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 will publish a simple rating for most assets it reviews to indicate the results of its analysis as a reference for operators, developers, and the public.
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.
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 deemed by the Council to most likely impact any given crypto asset’s treatment under the securities laws. These characteristics include circumstances of the asset’s issuance, governance features, third-party contributions to the project, and practical 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.
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 whitepapers, 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 uses the framework to produce a score. Members’ respective legal teams and technical experts then vote to adopt or revise the score, after which it may be published to the Council’s website. Members are each left to their own discretion to decide whether to support or trade an asset and no member is responsible for any other member’s subsequent decisions or operations.
No. The framework is the Council’s attempt to provide a consistent analysis which the members find useful but it is not legal advice and does not reflect the opinion of any member or outside counsel of whether any given asset is a security. We publish the score as a reference and to encourage continued discussion among operators, developers, and regulators about the application of securities laws to crypto assets, but the Council’s understanding of the facts could be wrong and our analysis may not accurately reflect the law. You should not rely on the score for any legal purpose, and should consult with your own legal and other advisors before taking actions with respect to a particular digital asset.
No. None of the SEC, the CFTC or any other regulator have endorsed the Council’s methodology or ratings. The SEC is not involved in the Council’s work, although we have shared our methodology with the SEC and other interested regulators and government officials. We plan to keep an open dialogue with regulators, and are available to consider input on refinement of the methodology and ratings.
Developer teams are generally not involved in our process. In some cases, developer teams may provide information to the Council to assist in fact development, but this participation is optional and developers have no influence over the performance of the analysis and do not endorse the process or score in any way. In most cases, we have performed the analysis and published the score without any direct input from the developer team.
Yes. Our goal is to maintain a compliance framework that is state-of-the-art and consistent with the latest developments in technology and law. Our framework is based on a thorough analysis of the U.S. securities law statutes, court cases, enforcement actions, and comprehensive guidance issued by the U.S. Securities & Exchange Commission. We will update our framework as frequently as necessary to accommodate changes in law or guidance to ensure its continuing value to members. Even if the law doesn’t change, pertinent facts about the asset can change. The score is only intended to reflect the Council’s understanding of developments as of the date adopted by the Council. The Council will establish a periodic review process to assess new facts for previously scored assets—like changes to third-party contributions, live network functionality, and public use—and will rescore and republish the score as appropriate.
We intend to publish the scores of most assets that members support or use in the ordinary course of their respective businesses. In general, however, we will not publish the scores of 5-rated assets. At this time our Framework is subject to continuing development and the Council currently does not intend to make the Framework public. Internal CRC deliberations, administration, and other work product will generally not be public.
As the nature of digital assets and related facts and circumstances quickly evolve, we welcome developer input when we score assets. If you provide the Council with information that leads the Council to conclude our analysis was based on erroneous or incomplete facts or suggest and updated score is otherwise appropriate, we will review our score in light of the new information and revise the score if appropriate. Please visit our contact page or get in touch with any Council member to connect with us. We do not guarantee the confidentiality of any third-party communications to the Council.
No. The Council makes its own determination as to which assets to review based on member input, available budget and other factors. While issuers of digital assets are free to contact members of the Council or the Council directly to express an interest in having their asset reviewed, the Council does not accept applications for review.
We plan to add more members, review additional assets, and re-score previously-rated assets on a periodic basis. We may also develop similar analytical tools for non-U.S. jurisdictions. Watch our website for developments.