Federal Regulators

One of the most challenging aspects of formulating a regulatory strategy in this space is the ambiguous official guidance on the topic. While some countries have taken great strides toward reducing the risk of playing in this space, with regulatory sandboxes like those adopted by Canada and Malta, regulators in the US, where we’re based, have not yet given a lot of clear guidance. Thus, we are left to our own devices in discerning the intent of each agency on a case-by-case basis, as outlined below.

By U.S. Government [Public domain], via Wikimedia Commons

Securities and Exchange Commission (SEC)

[Update 12/12/17]

Just days after releasing this article, SEC Chairman Jay Clayton released a statement that offered some clarification around the thinking of senior leaders in the SEC with respect to cryptocurrencies and “Initial Coin Offerings”. We find much of his statement encouraging and feel that in large part, it confirms our analysis below.

[/Update]

There are a handful of actions from the SEC that we can use to extrapolate the agency’s potential future actions, but on the whole, there is simply not much to go by. Some of the relevant sources include:

Based on these actions, it’s clear that the SEC has little patience for unregistered tokens that may be considered a security (especially those that are allegedly outright scams or that run afoul of “anti-touting” laws.) Note that the SEC has not yet taken retroactive enforcement actions on issuers or exchanges.

By U.S. Government [Public domain], via Wikimedia Commons

Commodity Futures Trading Commission (CFTC)

The CFTC, which regulates trading of derivatives in the US, seems to be a bit more crypto-friendly, as it recently approved the trading of derivatives based on bitcoin. While we think this is a step in the right direction, the CME (Chicago Mercantile Exchange Inc.) and CBOE (Chicago Board Options Exchange) are centralized exchanges — it remains to be seen how the CFTC will react to decentralized, non-custodial derivatives on cryptoassets, like those we plan to offer.

By U.S. Government [Public domain], via Wikimedia Commons

Federal Trade Commission (FTC)

The FTC has had dealings in the crypto space, including taking actions against sellers of mining rigs, publishing opinions on the use of crypto for payments, and suing app developers who allegedly surreptitiously mined crypto on users’ phones. While we think it’s unlikely that the FTC would have an issue with our operations, it’s not entirely outside the realm of possibility. Encouragingly, the FTC holds open forums to discuss innovation in this space and takes a stance of wanting to “keep consumers protected while encouraging innovation for consumers’ benefit”. We think ERC dEX does exactly that.

By U.S. Government [Public Domain], via Wikimedia Commons

US Treasury

The US Financial Crimes Enforcement Network (“FinCEN”) is a department within Treasury that is concerned with money transmission. FinCEN has demonstrated its willingness to take significant enforcement actions against exchanges that it believes run afoul of US Anti-Money Laundering laws. Perhaps encouragingly, Treasury’s Office of Inspector General has recently said it will review FinCEN’s current thinking and procedures with respect to cryptocurrency.