The popular analyst known for his deep dive research explores how the upcoming regulation will affect the crypto industry.
In a recent strategy session, the host of the Coin Bureau is known as Guy tell 2.09 million YouTube subscribers on the factors that the US Securities and Exchange Commission (SEC) can use to determine whether a digital asset should be classified as a security.
The first guy mentions new lawsuit to a former Coinbase product manager alleging insider trading.
“Based on the SEC’s recent complaint, the following criteria may put crypto projects at risk of regulatory violations.
First, it is based in the United States. Five of the nine cryptocurrencies that the SEC has classified as securities are based in the US which makes them accessible to regulators.
This makes sense, since one of the main motivations of the SEC is arguably to extract money from the crypto industry in the form of fines. Fines are easier to impose on domestic entities.
Analysts also believe that crypto projects involved in initial coin offerings (ICOs) are likely to face government scrutiny.
“Doing ICOs, especially ICOs where the founders and or teams hold back a significant amount of the initial or future supply of tokens.
This isn’t a bad thing, as many will know that the team’s control of a large supply of tokens is a point of centralization that should be considered a red flag in your efforts.
Guy said projects that go public before completion may be viewed as potential targets by the SEC, but noted the potential Catch-22 situation for project developers seeking financing after doing all the work.
“An incomplete platform or protocol – it’s clear that the SEC doesn’t like crypto projects raising money before anything happens. But if everything is built there’s less reason to raise money.
So, it will be interesting to see what the SEC thinks about retroactive public good funding where crypto companies and developers are paid by the crypto community long after the crypto project has finished.
A fourth red flag on Guy’s radar is team members making public statements about a project’s potential to increase value.
“Any statement made by a company or team that may suggest that a coin or token may appreciate in price at some point in the future.
This includes social media posts, blog posts, and especially what is said in whitepapers. Even a retweet is enough to attract the attention of the SEC.
That’s why it’s so important to watch interviews with founders as part of your research.
Another area of concern is projects that claim to run democratically through decentralized autonomous organizations (DAOs) that are actually dependent on or influenced by a small percentage of members who hold a disproportionate amount of tokens.
“The involvement of centralized entities in the development and management of the project, directly or indirectly through the voting power in the DAO, even if the team does not have the majority voting power in the DAO. The team or the company should not be mentioned in the whitepaper either.
If I am right about this criterion, then many crypto projects are at risk because Chainalysis recently discovered that the voting power in most DAOs is highly concentrated among a few token holders.
The last regulatory vulnerability on Guy’s radar affects liquidity mining in the decentralized finance (DeFi) space. He noted that DFX Finance (DFX) the explicit term of the project seems to have caused the SEC to designate it as a security protocol, loan and debt Aave (AAVE) can avoid strict regulatory action.
“Token issuance is part of the liquidity mining program. This last criterion is unclear, and may be unique to DFX Finance because the team is clear about the future appreciation of DFX tokens if people provide liquidity for the protocol.
As long as this is not advertised by the DeFi protocol with a liquidity mining program, it may be safe from the SEC but based on the comments of SEC Commissioner Hester Peirce.
Only the most decentralized DeFi protocols will survive the SEC attack. An example of this could be a project like Aave.
The man broke up talk Aave during an in-depth analysis of the DeFi space.
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