ICO Regulations By SEC After The DAO
According to the SEC, starting from July 25, all digital funds trading activities proceeded by “virtual” foundations must satisfy the restrictions of the federal securities laws.
The recently created ICO (Initial Coin Offering) has also been added to the list of trading activities performed by startups using decentralized blockchain-powered technologies. The report demands from all blockchain users to register their sales activities for the mentioned securities unless an official relieve is applicable. This technically means that The DAO tokens also fall under the category of registered tokens and thus must be supported by the regulator.
The DAO was founded as a decentralized investor-directed venture capital fund on the basis of Ethereum. By April 2016, the project could raise $150 millions in ETH, while the number of investors exceeded 11 thousand. Unfortunately, in June 2016, it was attacked by hackers who managed to steal about 40% of all funds. A lot of people ended up with nothing thereafter.
Some time before the hacking attack, ICO as a fundraising process was sharply criticized and accused of being an unreliable and irregular way to attract money without taking any responsibility. After the incident, the law implementation by the SEC became just a matter of time.
The SEC law resulted in the fall of several top cryptocurrencies. Though, the decrease was not significant and the coins recovered. The reaction of the crypto community on the issue was different. Some stated that the decentralization paradigm is compromised, while others were excited that a sort of regulation had been finally implemented.
The SEC forced companies to get register but there were exceptions. For instance, if a token is not considered as an asset but can be used as an utility mean, the project issuing the coins is not obliged to officially register with the SEC, because such implementation does not fall under the “investment” category.
Moreover, an increased legitimacy is provided to companies after the registration is complete. Since the SEC is official regulatory institution, any registered company shows that its intentions are serious. Many blockchain projects have been already viewed by the SEC specialists to prevent Ponzi schemes.
Another consequence is a decreasing number of startups. Some development teams are not always able to satisfy the SEC regulation regardless of the quality of their idea.