On August 17, 2017, ShapeShift released a statement detailing its hands-on approach to securities compliance. Using the Howey Test, the company’s counsel will conduct a review to determine which tokens offered on the ShapeShift platform may fall under the jurisdiction of the Securities and Exchange Commission (SEC).
“We will need to adapt our service offering to ensure it’s not mischaracterized as a ‘securities exchange,’” explains Emily from ShapeShift. “To err on the side of caution, we may need to halt our inscriptions to certain blockchains. This means that we may need to delist some types of tokens from the platform, which is unfortunate for our users who have enjoyed the ability to participate in these experimental and innovative technologies.”
Based on the assessment of ShapeShift’s counsel, specific tokens might be removed from the service for US consumers. It appears that the review will have no bearing on ShapeShift customers outside of the United States. The company also announced that it will “consider the application of the Howey test to all new tokens we list.” This forward-thinking approach should help ShapeShift avoid future legal entanglements with the SEC.
Late last month, the SEC issued guidance on The DAO, determining that its tokens would have been considered securities under the Howey Test. The SEC did not pursue any legal action in the matter, but the agency’s announcement immediately piqued the interest of the crypto community and sparked some confusion. The question on everybody’s mind was this: which other tokens might be classified as securities?
“Many tokens do not fit into traditional definitions,” contends ShapeShift.
“At their most fundamental level, tokens (a colloquial term for blockchain ledger entries) are speech: they are inscriptions of meaningful information into a communal record. How specific ledger entries become defined by various parties beyond that, and how those definitions are reconciled within legacy systems, remains to be seen. We expect new definitions will emerge as society comes to understand the power and diversity of this technology.”
As the crypto community grows and applications arise, our terminology and regulatory systems must evolve.