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Former federal officials are banding together with blockchain industry giants to recommend policy and legal guidelines for digital tokens used in initial coin offerings.
The Chamber of Digital Commerce, the blockchain industry’s largest trade organization, Sept. 18 announced the formation of the Token Alliance, which will include Microsoft Corp. and Cognizant Technology Solutions Corp., among other companies, as well as law firms, including Perkins Coie LLP and Reed Smith LLP. Former U.S. Commodity Futures Trading Commission Chairman Jim Newsome and former U.S. Securities and Exchange Commissioner Paul Atkins will co-chair the group.
The alliance will provide policy recommendations as well as resources for companies issuing tokens and their potential investors, the chamber said. In recent months, more companies have been selling tokens or coins as a new form of fundraising, also called initial coin offerings, or ICOs. Similar to initial public offerings that sell stock, individuals and companies sell coins or tokens that can represent equity shares, currencies, or be redeemed for a good or service.
More than 100 token sales have attracted $1.5 billion in venture capital in 2017, according to the chamber’s data. The soaring valuations of these issuances have also attracted a new wave of global regulatory scrutiny. China banned ICOs Sept. 4 after concerns about illegal offerings. Since July, the SEC, Britain’s Financial Conduct Authority, and government regulators in other countries have issued warnings to investors and buyers about risky and fraudulent ICOs.
“You can think of all the nightmare scenarios of people doing a big offering and running for the hills—running for the hills in Brazil and you never find them again, and investors are left in the lurch,” Atkins, currently the CEO of Patomak Global Partners, told Bloomberg BNA.
Atkins said investors and token issuers can have trouble distinguishing whether a new digital asset is a security, depending on how it is used. The alliance will lay out guidance to help consumers and companies better understand how their token should be classified, he said.
Plans call for the alliance to work with more than 70 token industry players, law firms, and stakeholders to recommend legal frameworks that protect investors while promoting the blockchain industry, Perianne Boring, the chamber’s founder and president, told Bloomberg BNA. The aim is to get consumers and issuers up to speed on the value of the technology and digital assets, train them on how to participate in token sales, help them understand the risks, and monitor the market for bad actors, she said.
It’s hoped those educational efforts will help grow the larger blockchain ecosystem and allow for legitimate companies to take advantage of the new market, she said.
“There are a lot of young groups out there that see that this is a pretty effective way to raise real money,” Boring told Bloomberg BNA. “The risk is for bad actors to take advantage of this while we’re still in the early days and the industry hasn’t been able to put together best practices.”
Atkins said the alliance will begin working in a pro-innovation regulatory environment in the U.S. The Trump administration’s new appointments at the SEC and banking agencies will “be very open to new approaches and technologies,” he said.
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