and Exchange Commission’s chairman, Jay Clayton, further clarified the difference between ICOs and cryptocurrencies.
Mr. Clayton started off by talking about cryptocurrencies by saying that “these are replacements for sovereign currencies; replace the dollar, the yen, the euro”. He said that this “type of security, is not a security”. However, he said that it is a security when it is “a token, [or] a digital asset where I give you my money and you go off and make a venture” and in exchange for investing my money there is a return or you can “get a return in the secondary market”. Jay added that “we regulate that; we regulate the offering of that security and the trading of that security.”
Mr. Clayton was asked if he thought Ether or Ripple is a security, to which he replied that he is “not going to comment on specific crypt-assets and whether they are a security or are not a security. He added that his interviewer, Bob Pisani, “captured the definition very well; I am giving you my money for you to go off on a venture or I’m relying on your efforts and the efforts of your colleagues.” He also added that they are “not going to do any violence to the traditional definition of a security, which has worked well for a long time and, I believe, will continue to work well.”
Uncertainty remains in the details
The comments by Jay Clayton strike an encouraging tone for cryptocurrencies since he signaled that the SEC does recognize a difference between ICOs and cryptocurrencies, which some regulators are quick to lump together. However, the issue was not completely cleared up since Clayton refused to identify which cryptocurrencies he believes are and are not securities. Cryptocurrencies like Ripple and Ethereum makes the potential interpretation by regulators a little fuzzy.
Clayton focused his definition on how the investment is structured. Clayton classified a security as an item that is given to an investor in exchange for an investment of a currency in the security’s platform/organization. Then the security promises the possibility of a return on the investment or return if an investor sells the security on the secondary market. The fuzziness arises from the fact that cryptocurrencies have various structures, some of which includes self-funding treasury models without being an ICO. More ambiguity arises from the fact that consumers can buy many types of cryptocurrencies, hold them for a period of time, and sell them to realize a capital gain/loss without it necessarily being an ICO.
Dash finds a unique hybrid zone
Dash is able to be a currency that focuses on fast confirmations, inexpensive fees, and security, while also being able to fund projects that improve the network through its treasury system. Craig Wright recently claimed that masternode networks could be a security since masternodes receive regular payments. However, this claim ignores some key issues. First, the fact that masternodes are not traded. A good comparison would be a small business since a small business owner receives regular payouts, but the owner cannot generate a return on the business by ‘trading’ it, they instead liquidate their business to realize potential gains. Second, the investment by the Dash treasury is the network’s money and does not belong to any specific individual before being allocated to a proposal so no one specific is ‘investing’ their money in projects. Third, the projects that are funded by the treasury are trying to improve the Dash network rather than generating direct dividends for masternode users. Forth, Dash masternodes are providing a service of contributing to the network’s operation in exchange for compensation.
These features give Dash a unique area to occupy within the current regulatory framework and the cryptocurrency space in general. Dash is able to be a currency that consumers can use to purchase goods and services in everyday life, in addition to being able to be an incentivized network to fund projects that help improve the network. Dash does not have to rely on old-world financing nor worry about issuing a security-type token to fund projects to improve the network since all the funding is contained within the main Dash cryptocurrency protocol rather than from outside investors. This makes Dash uniquely able to maintain its low fees, fast confirmation times, and security to help people around the world that face monetary and financial injustices.