Regulatory concerns have been a perennial thorn in the side of crypto’s mainstream push. The categorization of a token under law significantly dictates licensing, registration, and operating obligations for entities that offer cryptocurrency services like trading, exchange, and investment management.
The Crypto Rating Council seeks to address the concerns of potential investors and people who are looking to understand crypto alike. Even though the U.S. SEC (Securities and Exchange Council) has imparted generic guidelines, the determination of a cryptocurrency asset’s security status inevitably needs rigorous analysis by tech and security law subject matter experts. This analysis is complicated and costs a lot of money to carry out. Even worse, it may include judgment calls. This can cause disagreement among legal experts and even government officials.
To mitigate these concerns, Coinbase, in conjunction with several crypto-industry leaders, has devised a scalable, point-based rating system built around a group of factual, yes/no questions. These questions cut to the chase and are designed based on case law and SEC guidance; the intention is to provide insight on the characteristics that inform on the security status of an asset.
The framework is focused on the objective, repeating, fact-centered questions that can be consistently answered by technical experts across various assets over time. The outcome of this analysis is a score that facilitates autonomous business decisions on if or how to support a digital asset.
The Crypto Rating Council (as the group has been christened) is the brainchild of the following companies. These companies range from digital asset trading platforms to trading firms, to digital custodians.
- DRW Cumberland
- Grayscale Investments
Ratings propagated by the council are the outcome of a rational analysis conducted by external legal experts in unison with tech experts at member firms. The council’s framework is then utilized by these legal experts to determine a rating for each asset that is being reviewed, usually via in-house lawyers, member firms deliberate and vote on whether to authorize the rating. Council ratings are, therefore, a result of this calculated and analytical process. The council’s member organizations are expected to increase in number over time.
Crypto Asset Ratings
The Crypto Council’s analytical framework furnishes scores for crypto assets that range from 1 to 5. The lowest score, 1, indicates that the analysis carried out by the council’s analytical framework suggests that the digital asset has very little or no characteristics that correlate it with traditional regulated security.
Conversely, the high score of 5 qualifies the asset as being consistent with several traits that make it qualify as a security. The Council will publicize scores for assets that members endorse or use in the routine course of their businesses. Ratings are bound to fluctuate over the course of time, and feedback from asset issuers regarding supplemental information that may impact an asset’s rating will be evaluated.
The Council’s Ratings are carried out independently. They are not endorsed by any state entity, or third party, and they do not qualify as legal advice. Notwithstanding developmental team input, developers do not have sway over the course of the analysis – as it is, a large majority of the council’s ratings have been determined without any input from developmental teams.
Expect the council to gain additional members, publish more ratings, and review more assets over the course of the next few months. The Crypto Council is currently relevant to the U.S. region, and non-U.S. jurisdictions may be added to the Council’s purview in the future.