Leading crypto businesses committed to creating practical tools to help comply with the U.S. securities laws.
The Crypto Rating Council is a diverse group of leading crypto businesses committed to the responsible growth and maturation of cryptocurrency markets and related financial infrastructure and trading services. Our members share a belief that practical compliance tools can help cryptocurrency exchanges, custodians, trading desks, investment firms, and other financial services providers support the growth and adoption of this important asset class and related blockchain technologies in the U.S. and around the world. The Council expressly does not address the merits or suitability of any digital asset for purchase, sale or any other purposes. The Council is not registered with the U.S. Securities and Exchange Commission or registered with or licensed by any other federal, state or other authority.
We formed the Crypto Rating Council to create a framework to seek to consistently and objectively assess whether any given crypto asset has characteristics that make it more or less likely to be classified as a security under the U.S. federal securities laws. The Council does not address state securities laws, which are distinct and sometimes may differ materially from U.S. federal securities laws.
The important question of whether any given digital asset is a security—as opposed to a commodity, a currency, or something else—informs critical licensing, registration, and operating obligations for financial services firms that support cryptocurrency. The Council does not address specific transactions, but if a particular transaction is deemed to constitute the offer and sale of a security, it also has important implications for whether that transaction must be registered or qualify for an applicable exemption, disclosure requirements, applicable regulatory oversight of the transaction and participants and the availability of legal remedies under applicable law. The SEC has issued guidance that some digital assets may be securities while others may not be, and identified a number of facts and circumstances which may be relevant to that determination. While the SEC’s guidance has been helpful in alerting the industry to complex legal issues, determining whether any particular digital asset is a security remains highly circumstantial and difficult to resolve even with the help of leading legal and technical experts. This complexity has led to expensive, redundant, and frequently inconsistent compliance analysis among financial services firms and has generally slowed the launch of new cryptocurrency assets in the U.S.
We believe that our cryptocurrency framework makes it easier for members to apply the law more consistently and efficiently across digital assets.
At the core of the Crypto Rating Council is our rating framework, a points-based rating system built upon a set of factual questions that assess each element of the legal test for investment contracts that courts use to determine whether an asset is a security. Our framework is derived directly from case law and SEC guidance and has been structured to emphasize objective, repeatable, and fact-driven responses that can be answered more consistently across different assets and across the same asset over time.
The analytical framework results in a score between 1 and 5 for each asset we review. A score of 1 means the Council’s analysis suggests the asset has few or no characteristics consistent with treatment as an investment contract, and therefore not a security under the U.S. federal securities laws. A score of 5 means the Council’s analysis suggests that an asset has many characteristics strongly consistent with treatment as a security. The CRC may publish scores to encourage a common dialogue, vocabulary, and understanding of the federal securities laws as applied in practice, but scores to not address the merits or suitability of particular digital assets and are not intended to be relied on as legal, investment, financial or other advice by any person. To see the scores of the assets we’ve rated, visit our asset ratings page.
The formation of the CRC shows how rapidly the crypto industry is maturing. I am excited to see to see this level of collaboration from leading companies, all in service of regulatory compliance. Anchorage is proud to be an early member.
As the largest digital currency asset manager, we look forward to helping further educate regulators and policy makers through our role on the CRC. While we respect the attention regulators have given to the space and recognize the progress that’s been made over the last decade, additional clarity on how digital assets are treated will be an important step forward for this asset class.
The work of the Council helps guide digital currency market-makers amidst the current uncertainty around asset classification. Genesis is pleased to support the creation of a collaborative scoring framework alongside some of the most reputable companies in the industry.
The Crypto Rating Council has developed an objective and repeatable framework to make it easier to consistently apply the United States Securities laws to any particular token. Kraken is pleased to have been able to work with our peers in the industry to strengthen U.S. innovation by enhancing legal clarity.
Coinbase is proud to bring together many of the largest and most credible companies in the cryptoeconomy to implement the first industrywide crypto rating system. Like the Motion Picture Association's system for rating movies, this new system will provide clarity and a common language for assessing important aspects of individual cryptoassets—in this case, securities law compliance.
