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Why Tezos Isn’t a Security – ChainRift – Medium

re if any one criteria is answered in the affirmative, you’d be looking at a security. An example of this is where an ICO assigns ownership or an equity interest into a legal entity, such as an ICO where the token provides the holder to an equitable stake in an offshore foundation. This would immediately make a project a security, regardless of any other details.

Investment of Money

The first element concerns how the funds are raised. The Tezos token was the biggest ICO sale in history. The token was sold in a crowdsale as an investment for every participant. Nearly every single ICO token shares this trait so it’s no surprise, and alone it doesn’t mean that the Tezos token is a security. It does, however, raise the stakes a little as we move to the next element.

Common Enterprise

This element is in relation to how ‘finished’ the product is before the sale of the token, as well as a few other business orientated characteristics. Tezos was entirely unfinished at the time of the sale, which again doesn’t help its cause, though it’s a very common characteristic of many other ICOs.

Expectation of Profit

A token should have a real purpose, and that purpose should be something other than ‘profit’ making, according to the SEC. The Tezos token acts in a relatively similar way to Ethereum, in that applications and smart contracts can be built on its chain, which serves a clear utility (other than profit making). Although the token itself allows its holder to participate in the community by way of voting, this alone does not constitute ‘real functionality’ according to the SEC.

What is the verdict?

It’s this final point where it becomes clear to us that Tezos won’t fit the SEC guide to what constitutes a security — since all three elements must be met. Tezos has a function other than mere profits: there are many developers keen on moving from Ethereum to Tezos to build their applications since the risk of a fatal fork is reduced. How does the Tezos token stand up? Relatively well. It might seem as though it gets off by the hair of its neck, but that isn’t how this system works. It appears as though all ICO tokens meet element one and as such this element is more of a ‘message’ from the SEC than a real test to hold a token against. That message seems to be ‘regulators see what you’re doing’.

But it’s not all doom and gloom! Cryptocurrency exchanges should welcome regulation if it means securing the future of the industry. Regulation will also help provide the clarity we need to make the best products and provide the best services.

We look forward to keeping you up to date with all everything Tezos as we continue to support its trading on our exchange.

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