Since the ICO boom of 2017, there has been an increased concern about tokens being labeled as blockchain securities. There has been no official measure or system as yet, with even the SEC having to take time to evaluate. However, a group of significant exchanges has now developed a system they will use to determine the likelihood that a token is a security.
The likes of Coinbase, Kraken, Bittrex, and even traditional payment processor Circle have put their heads together to try and avoid any negative consequences of mistakenly listing a token that may be deemed a security down the line.
The news was announced on the Wall Street Journal which explained that this system is intended to help further legitimize the cryptocurrency space which is under constant scrutiny from regulators for a multitude of reasons including market manipulation, hacks, and scams, as well as securities fraud.
The coming together of these exchanges has been labeled the Crypto Rating Council which explains its purpose on the landing page as: “Leading crypto financial services firms committed to practical compliance with the U.S. securities laws.”
The way in which this council will work is that they will assess the projects and put out a ranking system that will place the project between one and five with five being the highest point suggesting that the token is likely a security.
It is also reported that the issuers of the tokens will not have any initial input into the process of determining if they are a security or not by the Crypto Rating Council. However, they can provide information to “dispute a score their token received,” according to the WSJ.
So far, there have already been a ranking of some of the top coins by market cap. These include Bitcoin, Litecoin and Monero – who score low on the likelihood of being a security – classed as “1”.
Chainlink, Ethereum, and Zcash come in at “2” on the list and are still considered low levels threats as to being a security with even the SEC saying multiple times that Ethereum is likely not a security.
Higher up the list of possible security tokens is EOS, Stellar, and Tezos who are ranked at a “3” while most interesting to note at the moment is that XRP is scored as a “4” as the token fights in court to prove it is not a security.