Death of the ICO?
What the SEC Report on DAO Really Means
— Michael Safai
Note: this full version of this article is now on the Sangus blog. Read it in its entirety here.
Just last week, Charles Hoskinson (former CEO of Ethereum) was quoted saying that ICOs were “a ticking time-bomb.” Prescient as that remark was, I’m not sure he knew it would go off so soon, or that the SEC would be pressing the detonator.
For the past 24 hours the cryptocurrency community has been scrambling to interpret the SEC report of investigation into the DAO (Decentralized Autonomous Organization) initial coin offering, or ICO. The main takeaway from the report is that DAO tokens were, in fact, securities under US law. This is a big deal because securities are subject to onerous legal requirements, which will deter or outright stop many enterprises from fundraising through an ICO.
Media websites and blogs are now teeming with clickbait headlines shouting “Tokens are Securities.” But that’s not actually true. The SEC has yet to issue any regulations regarding tokens, and certainly has not deemed all tokens to be securities. Instead, the findings of the report are limited to the specific facts of the DAO ICO. While we now know that DAO tokens are securities, that does not mean we should assume all tokens are securities.
So where does that leave us? Is it possible to create a token that is not a security and conduct an ICO without SEC registration? Let’s dig through the SEC’s DAO report and see what conclusions we can distill.