Why crypto exchanges created the Crypto Rating Council

Such news as a $24-million EOS fine issued by the SEC or Telegram's Gram token (GRAM) risking to lose $1.7-billion raised still agitate the community time and again. As long as the ambiguity in the interpretation of security tokens exists, there will always be a room for speculations around the subject. Is this token a security token? What about that one?

The launch of the crypto rating council that consists of such top trading venues as Kraken, Coinbase, Bittrex and several investment giants is the attempt to address this ambiguity while predicting the outcome of projects' settlements with the SEC. Through their actions, regulators try and protect investors from fraudulent activities, and the group of crypto experts wants to help them with their expertise. "Any asset rating published by the Council is the result of a factual analysis performed by outside legal experts in conjunction with technical experts at member firms," states the section of Coinbase's press release.

This move, Mary Beth Buchanan, the current general counsel at Kraken hopes, "will help the SEC view this as a positive step."

How the council's rating works

The main goal of the system is to give a scale of one to five to any token listed on the council members' platforms. The higher the value is, the more likely it is a security. The token issuers cannot rate their token but they can dispute the score their token has received.

To give an example, Bitcoin (BTC) scored 1, Ethereum (ETH) had a score of 2, Ripple (XRP) had a score of 4 and so on.

In what way does the council decide on the scale? As their FAQ states, "members periodically select a set of assets for review." Later, technical experts perform "a comprehensive factual review of each asset. This review includes a study of the history of the asset, developer team materials including whitepapers, websites, and social media, asset issuance history, codebase contributions, the functionality of the asset and related blockchain, and other factors."

Is there a need for crypto councils?

In late September 2019, the world learned that Block.one, the company famous for issuing EOS tokens, had reached a civil settlement with the SEC and would pay a one-time fine of $24 million. The fine was related to the ICO the company conducted between June 26, 2017, and June 2018, when no legislative framework for security tokens was in place.

Joel Kovshoff, Athena Enterprise Software CEO, mentioned that Blockstack, the other project in the same situation, paid $2 million out of a $24-million raise. "If you examine those numbers," the expert explained, "they paid nearly 10% of the entire raise to satisfy the regulations set forth by the SEC."

Two years into the case, Block.one was happy to clear the debt, but that didn't solve the general issue, and now another tech giant, Telegram, is going through the dispute with the SEC over their Gram Token (GRAM).

After the SEC filed an emergency action against the company's 1.8-billion ICO, Telegram announced that this recent lawsuit has made its intent to launch the TON blockchain at the end of October unachievable.

So, who won in these situations with EOS, Blockstack and Telegram?

In the ecosystem with no rules incorporated, the projects have a resource to raise millions, but the authorities, too, have the right to issue million-dollar fines.

And this is where additional crypto-oriented establishments, independent and governmental ones, can enter. In this ambiguous situation, they can make sure that both sides want to abide by the law and work towards reconciliation instead of making money on each other.