In our last community update, we provided insights around token sales and project execution, Current’s operating runway, YTD expenditures and projections, executive compensation, and development progress. This post will follow up with our assessment of where the cryptocurrency industry stands from a regulatory perspective. We discuss all of the considerations that have made an impact on our token distribution, what remains, and how we’re navigating the uncharted territory moving forward. Our next post will cover an in-depth look at our product roadmap over the next 12–24 months, along with our execution plans for key milestones.

In our eyes, two main requirements need to be satisfied ahead of token unlocking:

Additional clarity around regulatory guidelines on the token generation event and proposed usage within future integrated platforms. Strong underlying token economics with a stable source of organic demand within our ecosystem.

The main focus of this article will be to address the first requirement, and while we will touch on the second, a subsequent post (to be published by the end of the month) will go further in depth of what that looks like.

With that being said, let’s dive right in.

The most significant issue faced by blockchain and cryptocurrency companies while operating within the United States is the regulatory ambiguity around their token. The big questions in the eyes of regulators include:

Are these tokens securities, commodities, utilities, property, or currency? Who has jurisdiction in regulating them? The SEC, CFTC, FinCEN, FTC, IRS, State Regulators, or others? Is it one, two or a combination of these agencies?

While one might say, “Why don’t projects just avoid the United States and run their token sale elsewhere?” The fact of the matter is that as soon as a single U.S. citizen gains ownership of a digital asset, the tokens become subject to U.S. laws and regulations. Similar considerations exist for the majority of prominent jurisdictions around the world. However, all have a slightly different, unique set of standards relating to cryptocurrencies that make the process even more complicated.

In the United States, and around the world, most companies launching token sales have adopted a contract called a SAFT or Simple Agreement For Future Tokens. A SAFT by its very nature is a security instrument and an investment contract. Thus anyone who conducts a token sale with a SAFT or any agreement similar to it must abide by security laws in their respective jurisdictions. This matches the narrative set by the SEC when they publicly announced that there have yet to be any ICOs that weren’t securities.

Considering this, the next logical question would be when does a token no longer get treated as a security, such as in the case of Ether, who initially did an ICO to launch their network? While at the heart of this matter, it seems like a relatively simple question, the implications of the answer can lead to severe consequences for companies operating in the space. Despite these difficulties, the very fact that the SEC announced it no longer considers Ether a security is promising for the road ahead.

Historically, institutions have used “The Howey Test” to determine whether or not any particular offering should be considered a security. A particular “investment contract” is deemed a security if it meets all the following conditions:

It is an investment of money

There are expectations of profits from the investment

It’s an investment of money in a common enterprise

Any profit comes from the efforts of a promoter or third party

As you can see, this is a fairly broad definition, and many tokens that you might consider to be “utility tokens” still satisfy all of the requirements to be a security, at least initially. So the question becomes, “how do we distinguish the two?”

One school of thought is that only when a token has proven utility within an ecosystem the company has built, outside of being an investment vehicle, is the token able to be considered a utility token. Under this definition, many distributed utility tokens would still be considered securities as they haven’t proven utility. On the other hand, using this same definition, companies that have provided clear utility, as in the case of the Basic Attention Token, would be classified as a utility token and not a security or digital currency. To be clear, there has yet to be an official statement from any regulatory body confirming this notion.

It is important to note; there have been other well thought out proposed treatments for these digital assets, one we found interesting was published earlier this year by the Digital Token Alliance. As background, The Token Alliance is made up of more than 350 members including a previous SEC Chairman, Paul Atiks, top law firms, ex-CEO of NYSE, top U.S. based exchanges, top companies and institutions in and out of blockchain, including Accenture, Bitpay, Bittrex, Bloq, Cisco, Civic, CoinList, Deloitte, Discover, Dragonchain, Golem, IBM, KPMG, Microsoft, NASDAQ, Overstock, Polymath, PWC, Ripple, RSK, Smith + Crown, tZero, Wanchain, and many more.

One thing is for certain though, until there is more clear regulatory guidance, all projects have a responsibility to self-regulate to the highest standards. At Current, we do so under stringent rules crafted using existing securities laws as the basis.

In order to demonstrate this to our backers, we wanted to take a moment to give the community a peek at a few of the standards we’ve adopted around the topic at hand. Over time, we intend on releasing a full set of guidelines.

If accepting funds from U.S. participants, token offerings must only involve accredited investors when working within the U.S. physical or digital space.

Remain compliant with Regulation D Rule 506(c)/(b), Regulation CF, and Regulation S for International backers

Take proactive steps and issue communications/guidance to reduce the likelihood of backers losing funds due to a lack of clarity of the project’s internal operations. Our last post was crafted with this in mind.

was crafted with this in mind. Go above and beyond to act in the best interest of clients and backers.

Create a method/portal to promote the complaint distribution and trading of tokens within existing securities laws, until new frameworks are introduced or we can work directly with licensed exchanges.

We’re not alone in our efforts as many other companies in the blockchain space are contributing their own ideas that will help pave the way for clear legislation regarding digital assets. Coinbase, for example, recently published an update to their digital asset framework which provides proactive guidelines for those operating in the space and offers critical insights for those that wish to be listed compliantly on their platform.

Aside from the regulatory considerations and their effect on token distribution, there is another major factor that plays into our decision making.

Healthy Underlying Token Economics

Specifically, before we unlock our token, we want to ensure that stable token economics exist within our ecosystem. This means the token’s use case goes beyond small-scale consumer deposits and redemptions for premium services alone. We will go more in depth on how we envision this occurring and what success looks like in our next article coming out later this month.

We believe a new standard in the industry must be embraced. This means a less corrupt and manipulated space that focuses more on underlying asset value than unregulated pump-and-dump hype cycles. Current’s mission remains to build the first blockchain-enabled media network that rewards users around the world for their time, data, and attention. While doing so, we are committed to maintaining transparency throughout this journey.

The only path forward is to do what we’re doing — consistently going above and beyond what is standard in the blockchain industry for security, compliance, and backer protections. Looking around at our peers, it’s clear to see that we aren’t the only ones walking this difficult path. Major projects like Filecoin, Blockstack, Props, Origin, TrustToken and several others all have held off on releasing their token due to what we attribute as similar concerns. We are proud to stand with these companies as we set a precedent for future companies to follow.

We have been working tirelessly to do right by our supporters, and we look forward to the continued opportunity to show it!

If you have any feedback or ideas, don’t hesitate to hit us up on any of our social channels, as it will be sure to drive what we write about going forward. Additionally, if you’d like the chance to have a question answered by Dan in an upcoming AMA, you can submit questions through this Google Form.

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