Self Regulation Begins in ICO Market for Digital Currencies

Edward Kim  |

As the SEC positions itself to regulate digital currency, the marketplace is doing exactly what the futures and options market did when they were introduced in the 1980s. They policed themselves early by creating self regulatory bodies, led by pioneers like Pat Arbor who eventually became the Chairman at the Chicago Board of Trade (1993-98) and created the National Futures Association (NFA).

This was a clear victory, and the CFTC wound up regulating futures and options markets at the CBOT and the Chicago Mercantile Exchange (NYSE:CME), many experts and economists think this is the reason US equity markets exploded over the last 30 years. The only exchange regulated in the Chicago triumvirate was the CBOE because the options were linked to the underlying security. Unfortunately the CBOE lost out on the explosion in the index market in which the S&P 500 futures contract became the benchmark hedging tool and enabled the CME to buy nearly every other exchange. Again, great smart guys like Arbor and Leo Melamed are singularly responsible for happy shareholders in the CME stock, and are historic leaders who lifted Chicago as a financial powerhouse.

Source: Chicago Mercantile Exchange

The cryptocurrency market is experiencing some growing pains with the ICO scare and from saber rattling at the SEC, and we're already seeing the nascent industry take steps to regulate itself. The method we favor is the SAFT agreement - Simple Agreement for Future Tokens - essentially limits participants in ICOs to ‘accredited’ or ‘sophisticated’ investors, defined as those with an income of at least $200,000 or net assets above $1 million.

These investors are, by and large, considered to be above the need for regulation because of their level of financial sophistication. In other words, they should know enough to not invest in junk. The agreement is modeled after SAFE (Simple Agreement for Future Equity) which limits participants in investments to those who are sophisticated and promises them future equity in companies.

Sounds like a futures contract to me…

Jon Buck wrote a terrific piece in The Cointelegraph that I urge you to read that describes three ways that the market is trying to overcome external regulation. I'd summarize them as:

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