This week, in a Washington Post editorial, Robinhood CEO Vlad Tenev called for a new approach to capital markets in the United States. He suggested a certain number of policies – the modernization of accredited investor standards is a former favorite of financial wonks – but one stood out. “”[T]Here, there must be a security token registration scheme, allowing companies to create tokens offers that are open to American investors. Here, Tenev seizes the skeleton key to unlock the full potential of cryptocurrency.
Here’s how securities markets work in the United States work. By default, companies are not really authorized to sell equity. The Securities Act of 1933 defines the titles and prescribes the conditions – and the penalties – for having sold them. If a company wants to collect funds, it hires a lawyer like me and records or finds an exemption such as regulation D (Reg D).
Most choose an exemption and become private. And as Tenev points out, many those Choose to stay like that – Openai, SpaceX or Stripe. But exempt titles are not easily negotiated. They are generally congested by contractual and regulatory restrictions which make them illiquid. For the few richest companies, it could be good – or even the point. But not for the most part. Without liquid secondary markets, investors can only achieve profit by dividends. And when investors cannot make earnings, primary markets are therefore dry.
The titles recorded, on the other hand, are very liquid on the secondary market. This means that investors usually jump to participate in a first public offer. But this process is Also limited to the richest companies by its massive price. PWC estimates that even the initial public offers, even relatively low, cost millions of dollars, as well as millions of others in annual legal costs and in accordance. This is still before considering the expensive transparency and the confiscation of the control that come with the registration. For these reasons, even large companies “avoid becoming public,” says Tenev.
It’s no secret, it’s a problem. Washington DC recently tried to resolve it by creating crowdfunding of regulation (REG CF) in the 2012 Jobs Act. The idea was to make the titles exempt more accessible to small and medium-sized enterprises (SMEs), but they simply could not help themselves. Familiar restrictions on secondary liquidity hamstrings The program. Combined with still significant compliance costs, the result will never be a significant segment of American capital markets.
Instead, the solution came from outside. Ethereum developers introduced the ERC-20 standard in 2015, allowing anyone to create an arbitrary number of tokens and sell them in instant liquidity. The founders of the project could restrict the resale as they chose. But, in practice, the best projects quickly developed deep and effective markets. These fungible tokens took various names and functions, but practically, for a while, they were the Internet capital market.
In addition to the technology of secure and without confidence blockchain, the crucial breakthrough was just Let people buy and sell tokens freely. It turns out that this is a product that people really want, and initial parts of parts have increased by 100x between the quarters and the fourth quarter of 2017.
This moment of halcyon could not last – fully regulated markets were a well for scams, and the subsequent dry campaign to end the fundraising of cryptocurrencies is well documented. These days, it is extremely difficult to make a legal sale of primary token in American projects Give tokens for free. Even then, a single successful hyperliquid air card created more value in one day than all REM offers from 2021 to 2023 combined.
Rather than making a gesture to the past, Tenev emphasizes the future:
“The actions of the private company would allow retail investors to invest in leading companies at the start of their life cycle … allowing them to draw additional capital by pressing a global Crypto retail market … [It] would be [ ] Provide an alternative path to the traditional IPO[.]””
He calls this “real tokenized assets”. I call it a third regulation way. Setting between exempt titles and public offers, the SEC should promulgate rules that allow projects to sell titles in the form of cryptocurrency tokens with compliance and limited disclosure – combining the relative simplicity of a private placement with the secondary liquidity of a public offer.
We already know the effects of the first order of such a system. In 2017 and 2018, more than 2,000 projects sold tokens to raise more than $ 13 billion. As Tenev points out, “the risks are the highest where the opportunity of the increase is the greatest” and many of these first cryptography companies failed. Many have survived, however, and are still built today. The first investors are rich and their leaders remain faces of industry.
The effects of the second order are the place where the real value returns. Compared to any offer of traditional titles, launches of cryptocurrency tokens are trivially cheap. According to some estimates, there are as many billions of dollars in potential SME capital demand in the United States. This suggests a large potential for collecting funds on the chain. No one knows what it means to access this capital – some will not be vaporized – but there is a real potential that is undergoing asymmetrical growth.
Of course, there are also risks beyond lost investments. A liberalized cryptocurrency regime could move part or all of the current public securities regime. This would actually decrease radically the requirements of conformity and disclosure for public companies, perhaps undergoing market efficiency and increasing deception.
But why anchor the status quo? A third party regime may require disclosure without being as expensive as public recording. Consumer protection does not need to come from laws written before running water Was omnipresent – much less cryptographically secure blockchain networks.
It is not easy that public titles would disappear anyway. The relative cost of compliance decreases on a large scale. For mature companies, investors will likely require traditional disclosure and will be ready to pay a corresponding premium in exchange. If they do not do so, maybe the time of these laws has come.
It is difficult to imagine anyone who comes to the contemporary regime of the first principles. The president can launch a same, but the tokens attached to corporate fundamentals are at first glance illegal. So, here, I think of what Tenev says: “It’s time to update our conversation on the Bitcoin crypto and even that the blockchain really makes possible.” Let’s put the titles to the chain.
