Original source: Rodrigo Seira, Justin Slaughter, Katie Biber,Paradigm

Compilation of the original text: OpenAI Translator

Launching a startup requires preparing and filing many documents and forms, most of which are relatively easy and straightforward. For example, founders will have to file a certificate of incorporation with the Secretary of State's office to form a new corporation. They also need to file Form SS-4 with the IRS for an Employee Identification Number (EIN).

While many founders work with an attorney during this process, the process is simple enough that they can also do it themselves. As a result, thousands of American small businesses are established every day.

SEC Chairman Gary Gensler wants the American public to believe that it is as simple and easy for cryptocurrency founders to register tokens or crypto products with the SEC.

But in fact, it's not.

However, in a recent nationally televised interview, Gainsler, chairman of the financial watchdog, criticized cryptocurrency exchange Kraken for failing to register its equity investment product, leading the company to a settlement with the Securities and Exchange Commission in which it had to pay compensation and Close the program. “These companies, Kraken knows how to register. Others know how to register, it’s just a form on our website,” he said, without giving further details. He then added: "They know how to do it. They just choose not to. "

A few days later, Geinsler elaborated on his views in an opinion piece, lamenting that “crypto intermediaries, frankly, have not been in line to register with the SEC and comply with laws passed by Congress.” "Perhaps simply because their business model relies on non-compliance."

Yesterday, the SEC issued a Wells Notice to Coinbase after years of failing to provide guidance or regulatory certainty to the company. According to Coinbase, the SEC has threatened to sue the company for listing what it considers securities (but it won’t say which ones) without being registered as a stock exchange, and for offering unregistered equity investment products (but it won’t say which ones). how to register).

Chair Gensler’s public statements and actions are twofold selfish: they seek to justify the SEC’s unconstitutional extension of cryptocurrency jurisdiction by falsely implying that most crypto products and tokens are securities and should therefore register with the SEC, At the same time portraying the crypto industry as being made up of people who willfully violate simple rules, deserving of SEC punishment like toddlers who push boundaries.

However, even without regard to whether securities laws apply in the first place, representing a "clear" path to "compliance" in the "form" cannot be done on Legal Zoom or DIY using free online resources. For example, Form S-1, which typically requires a team of lawyers and millions of dollars to complete, is used by the most established private companies when they want to go public, or conduct an "IPO." Here it is: try to understand for yourself.

To be fair, the chair never made it clear that filing registration forms would be easy or cheap. But his suggestion that crypto companies could register by “filling out forms online” failed for a more immediate reason: “Come in and register” wasn’t possible until the SEC adjusted the registration framework to unique aspects of digital assets. Current registration forms rely on a series of disclosures that are insufficient for the unique aspects of digital currencies and leave investors vulnerable. Registration also involves a host of other regulations that apply to tokens, reporting companies and other participants in the ecosystem, making it impossible for most crypto protocols to function.

In fact, the reason there are almost no registered token offerings in the U.S. is the SEC’s failure to provide any actionable guidance, issue a single rule, or engage constructively with anyone in the cryptocurrency industry to provide a workable regulatory framework for security tokens.

The Coinbase example is illustrative. As an SEC-registered company, Coinbase filed a rulemaking petition with the SEC in the summer of 2022, seeking clarity on a number of unresolved issues in the digital asset market, including exchange registration and staking. But the petition went unanswered. Instead, yesterday, the SEC continued regulation through enforcement and sent Coinbase a Wells Notice covering activities the company is seeking clarification through public rulemaking.

Claims that crypto projects can "just come in and register" with the SEC today are fiction - if the SEC truly wants to provide proper investor protection in the cryptoasset space, more support is needed for them to do so.

We hope that reaching a consensus under the current system on whether it is feasible for crypto projects to register with the SEC will foster a genuinely honest discussion about how the industry should be regulated, with Congress as a point of engagement. Only then will there be a way for the crypto industry, crypto skeptics, policymakers, interest groups, and the American public to address/regulate crypto.

The second part begins with a general background on the SEC registration process, and then reviews the history of crypto projects that have attempted to register as part of SEC settlements or filed for registration on their own. Understanding the difficulties and failures encountered by most of these projects suggests that the "Road to Registration" is not currently feasible.

Part III will analyze the current SEC disclosure regime by focusing on Form S-1. We will argue that the current disclosure framework is fundamentally inconsistent with most tokens because it assumes a relationship between the issuer and the security, which does not exist in a decentralized system. We will discuss gaps in the various disclosures required by the form and the need to clarify where registration is a viable path and to adequately inform investors.

Finally, part four will highlight how the SEC’s current position claims that most crypto projects require registration, while at the same time making registration impossible, thereby exceeding the scope of the SEC’s power and amounting to a regulatory ban on cryptocurrencies.

Special thanks to Mike Selig for his review.