A Blueprint for Reforming the Crypto Token Market

With $20 billion raised in "Initial coin offerings" and an overall token market valuation of $300 billion, early participants in crypto finance have done a spectacular job of "Growing" their monetary value as measured by the very fiat currencies many claim are being disrupted.

If digital tokens are to matter and if they are to enable networks of distributed trust, the industry needs to advance to adulthood.

The latest such effort comes from the Token Alliance, an industry initiative of the Digital Chamber of Commerce that comprises 350 global industry participants, including blockchain and token experts, technologists, economists, former regulators, and practitioners from over 20 law firms.

On Monday, the Alliance will release its first white paper, one that aims to bring two important constituencies - industry leaders and regulators - into alignment around the appropriate business and legal treatment of digital token issuances.

According to a foreword from Token Alliance co-chairs Jim Newsome, a former chairman of the Commodity Futures Trading Commission, and Paul Atkins, a former commissioner of the Securities and Exchange Commission, the principles outlined in the report "Are designed to help market participants understand the parameters around their activity and to act in a fair and responsible manner toward potential purchasers."

This is not to say that token projects shouldn't be disruptive, but it is an acknowledgment of the need for pragmatism.

For this self-regulatory approach to succeed, the authors of the Token Alliance paper argue, it is vital for governments to provide a supportive legal framework.

The section on Gibraltar's forward-looking framework for token regulation stands in stark contrast to preceding sections, which cover evolving legal approaches in Australia, Canada, the U.K. and the U.S. Put these together, and a picture emerges of continued uncertainty and contradictory perspectives.

On the industry education side, the Token Alliance paper takes a decent stab at laying down principles for how development teams that take on the role of "Token sponsor" should bring their tokens into the world if they are to avoid having to comply with securities law.

The authors argue, for example, that sponsors' white papers "Should avoid discussion of any allocation of tokens for investors, developers, founders, or employees," since these facts would be more relevant to an investor than a token user - highlighting the token's vulnerability to being regulated as a security.