San Francisco-based digital asset exchanges Coinbase and Kraken are introducing a new points-based rating system that suggests whether cryptocurrencies are subject to US securities laws.
According to Coinbase’s official blog post,
“The result of the analysis is a score which makes it easy for members to synthesize the analysis across many tokens and make their own, independent business decisions about whether or how to support [or list a cryptocurrency].”
The system uses guidance provided by the US Securities and Exchange Commission (SEC). It was created by the Crypto Rating Council (CRC), an organization that lists Anchorage, Bittrex, Circle Internet Financial, Coinbase, DRW Cumberland, Genesis Trading, Grayscale Investments and Kraken as its founding members.
The CRC system aims to provide regulatory clarity on whether digital currencies like Bitcoin should be treated as securities. Its goal is to help companies analyze the legal aspects of crypto projects and to assist financial services firms that are planning to add support for certain crypto assets, but are not sure whether they comply with regulatory requirements.
The framework rates cryptocurrencies on a scale of one to five, with a rating of one assigned to assets that have very few characteristics of traditional financial instruments or do not meet any of the criteria of a security. A rating of five means that the asset is most likely a security.
Coinbase’s management clarifies that the Council’s ratings are determined independently.
“The [ratings] are not endorsed by the SEC, Commodity Futures Trading Commission (CFTC), or any government agency, developer team, or other third party, and they are not legal advice.”
Although the Council may seek feedback from development teams, crypto project developers have no influence over the analysis process and the majority of the ratings have been assigned without obtaining information directly from developers, the announcement states.
Bitcoin (BTC), Litecoin (LTC) and Monero (XMR) are least likely to be subjected to securities laws, the rating framework suggests. The Ripple-associated XRP token appears to fit the criteria of a financial security, according to the rating system.
1 – least likely to be a security 5 – likely to be a security
- Algorand (ALGO) – 2.00
- Augur (REP) – 3.75
- Bitcoin (BTC) – 1.0
- Chainlink (LINK) – 2.0
- Dai (DAI) – 1.0
- Decentraland (MANA) – 3.75
- EOS (EOS) – 3.75
- Ethereum (ETH) – 2.0
- FOAM (FOAM) – 3.75
- Hedera Hashgraph (HBAR) – 3.75
- Litecoin (LTC) – 1.0
- Loom Network (LOOM) – 3.75
- Maker (MKR) – 4.5
- Monero (XMR) – 1.0
- Numeraire (NMR) – 2.0
- Polymath (POLY) – 4.50
- Stellar (XLM) – 3.75
- Tezos (XTZ) – 3.75
- XRP (XRP) – 4.00
- Zcash (ZEC) – 2.00
Source: CRC Ratings
Coinbase notes in the announcement,
“We expect that some ratings will change over time and we will accept and consider feedback from asset issuers when they want to share additional information or clarifications that may impact an asset’s rating.”