• Tokens sold through ICOs are securities under US regulations
• Decentralized exchanges are still exchanges, and developers must register as operators of their exchange

The US Securities and Exchange Commission (SEC) this Friday issued new guidelines for actors in the crypto space. The guidelines clarify the SEC’s position that many crypto projects raising funds through ICOs must register as securities.

Most tokens are securities

Though unpopular in the crypto community, the SEC’s position on ICOs should not come as a surprise. In their public statement, the agency made it clear that any tokens sold through an ICO in expectation of a return on investment is to be considered a security.

In the statement the agency also revealed that they have settled charges with CarrierEQ Inc. (Airfox) and Paragon Coin Inc, which were accused of selling unregistered securities through ICOs in 2017. Both companies have agreed to pay penalties and to register their tokens as securities.

The SEC’s hard stance on tokens as securities has resulted in many projects in the last two years excluding US traders from participating in their sales.

In a second clarification, the agency reaffirmed that investment companies trading in cryptocurrencies are not exempt from the laws and regulations governing other hedge funds – they too must register with the SEC, just as they would have to if they engaged in the trading of stocks.

Decentralized exchanges must still register with the SEC

In a somewhat more new and startling ruling, the SEC declared that decentralized exchanges will be treated legally the same as centralized exchanges. That is, even though developers can write smart contracts that give them no special privileges or compensation and that, once set up, they have no power or ability to alter, they must still register as operators of the exchange, and may be held responsible for trades on their exchange the same as they would on a centralized platform under their control.

This ruling is sure to spark controversy in the crypto space. All the legalities and political aspects of ICOs as securities aside – the ruling on dexes appears to betray a lack of understanding of how smart contracts work.

Centralized exchanges can conceivably exclude participants from certain jurisdictions, but with dexes that is out of the developers’ hands.

The path to mainstream adoption is a thorny one for crypto, and this is certain not to be the last case of friction between new tech and outdated regulations.