The Crypto Rating Council, LLC ("CRC") is a member-owned and operated organization whose purpose is to assess whether any given crypto asset, or whether the development, issuance, and use of such asset have characteristics that make it more or less likely to implicate federal securities laws. The CRC publishes ratings for most assets it reviews to indicate the results of its analysis as a reference for operators, developers, and the public, but the CRC does not address the merits or suitability of any digital asset for purchase, sale or any other purposes, and ratings are not intended to be relied on as legal, investment, financial or other advice by any person. The Council is not registered with the U.S. Securities and Exchange Commission or registered with or licensed by any other federal, state or other authority.
Whether a crypto asset is a security—as opposed to a currency, a commodity, or something else—may trigger registration, licensing, and other operating obligations for financial services firms that offer digital asset services like exchange, investment management, and trading. Under federal law, this important question is generally answered by applying the four-factor Howey test, which requires painstaking “facts and circumstances” analysis which often leads to judgment calls, inconsistent results, and can lead to disagreement among legal experts (and government officials). The founding members formed the CRC to create a compliance tool which, in partnership with securities law experts, allows the members to have a consistent framework to review assets supported in the ordinary course of their respective businesses. The Council does not address state securities laws, which are distinct and sometimes may differ materially from U.S. federal securities laws.
At the core of the Council’s work is a points-based rating system centered around a set of factual questions. Working with legal and technical experts and members of the community, the CRC distilled a set of yes or no questions which are designed to plainly address each of the four, Howey test factors: (i) whether crypto purchasers invested money, (ii) in a “common enterprise,” (iii) with a reasonable expectation of profit, (iv) based on the efforts of others. The questions are tailored to assess the characteristics considered by the Council to most likely impact any given crypto asset’s treatment under the securities laws. These characteristics include the design of the digital asset, facts, and circumstances of the asset’s issuance, governance features, third-party contributions to the project, and use of the asset. The questions are also structured to allow for objective, repeatable, and fact-driven responses that can be applied consistently across different assets and across the same asset over time.
Each question in the framework is assigned a points-based weighting to reflect its relative importance, the sum of which create scores for each Howey factor. Those scores are then scaled into a final rating between 1 and 5. A score of 5 results when an asset appears to have many characteristics that are consistent with the Howey-test factors. It is probably more likely, relative to lower-scored assets, to implicate the U.S. securities laws. A score of 1 results when an asset appears to have few characteristics that are consistent with the Howey-test factors. It is probably less likely, relative to higher-scored assets, to implicate the U.S. securities laws. Scores are scaled; a score of 4, for example, does not mean that four prongs of the Howey test are met. A score above the median asset rating does not mean there is a 50% or greater possibility of classification as a security.
The assessment is only intended to be an assessment by the Council at a specific point in time based on facts understood by the Council at that time, and accordingly does not reflect subsequent facts or changes to understanding of existing facts. The Council’s rating methodology has not been endorsed by the SEC or any other regulatory authority, and a digital asset could be deemed to be a security by the SEC or other authority regardless of the rating determined by the Counsel.
The rating rendered by the framework is not a determination of the merits of a digital asset or its suitability for purchase, sale or any other purpose. The prices of digital assets can be highly volatile and the purchase and sale of digital assets can be highly risky and result in financial loss. Persons purchasing or otherwise transacting in digital assets should consult with their own legal, tax and financial advisors in considering whether to acquire or otherwise transact in digital assets.
Members periodically select a set of assets for review. Outside counsel, with assistance from technical experts, then performs a comprehensive factual review of each asset. This review includes a study of the history of the asset, developer team materials including white-papers, websites, and social media, asset issuance history, codebase contributions, functionality of the asset and related blockchain, and other factors. Counsel then generates a summary memo and applies the framework to these facts to produce a preliminary score for input by members. Members’ respective legal teams and technical experts then review, deliberate and vote to adopt or revise the score. Scores are only intended to be a tool for members and not for reliance by other parties, but the score may be published to the Council’s website after adoption by the Council in the spirit of transparency. Members exercise their own discretion to decide whether to support or trade a particular asset according to their individual policies and procedures and other considerations in consultation with legal, technical and other advisors. No member is responsible for any other member’s subsequent decisions or operations.