Will compliant ICOs be revived? New SEC regulations open up a financing channel for the cryptocurrency industry

Source:ChainCatcher

Author: 0xFacai

Original title:The biggest benefit for the coin industry, is compliant token financing coming back?

Public coin sales and financing have once again gained a legal path in the US.

On August 18, the US Securities and Exchange Commission released a draft “Regulation Crypto Assets”.

According to this draft, a startup project can raise $5 million in a maximum period of four years.

Larger projects can raise $20 million or $75 million in 12 months.

Without completing a complete set of securities registration, the project can also sell tokens to investors to raise money for network development.

The biggest benefit for the coin industry, is compliant token financing coming back?

Sounds like ICOs are back.

But the SEC gave far more than three funding lines.

It wants to establish a set of rules for tokens from birth to “graduation”: projects can be funded by selling coins first, but it must be clear what they plan to use this money for;

If the key work promised by the team is not completed, the token continues to bear the regulatory responsibility for investment terms;

Once the promise is fulfilled, the token will have a chance to exit this level of relationship.

“Commitment” is the core of the entire draft; devs must “work” until the token “graduates” before they can “sell”.

rules

The draft gave the project parties two options.

The first type is suitable for startup teams.

Assuming a project required $3 million to develop, a common choice in the past was to seek venture capital,

Restrict buyers from issuing coins outside of the US, or incur high costs of registering securities.

The new draft allows it to use the “Startup Exemption” to raise no more than $5 million over a maximum period of four years.

It is also filed with the SEC at the beginning and end of the financing.

The second type is suitable for projects with greater funding requirements.The first tier raised up to $20 million every 12 months, and the second tier raised up to $75 million. Compared to the $5 million startup exemption,

This path can be used over and over again, but the rules are stricter.

Projects can't just hand in a white paper and start selling coins. Both exemptions require the team to disclose how the network is governed,

How is the product prepared for development, what security risks are in the code, what is the company's financial status, and who is managing the project.

The two larger funding levels also require financial statements to be provided and continuously updated, and the $75 million tranche requires an audit.

The SEC didn't remove the original fence either. Issuers and insiders with a record of serious violations cannot use these exemptions,

Anti-fraud and anti-manipulation responsibilities continue to be in effect. If the project uses other securities exemptions at the same time, it must also comply with existing consolidated financial calculation rules.

How to define “graduation”

The most important aspect of the entire draft is to treat tokens separately from the investment relationships formed around tokens.

A project sells coins to raise money to build a network. Buyers often buy more than just a digital asset that can already be used.

They are also looking forward to the team creating products, attracting users, increasing demand for tokens, and profiting from these efforts.

This relationship, which depends on the team's future work, is what the SEC calls an “investment clause.”

The token itself can be just a digital asset, but how the project sells it and what it promises to the buyer makes it covered by a layer of investment terms.

What the SEC really regulates is this level of relationship between issuers and buyers.

The draft designs an exit path for the token. the issuer completes or permanently ceases all critical management tasks that it undertakes,

No new relevant commitments are made, and public certification and analysis instructions are submitted to the SEC before the token can enter a “safe harbor.”

As a result, tokens have the concept of “graduation.”

When the project is sold in coins for financing, construction is promised to the market, and until the project is completed and key tasks are completed.

Buyers no longer rely on the team to deliver on old promises before the token can “graduate” and the project party can withdraw.

The new regulations don't focus on whether tokens are securities

In the past, the market judged when a token was no longer subject to securities laws, and often questioned whether the network was “decentralized enough.”

As long as the foundation, development company, or founding team continues to work, many people will understand this as the token still relies on a central entity.

The SEC draft changed the question: what promises did the project rely on to sell the tokens, and are those promises fulfilled now?

Take an example. When Project A sells coins, the investors are told that the team will develop the main network and launch transfer and pledge functions.

Then leave the network to a decentralized validator to run. The main network was later launched, and the features were also available, but the validators were still controlled by the team.

Since “decentralizing the network” was also a promise at the time of financing, the token is still unable to “graduate” at this point.

When Project B sells coins, it only promises to create a network that can operate normally.

“The team must disappear” or “the network must reach some degree of decentralization” was not included in the funding promise.

After the online launch and the product became available, the team continued to fix bugs, update versions, fund developers, and promote the product.

These routine maintenance are not part of the “Investment Terms.”

The products that investors were initially waiting for have been delivered,

The value of tokens is also beginning to come more from actual use, network operation, and market supply and demand.

The SEC is concerned about whether the market is still waiting for the team to complete the key promises made during the coin sale.

The core team continues to exist and is no longer a uniform yardstick for whether a token can graduate.

The core team can stay. Unfulfilled promises cannot be left behind.

Talk less and do less

This method of judging whether a project “fulfills its promises” will greatly influence the project's promotion strategy.

Corporate securities attorney Gabriel Shapiro proposed that the SEC binds whether the token can get rid of investment terms with the project party's public commitment.

The team will be motivated to talk less and promise less in the future. The less the project promises, the less work that needs to be proven to be completed before “graduation.”

The roadmap is therefore no longer just marketing material. If the project promises to launch the main network, increase revenue, achieve decentralization, and build some kind of function,

The future will have to answer the same question: are these jobs done? The more the team told the story during the funding, the harder it was to quit after TGE.

There is also a new set of contradictions hidden here. Buyers need sufficient information to determine whether the value of the project is worth investing in, yet the project party is motivated to lower its promises.

so as to enter the “safe harbor” earlier. Too few disclosures make it impossible for investors to determine risk; too many promises make it difficult to graduate from the project.

A New Paradigm for Airdrop

The draft will also influence the design of airdrops and point campaigns.

The first case is a retroactive airdrop.The project did not promise to issue coins in advance; it only rewards early users after the fact.

The recipient did not pay money or provide services for this airdrop, and there was no need to trade or perform tasks after the announcement.

This type of airdrop of non-securities crypto assets could fall within the scope that the SEC has previously explained.

The second situation is a teaser credit event.The project tells users in advance to trade and buy a certain asset,

You can buy services or complete tasks in exchange for future tokens. participants paid money, services, or actions,

This type of distribution makes it easier to form investment terms and is included in the $5 million ICO exemption.

As a result, some people linked the draft to Hyperliquid's long-overdue Season 3 airdrop.

If the project only rewards past behavior after the fact, the legal relationship would be much simpler;

If the project announces credit rules in advance and then uses future tokens to attract trading volume, credit activities will incur additional regulatory burdens.

There is no evidence that Hyperliquid knew the SEC's policy direction ahead of time; this association is still market speculation.

More importantly, the SEC itself is also seeking opinions on how the value of airdropped tokens should be calculated,

There is currently no final answer as to whether the startup exemption requires additional specific rules.

The current Regulation Crypto Assets is still a draft.

All three incumbent SEC commissioners voted in favor, but the rules are still awaiting public comment.

The “My project is cool, pay me money” ICO model is gone. In the future, how much money the project can raise will be determined by the exemption amount.

Whether the token can “graduate” depends on what the team has said to the market and what it has actually achieved.

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