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Why Compliance is More Important Than Ever In The Crypto Space

October 10, 2019

The rise in the popularity and growth of the blockchain has brought with it a surge of cryptocurrencies. Businesses issue these cryptocurrencies as ICOs (Initial Coin Offerings). While some, like Bitcoin, have flourished and created an abundance of wealth, many more have failed. Why? Because most of the time, ICOs are an excuse to raise funds without any promise of return or collateral. (Learn more about the dangers of ICOs here)

One of the reasons crypto has become so popular is the lack of regulation in the sector. But the SEC is trying to fix this problem. Shining a spotlight on the dangers of coin offerings, the SEC has taken steps to regulate ICOs through the creation of Regulation A+, a new category of legal fundraising that would qualify ICOs to register with and operate as official securities, thus removing the ambiguity behind crypto assets and forcing issuing companies to be accountable to investors and to the SEC.

Read More: How Blockchain Improves Safety and Efficiency in Credit Unions

How Prioritizing Compliance Acts as Insurance for Your Company

The news is full of stories about crypto companies folding or suffering due to battles with the SEC. When Kik, (a Canadian startup) ran an ICO, it was initially designated as a security. Since then, the company has been fighting that designation in court against the SEC. Recently, Kik decided to shut down its popular Kik Messenger app, despite having millions of active users and 80 designated employees (who were subsequently laid off). The decision was made to support the focused development of Kik’s cryptocurrency Kin and due to the battle with the SEC. They could no longer fund both Kik and Kin while shelling out legal fees. Other companies whose lack of compliance has come back to bite them include Airfox and Paragon Coin Inc. According to the SEC, when Paragon and Airfox launched their ICOs in 2018, they failed to register them with the regulatory body, and the coins didn’t qualify for an exemption.  

In the end, Airfox and Paragon Coin Inc agreed on a settlement with the SEC – paying a $250,000 fine each and officially making their ICO’s SEC-compliant. If future ICO issuers don’t see Paragon, Kik, and Airfox as warnings, then they’re not paying close enough attention.  

The Benefits of SEC Compliance  

From an outside perspective, ICO issuers may see SEC-compliance as a mark against them with the general public. Compliance means less anonymity for buyers and more autonomy for the agency. But the truth is, SEC compliance comes with a lot more pros than cons. SEC regulations are situated to change the perception of cryptocurrency for the better by curbing fraud and encouraging transparency. In 2018, small ticket ICO scams cost “investors” $9.1 million per day. SEC-compliance forces these would-be scammers to register and be held accountable for their actions and promises.  

The Bottom Line

It comes down to this. Crypto and blockchain are here to stay. And as with any new technology, we need to embrace new safety mechanics and regulatory practices to keep them afloat. When cars started being built with seat belts, new laws had to be enacted to guarantee that drivers would wear them. When cannabis became legal in 33 states, those states had to develop new methods to track sales and monitor operations. Crypto is no different. SEC-compliance is a natural next step for this growing industry. Because when the penalty for unsavory business practices is a fight with the SEC (including fines, jail time, and bankruptcy), most companies are going to want to play by the rules.  

Want to learn more about CERES and what we’re doing to remain above board and transparent? Contact us at info@cerescoin.io.

Read More: When a Stable Coin Isn’t Truly Stable