A group of crypto businesses mostly made up by crypto exchange operators have created the Crypto Rating Council.
The Council was established to seek to apply a quantitative framework to consistently and objectively rate the likelihood of certain cryptocurrencies being securities under US law. The founding members of the Crypto Rating Council are Coinbase, Kraken, Circle (operator of Poloniex), Bittrex, Anchorage, DRW Cumberland, Genesis and Grayscale Investments.
Cryptocurrencies analysed by the Council are assigned a score between 1 and 5.
A score of 1 means the Council’s analysis suggests the asset is very unlikely to be characterised a traditional regulated security in the USA. A score of 5 suggests that the crypto is likely to characterised as a security.
Perhaps unsurprisingly, the Council has given the following cryptos a score of 1:
Bitcoin
Litecoin
Dai
Monero
Ethereum, Algorand, Chainlink, Numeraire and Zcash follow with scores of 2.
While self-regulation is an admirable goal, the value in the ratings system is of limited use as a rating from the Council does not replace legal advice and is not determinative.
While the Council promises that the ratings take into account the SEC's guidance, and says that external legal and technical experts will have input into the ratings, the Council is it pains to emphasise that the ratings don’t really mean anything and shouldn't be relied on.
In particular the Council's website explicitly says that:
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,
Further disclaiming any responsibility for people who rely on the Council's ratings, the FAQ for the Council continues :
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,
The Council has indicated that while the ratings only consider US federal law at the moment, ratings tools for non-US jurisdictions may be developed in future. Given the continued international schism in token categorisation and treatment between the US and the rest of the world, self-organising ratings may assist in self-regulation of this burgeoning sector.