Thread by @lawmaster

This is a massive deal. Coinbase, Kraken, Circle/Poloniex, Bittrex, Paxos/itBit as well as Cumberland, Genesis and Grayscale have joined forces to develop a system to rate which tokens are likely securities. It's on a scale of 1 to 5. Bitcoin is 1 and clear securities are 5

https://twitter.com/TheBlock__/status/1178622287538524165

The group is calling themselves ‘Crypto Ratings Council’ and the rating system will be made public today. They will have to all agree on the score for a particular token but then can decide which tokens they'll list.

The scoring system is based on previous court decisions and statements made by the regulators. Token issuers (creators of each token) can provide information to dispute a score of their token.

Unsurprisingly, the system hasn’t been endorsed by the SEC. But the group hopes that the SEC will view this as a positive step since it shows what the exchanges are doing to come to the conclusion.

The group will disclose the score of tokens that that receive 1 to 4 but it won’t reveal which ones got a 5 rating.

In my opinion, this rating system creates a massive conflict of interest. All of the companies that joined this consortium are massively incentivized to rate the vast majority of tokens as non-securities. Coinbase listed some very questionable tokens including XRP, Tezos, EOS

Determining whether something is a security is not a simple process. Even if something appears to be an apparent security, the decision will (in most cases) ultimately be made in court. Unless the SEC issues a no-action letter

The reason why the SEC hasn't given clarity is because these cases vastly vary depending on each case. You can't just come up with a blanket rating system and think that it will be the answer

These are the scores that were released so far. The tokens with the highest resemblance of securities are:

Maker - 4.5
Polymath - 4.5
XRP - 4
Augur - 3.75
Decentraland - 3.75
EOS - 3.75
FOAM - 3.75
Hedera Hashgraph - 3.75
Loom Network - 3.75
Stellar - 3.75
Tezos - 3.75

Now there is a question that begs to be answered. What makes a token go from 4.5 in case of Maker to 5 where it is a clear security? If it's "almost a security" based on this rating system, why is it listed on nearly all of these exchanges? Why is Maker higher than XRP and EOS?

Anyway, I would like to congratulate @Bitstamp and @Gemini for not being a part of this nonsense council.

This system was put in place to have plausible deniability. When one of the tokens is declared a security, they can say “oh well, we thought there was a decent chance but we weren’t 100% sure so we listed it anyway. You didn’t give us guidance!!”