Is Coinbase's Crypto Rating Board useful?

Original author: Robert Stevens

Translator: Azuma

Production: Odaily Planet Daily

The United States Securities and Exchange Commission (SEC) has filed suit against several cryptocurrency companies, alleging that these companies are suspected of issuing unregistered securities. Gladius Network is one of them. It raised nearly 13 million US dollars through an ICO at the end of 2017. The SEC believes this is a security issue. Although Gladius Network agreed to repay investors in subsequent settlement agreements. Unfortunately, the company has run out of funds and officially announced last week that it would cease operations and apply for dissolution.

In the absence of clear guidelines from the SEC, a consortium of brokers and exchanges headed by Coinbase set up a Crypto Rating Council (CRC) at the end of September in an attempt to Provide regulatory transparency where appropriate. Member companies will share some legal management costs to determine whether mainstream cryptocurrencies constitute securities.

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In October, Brian Brooks, Coinbase's chief legal officer, told Decrypt that the committee's goal is to rate most top-tier tokens based on market value, a move that will take months and several new members will join its ranks. However, since its establishment, the committee has not released more ratings results and failed to announce more membership information. A Coinbase spokesman said that the committee is clearly still running.

"Anti-reference" rating?

But the truth is (Decrypt comment), and the committee's decision is essentially meaningless. They cannot be counted as legal opinions, nor can they explain how certain conclusions were reached. For example, the committee gave EOS a pass, but then EOS became the target of SEC action.

So why form this committee?

In the words of Brooks-"The market hates uncertainty. We are trying to bring more certainty." He said that there is no doubt that developers have the ability to design projects that comply with securities laws and attract capital. This is a good thing for the members of this committee, because for these exchanges or brokers, their profits depend on the volume of cryptocurrency transactions.

The Cryptocurrency Rating Board explained its operating logic: the committee actively chooses a certain kind of token for rating without requiring input or application from another party, and then submits this to a panel of expert lawyers, which will answer dozens of questions about this attribute The issue of outstanding coins. The Commission will pass its Howie Test, a test used by the U.S. Supreme Court in a 1946 judgment (SEC v. Howey) to determine whether a particular transaction constitutes a security issue. According to Howie's test, if an asset is "invested in the funds of an ordinary enterprise" and "the expected profit comes entirely from the efforts of others", then it is a security.

The committee will assign different ratings of 1-5 to specific tokens and post these ratings on its website. The higher the score, the more obvious the security characteristics. Bitcoin's score of 1.00 means that the committee's lawyers concluded that the SEC is unlikely to consider Bitcoin as a security-this is obvious, as the SEC has said so many times. In addition, XRP has a score of 4.00, which means that the committee's lawyers believe that XRP has many securities characteristics.

But wait a minute, the SEC has not used the Commission's five-point scoring standard. In the eyes of the SEC, a single asset is either a securities or not. The commission gave EOS a score of 3.75-understandably not enough to count as securities, but it is worth considering this possibility seriously. Just a few days later, however, the rating proved useless-Block.one reached a settlement with the SEC and paid a $ 24 million fine. Of course, Block.one did not recognize EOS as a security in its official settlement statement.

Coinbase, which led the committee, also misjudged another token, and a few days after it integrated Telegram token Gram with Coinbase Custody, the SEC filed an "urgent" lawsuit against the crypto communications giant, alleging that Gram constitutes securities.

There are positive factors, but still not enough

Of course, the ratings given by the Cryptocurrency Rating Board do not actually constitute legal advice-they are just recommendations.

Although the rating committee does not seem to be playing its role, lawyer Yankun Guo said that multiple exchanges are trying to advance a consistent framework that is positive. A good lawyer will provide their own legal analysis, but may quickly sink into the market, and if the industry leader releases something, people will pay more attention.

Yankun Guo went on to say that given its impact, the committee did not do enough to explain how to give specific ratings. Although the committee generally explained how its ratings are calculated, it only provides some in-depth explanations of the ratings of certain tokens, such as Algorand (2.00 points) and Foam (3.75 points). This raises concerns about a mainstream project in the industry, privacy and payment token Dash. Fernando Guiterrez, Chief Marketing Officer, Dash Core Group, said:

"To become a truly representative body in the blockchain industry, and possibly even evolve into a self-regulatory organization, the committee should provide full transparency on how ratings are calculated."

Nonetheless, while the industry is awaiting further guidance from the SEC, the commission's ratings may be the best choice for cryptocurrency projects. Coinbase's Brooks states:

"I think ratings provide good guidance for projects that we believe can be legally conducted. The committee is trying to show the SEC an auditable, retestable way to implement the guidelines. So if this is useful for (SEC) Then it should be made public. "

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