Regulation has been a hard topic in the crypto space as of late. Despite the push for it, however, it has arrived at a rather slow pace, and many major companies and exchanges within the crypto arena are looking to themselves to potentially enhance the safety of their operations. Some of these companies include Coinbase in the U.S., along with DRW Cumberland, Kraken and Grayscale.
Coinbase and Others Take Security Into Their Own Hands
One of the primary things these ventures are looking at is the properties of all future coins they’re considering for their exchange listings. They’ve developed a new, numerical rating system that they’ll utilize to decide which coins should be listed and which should not. One of the main concerns is deciding whether certain coins rank as securities or not.
In a blog post, Coinbase explains that the system uses several questions that come directly from the Securities and Exchange Commission (SEC). It further explains:
We also worked hard to focus our framework on objective, repeatable, fact-driven questions that can be answered consistently by technical experts across different assets and over time. The result of the analysis is a score which makes it easy for members to synthesize the analysis across many tokens and make their own, independent business decisions about whether or how to support an asset.
All coins will be given a score between one and five, with one being the best (meaning it shares little to no similarities to securities). The blog post continues to say:
We expect that some ratings will change over time and we will accept and consider feedback from asset issuers when they want to share additional information or clarifications that may impact an asset’s rating.
What Is a Security and What Isn’t?
The fear of listing a security is a valid one. This is a fight that has gone back to the earliest days of Ethereum. The currency was originally offered through a system similar with an initial coin offering (ICO), which would have caused Ethereum to start off as a security. However, many argued that while this may have been the origin for the world’s second-largest cryptocurrency by market cap, it has changed so much since then that it is now a decentralized coin similar with bitcoin and other digital assets.
It was announced in mid-2018 that Ethereum could no longer be classified as a security. Unfortunately, many feel the same rule cannot apply to Ripple’s XRP, which at press time, is still largely owned by Ripple executives, arguably making it a centralized asset. In addition, there is a class-action lawsuit surrounding Ripple at the time of writing brought forth by several investors who say they were duped or lied to regarding Ripple’s status as a potential non-security.