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Known for his in-depth research, the popular analyst explores how the looming regulation will affect the cryptocurrency industry.
A new strategy session hosts the Coin Bureau known as Guy To tell His 2.09 million YouTube subscribers explain what factors the U.S. Securities and Exchange Commission (SEC) uses to determine whether a digital asset should be classified as a security.
Guy first mentions the recent lawsuit against a former Coinbase product manager alleging insider trading.
Based on recent SEC complaints, the following standards could put crypto projects at risk of regulatory crackdown.
First, it is based in the United States. Five of the nine cryptocurrencies classified as securities by the SEC are based in the United States, within reach of regulators.
This makes sense given that one of the SEC’s main motivations is undoubtedly to make as much money as possible in the form of fines from the crypto industry. Fines are much easier to issue to domestic entities.
Analysts also believe that crypto projects participating in initial coin offerings (ICOs) are likely to face government scrutiny.
Conducting ICOs, especially ICOs where the founders or teams hold a significant amount of the initial or future supply of tokens.
This is not so bad. Many know that excessive control of the token supply by the team is a point of centralization, so it should be seen as a red flag in due diligence anyway.
Guy says projects that are made public before completion may be considered potential targets by the SEC, but are instead a catch for project developers seeking funding after all the work is done. It points out that there could be 22 situations.
An imperfect platform or protocol obviously the SEC doesnt like crypto projects that raise money before something is built. But once everything is built there is less reason to raise money. .
As such, it will be interesting to see what the SEC thinks about retroactive public good financing that crypto companies and developers receive from the crypto community long after the crypto project is complete. is.
The fourth red flag on Guy’s radar is team members making public statements about the potential value of the project.
“A statement by a company or team that suggests that the price of a coin or token may increase at some point in the future.
This includes social media posts, blog posts, and especially what is stated in white papers. A retweet is enough to get the SEC’s attention.
That’s why it’s so important to look at interviews with founders as part of your research.
Another concern is projects that claim to be run democratically via Decentralized Autonomous Organizations (DAOs), which in reality are owned by a small number of members holding a disproportionate amount of tokens. dependent on or affected by.
A centralized entitys involvement in the development and management of a project is made directly or indirectly through voting rights in the DAO, even if the team does not hold majority voting rights in the DAO. The team or company should also not be mentioned in the whitepaper.
If I’m right about this criterion, Chainalysis recently discovered that most DAO voting rights are concentrated in a handful of token holders, putting many cryptocurrency projects at risk. increase.
The final regulatory vulnerability on Guy’s Radar impacts liquidity mining in the decentralized finance (DeFi) space. He said that while the explicit terms of the DFX Finance (DFX) project appeared to have prompted the SEC to designate it as a security, the lending and borrowing protocol Aave (AAVE) evaded such harsh regulatory action. points out that it is possible to
Token issuance as part of a liquidity mining program. This last criterion was not exactly clear and the team was clear about the future valuation of the DFX tokens if people contributed liquidity to the protocol. given that it may be unique to DFX Finance.
Unless this is something advertised by DeFi protocols that use liquidity mining programs, it is likely safe from the SEC, based on comments from SEC Commissioner Hester Peirce.
Only the most decentralized DeFi protocols can survive the SEC scourge. An example of this could be a project like Aave.
Guy recently spoke about Aave during an in-depth analysis of the DeFi space.
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