Recently, a non-profit known as the CATO Institute released its proposal reading the regulation of ICOs. Precisely, the proposal seeks for the formulation of laws that requires blockchain companies to clarify whether a cryptocurrency token issued during an ICO is a commodity or a security. The CATO Institute is a liberal think tank that concerns itself with matters of public advocacy in the media and society.

Diego Zuluaga, an analyst at the institute’s Center for Monetary and Financial Alternatives, drafted the proposal. The draft proposes that the categorization should declare whether ICO tokens are perceived as investments which can be later sold on a third-party platform before the crowdsale event is over.

To be considered a security as per the proposal, a token should be delivered to a buyer and be further tradable on a secondary platform before the sale event elapses. By complying with these regulations, the token will have satisfied all aspects of the Howey Test, and can thus be deemed as a security.

On the other hand, commodities are ICO tokens that cannot be traded on other platforms. Moreover, the token has to assure its buyers of a refund if the project fails to launch. In this regard, Zuluaga said that projects whose tokens are commodities are similar to forwarding contracts because they involve the physical delivery of the virtual currency to the token buyer after the project goes live. Therefore, they cannot be classified as securities.

Additionally, the proposal suggests that all cryptocurrencies that are currently circulating in the market should be categorized as commodities. Concerning this, Zuluaga believes that clarifying the regulations will have a positive impact on upcoming blockchain startups. This is because such a development addressed both client safety and fraud issues while providing a friendly environment for the actualization of ICO goals within the US.

Diego concluded the proposal by warning that an obsessive deployment of unfavorable regulations on blockchain companies would have a detrimental effect on the sector. Fundamentally, the unfriendly laws would bar investors from transacting in the sector, a factor that would significantly impact on the growth rate of the cryptocurrency industry.

Notably, Zuluaga recommended that such regulations should be formulated by the Federal Government to avoid possible cross-state inconsistencies. He alluded to the instance where Wyoming enforced their rules due to the absence of a federal level solution. Zuluaga stressed that such cases further inhibit the growth of the crypto sector.

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