Korbit Research Center Introduces Clause for Determining Cryptocurrency Securities Status

[Photo by Kobit]

[Asia Economy Reporter Lee Jung-yoon] On the 29th, the Kobit Research Center under the domestic cryptocurrency exchange Kobit announced the publication of a report titled "Preparation for the Activation of a Healthy Initial Coin Offering (ICO) and Initial Exchange Offering (IEO) Market."

This report focused primarily on whether cryptocurrencies qualify as securities. It also emphasized that among the new government's cryptocurrency pledges, the enactment of the Digital Asset Basic Act and the activation of the ICO and IEO markets are important, and that to establish a legal foundation for investor protection, it is necessary to determine the securities status of cryptocurrencies to resolve regulatory uncertainties.

The report first included information about the Howey Test used by the U.S. Securities and Exchange Commission (SEC) to determine whether a cryptocurrency is a security. The Howey Test is a methodology used to judge whether a transaction qualifies as an investment contract. If it meets four criteria, it is considered a security. These criteria include: ▲whether money was invested ▲whether there was an expectation of profit from the investment ▲whether the invested money is part of a common enterprise ▲and whether the profit results from the efforts of someone other than the investor or a third party.

However, among the four Howey Test criteria, the last requirement?that "investment profits must result from the efforts of a third party"?has become a subject of debate. This is because in sufficiently decentralized networks, no specific third party can influence the value of the cryptocurrency, which represents ownership of the network.

The report explains that as questions arose about the effectiveness of the Howey Test, the Token Safe Harbor provision proposed by SEC Commissioner Hester Peirce was introduced to fill this gap. The Token Safe Harbor provision is a system that exempts the application of securities laws for three years under certain conditions, considering that it takes time for blockchain networks to develop into decentralized networks.

The Research Center explained that to determine the securities status of cryptocurrencies, it is helpful to refer to the Token Safe Harbor provision, which understands the decentralized nature well. According to the revised Token Safe Harbor 2.0, to receive a three-year exemption from securities laws, cryptocurrency projects must update and disclose their network development plans every six months, and after the grace period ends, explain through a report that the network has successfully decentralized. Finally, the termination report must include the judgments of external legal advisors regarding the securities status of the cryptocurrency. The essence of the Token Safe Harbor provision is to decide the legal nature of cryptocurrencies after three years to support the development of blockchain networks.

Jung Seok-moon, head of the Kobit Research Center, stated, "To form a healthy ICO and IEO market, it is necessary to have a regulatory system that understands the attributes of cryptocurrency projects well and can resolve both investor protection and regulatory uncertainties," adding, "Commissioner Hester Peirce's Token Safe Harbor provision is a valuable example to refer to."

This content was produced with the assistance of AI translation services.