By
Chimamanda U. Martha
April 19th, 2024
The rocky operation of crypto firms could soon end after Coinbase fronted seven firms to help other companies avoid security violation.
Over the years, crypto firms have found themselves on the wrong side of the law for failing to meet securities rules. As a result, industry leaders are incorporating the initiative to help companies avoid such messes. Coinbase through its official blog post revealed it has co-founded the Crypto Rating Council, a member organization intended with helping cryptocurrency firms decide if they adhere to stipulated U.S federal securities law.
Coinbase’s initiative is backed up by seven other companies: Kraken, Grayscale Investment, Genesis, DRW Cumberland, Circle, Bittrex, and Anchorage.
As part of the support, the council will provide a 1-5 rating for a particular token’s or cryptocurrency’s similarity to security. The numbering represents the strength of the rating system. For instance, a 1 represents a crypto asset with minimal operational similarities to security. And the trend increases gradually up to a 5 that would be consistent with the illustration of security.
Currently, the council has ranked 20 crypto assets, with Bitcoin (BTC) ranked 1 due to its top cryptocurrency by market cap. Others that landed the position of 4 or 4.5 include XRP, Maker (MKR) and Polymath (POLY) respectively.
The Crypto Rating Council mentioned that the rating system-that it emphasizes isn’t investment advice since it is focused on outdated past case law and SEC guidance, and the technical and legal experience of the companies compiling up the group.
Complicated Rules
Kristin Smith of the Blockchain Association revealed that Coinbase initially fronted the initiative. According to Smith:
“It’s an effort by the industry to comply with the incredibly complex [U.S.] securities laws.”
At the moment, only cryptos listed by exchanges involved in the council have been ranked and released, with more still expected. Assets that get a 5 may never be revealed by the Council. All assessments of the assets are responsible for the improvement, as cautioned by the Coinbase blog.
Brian Brooks, Chief Legal Officer of Coinbase later revealed that the Council wouldn’t uncover 5 ratings, because member exchanges wouldn’t service these assets.
Brook went ahead to say that:
“Since a 5 rating indicates that the asset can only be listed on a registered securities exchange or ATS, by definition those ratings wouldn’t be published because the relevant assets aren’t listed by any member.”
If council members later get a go-ahead to manage ATS systems by regulators such as FINRA, that may shift, he added.
However, Binance CEO Changpeng “CZ” Zhao was skeptical of the latest rating system, posting on Twitter:
https://twitter.com/cz_binance/status/1178644980035833856
The formation of the council surfaces at a time of Ripple‘s motion to abandon a lawsuit of its XRP cryptocurrency. Ripple mentions in its filing that XRP isn’t a security, though this wasn’t a primary concern in its motion to abandon.