There has been some buzz around a new crypto bill that is set to be introduced on 7th. Some reports say it will classify most tokens as securities.
So I decided to give it a read just to see what the bill contains…
First of all, it is utter nonsense that the bill is a death blow for ICO coins. The bill creates a new classification of “ANCILLARY ASSETS” as part of digital assets.
Then, it creates an exclusion for ancillary assets, as long as the company issuing them makes certain disclosures. For instance, the issuer has to disclose the details of everyone holding >10% of the token.
Under the heading “TITLE III—RESPONSIBLE SECURITIES INNOVATION”, ancillary asset is defined as :
The term ‘ancillary asset’— “(i) means an intangible asset that is offered, sold, or otherwise provided to a person in connection with the purchase and sale of a security through an arrangement or scheme that constitutes an investment contract, as that term isused in section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)); and “(ii) may include a digital asset, as defined in section 9801 of title 31, United States Code, that is used to facilitate the governance of a distributed ledger technology network or decentralized autonomous organization. “(B) EXCLUSION.—Except as provided in subparagraph (A)(ii), the term ‘ancillary asset’ does not include an asset that provides the holder of the asset with any of the following rights in a business entity: “(i) Voting rights with respect to that entity. “(ii) Rights to interest, dividend payments, or profits with respect to that entity. “(iii) A debt or equity interest in that entity. “(iv) Liquidation rights with respect to that entity
The definition of ancillary asset includes all ICOs which are investment contracts.
Further the bill creates an EXEMPTION for this ancillary asset from securities laws provided the ancillary asset issuer makes certain disclosures.
“(4) TREATMENT OF ANCILLARY ASSETS.— “(A) IN GENERAL.—Notwithstanding any other provision of law, if an issuer issues a security through an arrangement or scheme that constitutes an investment contract, as that term is used in section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)), is subject to paragraph (1), (2), or (3), and is in compliance with the periodic disclosure requirements under subsection (c), an ancillary asset provided directly or indirectly by the issuer shall be presumed not to be a security under— “(i) section 3(a); “(ii) such section 2(a)(1); “(iii) section 2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a–2(a)); “(iv) section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)); or “(v) any applicable provision of State law.
This means, if an issuer runs an ICO and raises funds via a standard methods like SAFTs and issues a “security” token, that token is not to be treated as a security as long as the issuer fulfils some reporting disclosures (like who owns >10% of the asset, finances of the company etc..)
This seems to be a massive greenlight for ICOs and SAFTs in general as long as they abide by consumer protection disclosures.
Bill draft also describes DAO
SEC. 204. DECENTRALIZED AUTONOMOUS ORGANIZATIONS.
(C) DECENTRALIZED AUTONOMOUS ORGANIZATION.—The term ‘decentralized autonomous organization’ means an organization— “(i) which utilizes smart contracts (as defined in section 9801 of title 31, United States Code) to effectuate collective action for a business, commercial, charitable, or similar entity, “(ii) governance of which is achieved primarily on a distributed basis, and “(iii) which is properly incorporated or organized under the laws of a State or foreign jurisdiction as a decentralized autonomous organization or any similar entity.”.
Few reports say the bill will result in most cryptos being labelled as securities. From the above sections of the bill, it seems the opposite is happening.