Speaking Monday at CoinDesk’s 2019 Consensus Conference in New York, Valerie Szczepanik, some exchanges that facilitate initial exchange offers (IEOs) may break U.S. securities laws. The SEC’s senior digital asset and innovation advisor said that cryptocurrency exchanges that facilitate token sales at a fee are likely to meet the legal definition of securities dealers if the issuer or any of the buyers are based in the United States. As such, broker-dealers, alternative trading systems (ATS) or national securities exchanges must follow the registration and licensing requirements. And if they aren’t, according to Szczepanik, they’ll be in hot water.
“Platforms seeking to list these tokens for a listing fee or bring buyers to the table for issuers are probably engaging in broker-dealer activity,” Szczepanik said during a chat with Bloomberg reporter Matthew Leising, adding: “If they are not registered they will find themselves in trouble in the U.S., if they have a U.S. issuer or U.S. buyers, if they are operating on the U.S. market.”
No specific exchanges were mentioned by Szczepanik. However, among the exchanges that facilitated IEOs are Binance, OKEx, Bittrex, KuCoin and these transactions are believed to generate millions of dollars in fees for such platforms. Binance’s Launchpad is the most famous platform for IEOs, which hosted a public sale of BitTorrent tokens in January, raising $ 7.4 million for Tron’s owned file sharing service.
Szczepanik said a previous case brought by the SEC last year against TokenLot “was instructive in this regard.”
“There was a platform that was assisting to bring buyers to ICOs,” she said. “In this case, there was an enforcement action, as the platform was acting as a broker-dealer and participating in the distribution with a violation of the registration provisions.”
A privacy-centered startup has turned to a $ 2.5 million private token sale. NEO Global Capital, Lemniscap, Edenblock and others were involved in the seed round in Nym Technologies. Also an investor is Binance Labs, where Nym finished a 10-week incubation program late last year.
“Token sales are not dead,” Lemniscap managing partner Roderik van der Graaf told CoinDesk. “We still believe there are such things as properly designed crypto networks with tokens.”
Harry Halpin, CEO of Nym Technologies, told CoinDesk that the company will launch a testnet by 2020. In the meantime, he declined to specify on which blockchain the native token of the startup is based.
“The primary thesis is that we can incentivize privacy-enhancing features,” Halpin said of his startup’s token-centric approach. “If I run a VPN [today] I can get paid but then I have to hold all the financial data of my users.”
Nym wants to “anonymize the world,” Halpin has said, with software that can be applied to crypto wallets and other mobile apps to mask IP addresses and user data from the network itself. Bitcoin veteran Amir Taaki is already working on integrating this capability with his Dark Wallet project.
“We’re building the protocols and other people will provision the infrastructure,” Halpin said. “We believe our system should allow users to pay as they want, using fair prices for whatever services people want to provide.”
However, according to Nym investor Lasse Clausen of 1kx, the platform’s token economics is still under development.
“On a basic level there will be a staking token,” Clausen told CoinDesk.
Halpin told CoinDesk that the token will be used primarily for fees to reward node operators and service providers staking.
“In my opinion, the tokens will of course have value,” he said. “That value will come from its utility and its ability to help other tokens improve their privacy.”
According to Edenblock partner Lior Messika, NYM tokens are basically vouchers for future use of privacy-enhanced services, such as sending a number of messages through a messaging service or using a certain data capacity through a VPN service. Ryan Zurrer, director of the Web3 Foundation, told CoinDesk that the wider industry sorely needs software for authentication that is not controlled by centralized entities.
Nym’s infrastructure solutions could address this demand by helping product and service providers avoid collecting user data, a vision that coincides with the cypherpunk ethos. Indeed, Chainspace founder Dave Hrycyszyn joined Nym Technologies instead after Facebook acquired the Chainspace blockchain startup.
“Here’s a privacy project, that’s what I like,” Hrycyszyn told CoinDesk.
Speaking to the broader point of protecting user privacy, van der Graaf added:
“[Nym’s] protocol doesn’t only anonymize at the protocol layer but also the network layer. So that is a major difference compared to something like Tor. They even mix the data packets at the network layer therefore anonymizing metadata such as IP addresses, geolocations, etc. It’s really one step ahead of the solutions that are out there at the moment.”