Demystifying SEC Coins: A Beginner’s Guide to Compliant Crypto Assets
A new category of cryptocurrencies called SEC coins are emerging that are registered and compliant with SEC regulations. These SEC-approved digital assets aim to bring more legitimacy and institutional investment to the crypto space.
This beginner’s guide will explain everything you need to know about SEC coins – what they are, their benefits and drawbacks, the SEC approval process, major examples, and the future outlook for these regulated tokens.
What Are SEC Coins and Security Tokens?
SEC coins refer to cryptocurrencies that have been approved by the United States Securities and Exchange Commission. They meet the standards and disclosure requirements defined by the SEC for investor protection.
These crypto assets are part of a broader category called security tokens. A security token represents an investment contract, meaning contributors expect to earn profits based on the efforts of the issuing company. Just like shareholders benefit from a stock increasing in value.
Other well-known types of securities include stocks, bonds, funds, and real estate investment trusts (REITs). By registering with the SEC, security tokens take an approach similar to these traditional assets.
Some examples of existing SEC coins include:
- Blockstack (STX) – Decentralized computing network and app ecosystem.
- Props (PROPS) – Reward tokens used on the YouNow streaming platform.
- INX (INX) – Tokens issued by INX Limited for raising capital to launch a crypto exchange.
Many see SEC coins as the natural evolution of 2017’s ICO boom, providing compliant offerings for investors compared to the “wild west” state of many ICOs.
Key Benefits SEC Coins Offer Investors
Obtaining SEC approval brings significant benefits that inspire confidence in investors and institutions looking at crypto assets:
- Increased transparency – Mandatory disclosures around company financials, token economics, roadmap, and more.
- Strict auditing and reporting – Regular attestations that funds are used properly and as claimed.
- Reduced scams/fraud – SEC investigation and registration minimizes deceitful projects.
- Perceived legitimacy – SEC approval signals a credible asset and company.
- Easier exchange listing – Major regulated exchanges prefer SEC coins over unregistered tokens.
- Institutional access – Approval opens up investment from hedge funds, banks, and regulated entities.
These protections give investors more confidence in SEC coins versus assets in the “wild west” like many altcoins. However, SEC alignment also comes with drawbacks.
Downsides and Tradeoffs of Developing an SEC Coin
Despite their benefits, SEC coin creators also face challenges like:
- High legal/compliance costs – Registration requires lawyers, consultants, audits, and filings which can cost $1 million+.
- Slower development – The SEC approval process causes delays measured in months or years.
- Less token flexibility – SEC regulations limit changing economics, features, and roadmap later on.
- Jurisdictional issues – Non-US investors may be excluded from SEC coin offerings.
- Ongoing disclosure – Regular reporting requirements even post-approval.
Teams must determine if the benefits of SEC legitimacy outweigh the slower pace and reduced flexibility. For many, satisfying US investor demand makes it worthwhile.
How SEC Coins Differ from Utility Tokens
SEC coins contrast sharply with utility tokens that power many blockchain networks:
- Utility tokens act like redeemable coupons used to access network services. Backers are not looking for investment gains.
- SEC coins are designed as investable assets. Investors expect profits based on the issuer’s efforts.
- Utility tokens remain free of SEC regulation if properly structured.
- SEC coins purposefully embrace SEC oversight.
While utility tokens prioritize network functionality, SEC coins focus on providing compliant investment vehicles akin to securities.
Navigating the SEC Approval Process
Registering a new crypto token with the SEC is a lengthy legal undertaking. Here are the key steps:
- Filing a Form D – Required to make a public securities offering under SEC Regulation D.
- Performing a private placement – Accredited investors can invest ahead of public sale.
- Establishing compliant policies – Like KYC, antimoney laundering procedures, cybersecurity, etc.
- Ongoing disclosures – Providing financial statements and other disclosures as outlined under Regulation A+.
- Responding to any SEC inquiries – Common to receive questions that require well-formulated responses.
- Obtaining SEC qualification – Finally receive formal approval after back and forth.
This process can easily take 6-12 months and over $1 million including legal fees. Hiring competent lawyers with securities law expertise is essential to see it through.
While arduous, many deem the process worthwhile for establishing a legitimate cryptoasset.
Notable SEC Coins to Watch
The most significant SEC coins to monitor include:
One of the earliest and most successful SEC coins. The Blockstack decentralized computing network holds over 350 apps in its ecosystem including blockchain-based social media platforms.
Over 165,000 verified developers use Blockstack to build censorship-resistant dApps. The SEC coin provides access to this innovative network.
Issued by INX Limited, these tokens raised over $85 million from 7,000+ investors to launch a regulated cryptocurrency exchange. INX applied security token best practices like built-in AML, KYC, and transaction surveillance.
The INX case marked the first SEC registered IPO of security tokens and is seen as a template for compliant offerings.
Developed by YouNow, these tokens reward content creators and builders on the streaming app. SEC approval was obtained in 2019.
Props also partnered with Animoca Brands to support rewards in games like Formula 1. The ecosystem boasts 50 million users.
As pioneers like these demonstrate the possibilities, more projects may soon seek SEC alignment.
Outlook on the Future Growth of SEC Coins
The compliant SEC coin model is still new, but seems poised for expansion as crypto assets mature. Potential trends include:
- More teams adopting security token models to provide legitimacy.
- Gradual shift from utility tokens to regulated offerings.
- Greater institutional investment into crypto as SEC coins reduce perceived risk.
- The SEC exerting oversight over a wider portion of the crypto space.
Striking the right balance between flexibility and regulation remains contentious. But SEC coins seem set to unlock new levels of mainstream adoption.
Conclusion: Evaluating the Tradeoffs of Compliant Crypto
SEC coins represent an evolution of cryptocurrency offerings – promoting transparency and integrity while still allowing innovation. For many projects seeking credibility with institutions, especially those raising capital, SEC registration makes sense despite its costs and drawbacks.
This guide provided an introduction to SEC coins, their benefits over unregistered tokens, the approval process, notable examples, and the growth outlook for this regulatory model. As crypto assets develop, expect to see compliant SEC offerings continue maturing in parallel with the decentralized frontier.
Thanks for reading. Any issues, contact us.