A16z Crypto Advises Startups to Avoid U.S. Market for Token Sales amid Regulatory Pressure
Summary:
Andreessen Horowitz's crypto division, a16z crypto, advises startup founders to steer clear of the U.S. market during token sales. The division's general counsel, Miles Jenning, explains that initial coin offerings often meet the Howey test standards set by the U.S. Securities and Exchange Commission for classifying a financial asset as a security. Given the strict penalties and regulatory hurdles associated with securities transactions, companies are advised to avoid public sales in the U.S. This advice reflects a shift in the crypto industry following increased enforcement and high-profile court cases such as fintech firm Ripple's current contestation of a $2 billion SEC fine.
Andreessen Horowitz's crypto branch, a16z crypto, has advised startup founders to avoid the U.S. market when undertaking token sales. Administration of private sales of equity and tokens, as well as public sales of these outside U.S. borders, can be conducted in compliance with laws regulating securities without needing to register, according to Miles Jenning, the division's general counsel and head of decentralization. Jenning advised against public sales within the U.S., stressing the importance of compliance.
Jenning elaborated that initial coin offerings (ICOs) generally meet the U.S. Securities and Exchange Commission (SEC)'s Howey test standards, which help determine if a financial asset is a security. The Howey test deems a financial asset as a security if it involves an investment of money in a common project with an anticipation of profits managed by others.
According to Jennings, the test is more straightforwardly applicable to primary transactions like token sales by the issuers. He went on to remark that many ICOs presented clear indications and promises to investors that operations would be funded with revenue from token sales, promising future yields to investors. In his words, whether the sold instruments were digital assets or stock shares, these cases constituted securities transactions.
When an asset is considered a security, the issuance process invariably becomes protracted and mandates comprehensive disclosures and monetary prerequisites for registration. Strict penalties are customarily imposed for failure to comply.
A notable case occurred in July of the last year when U.S. District Court Judge Analisa Torres determined that Ripple, a fintech company, did not classify its XRP token's sale on digital exchanges within U.S. as security offerings. However, Torres ruled that Ripple's sale of XRP to U.S. institutional investors did fit within the Howey test's securities classification. Ripple is currently contesting a $2 billion fine imposed by the SEC. As a result of heightened enforcement actions, a number of crypto companies are choosing to avoid the U.S. market completely.
Related: SEC defers decision on Franklin Templeton spot Ether ETF.
Published At
4/25/2024 6:48:14 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.