Crypto Firms Led By Coinbase Form Cryptoasset Rating Council

October 2, 2019 / by Crypto.IQ

Leaders in the crypto industry have taken the initiative of assisting industry firms to avoid violation of securities rules.

Coinbase has indicated that it was among the companies that founded the member-only Crypto Rating Council. The council aims to assist crypto firms to establish if they are complying with the current US securities laws. Other firms that joined Coinbase include Bittrex, Anchorage, Grayscale Investments, DRW Cumberland, Circle Poloniex, Kraken, as well as Genesis. 

The system is point-based and it determines whether a digital token is under the US federal securities laws based on guidance from the SEC. Under the council’s rating, a digital token will receive a rating of 1-5 depending on its similarity to a security. A cryptocurrency receives a rating of 1 if the functional similarities are less distinct to securities. A rating of 5 is most like a security and it is consistent with the definition of a security. 

Coinbase indicated that the result of the rating is to get a score that simplifies things for crypto users. This will help investors after analyzing most tokens in deciding on how and whether it is sound to support a given asset. So far 20 digital assets have received a rating of 1 along with Bitcoin, while XRP, Polymath (POLY) and Maker (MKR) landed scores of 4 to 4.5.

The council has indicated that the rating is not investment advice. It depends on previous US SEC guidance, as well as the technical and legal experience of the founding companies. However, the rating system provides insight into the uncertainty that has surrounded the industry for quite some time. It solves the issue of whether digital currencies are securities that should be subject to laws and regulations governing securities. There has been speculative investing in the industry which has increased concerns regarding possible risks in trading.

According to Kristin Smith of the Blockchain Association, the initiative was the idea of Coinbase. The aim was to ensure crypto firms comply with the complex US federal securities laws. The council has rated only coins listed by exchanges being part of the council. Smith indicates that the council cannot disclose digital asserts with a rating of 5 because assets’ assessments could change.

Binance CEO Changpeng Zhao was however skeptical about the rating system. In a Twitter post, Zhao said he hoped Ripple wasn’t part of the council. He added that those scoring above 2 should form their on council to re-rate everything once more.