Will New SEC Rules Bring Crypto Home?
Will New SEC Rules Bring Crypto Companies Onshore?
The cryptocurrency landscape has significantly shifted since its early days in the US. Initially, companies thrived with relatively lax regulations and Initial Coin Offerings (ICOs). However, increased scrutiny led many to establish offshore entities, geofencing the US market. This resulted in complex, costly structures with unclear governance and regulatory compliance challenges.
Now, a change may be on the horizon. New regulatory developments, including potential capital gains tax eliminations (as suggested by members of the Trump family), and reduced enforcement actions by US federal agencies signal a potential shift toward a more welcoming environment for domestic crypto firms.
The Path to Offshoring: A History
The shift offshore began in 2017 after the SEC's "DAO Report" classified many crypto tokens as securities. While the SEC clarified that Bitcoin (BTC) and Ether (ETH) were not securities, the lack of clear guidelines created uncertainty. The 2019 framework for digital assets offered some clarity, but the complex tax implications of token sales further encouraged offshoring. The high tax burden associated with token sales made it financially advantageous for companies to operate outside the US.
Despite efforts to comply with guidelines, the SEC's actions against Ripple, Telegram, and Diem, along with the SEC v. LBRY case, significantly altered the legal landscape. Judge Barbadoro's ruling in SEC v. LBRY effectively diminished the significance of functional token uses, emphasizing investor profit expectations as the primary determinant of security status.
The Impact of SEC v. LBRY
The LBRY case had a chilling effect. It made it extremely difficult to launch tokens in the US without the risk of SEC action. Many projects chose to establish offshore foundations in jurisdictions like the Cayman Islands or Switzerland, creating structures that appeared more decentralized and shielded them from US securities laws and taxation. These offshore entities often handled token sales and provided a legal shield, even if the underlying development remained in the US.
A Potential Shift: Reshoring Crypto
The situation might be changing. New initiatives from SEC Commissioner Hester Peirce, including exploring potential relief for token issuers, suggest a more nuanced approach. The emergence of legal structures like Decentralized Unincorporated Nonprofit Associations (DUNAs) in Wyoming, combined with proposals for favorable tax treatments, could make operating onshore significantly more appealing.
Alternative fundraising approaches, such as token warrants, are also being explored to navigate current regulations. The industry is actively seeking solutions that allow innovative projects to thrive within the US legal framework.
Codeum understands the challenges faced by blockchain projects navigating the complex regulatory landscape. We provide comprehensive solutions, including smart contract audits, KYC verification, custom smart contract and DApp development, tokenomics and security consultation, and partnerships with launchpads and crypto agencies. Contact us to learn how we can support your project.
The future of US-based crypto companies may depend on the success of these efforts to create a clearer, more accommodating regulatory path. The possibility of reshoring is a significant development for the industry.