SEC seems to be using Grayscale analysis to determine whether a security or not


New member
Aug 30, 2022
Santa Monica, CA
This might be something you’ve heard of before, but this is the first time I’ve seen someone with billions in crypto say that the SEC would NOT provide guidance about whether a crypto was or wasn’t a security, but instead asked for that fund’s own analysis of whether the cryptos in question were securities.

Grayscale Investments, a subsidiary of CoinDesk parent company Digital Currency Group, disclosed in regulatory filings that the SEC has been asking about its analysis of zcash (ZEC), horizen (ZEN) and stellar (XLM). Moreover, the regulator appears to have suggested that those three cryptocurrencies might be securities under federal law.
Why it matters
The SEC has yet to begin any kind of formal effort to issue rules directing crypto exchanges to register as securities exchanges. In the absence of that formal rulemaking effort, we’re left looking at how the SEC seems to be approaching cryptocurrencies it sees as securities. News that it identified more cryptocurrencies as securities this year sheds (a tiny bit) more light on that question.
Breaking it down
ZEC, ZEN and XLM may be securities, Grayscale said in regulatory filings for its trust products based on those three cryptocurrencies.

The SEC’s Divisions of Corporation Finance and Enforcement contacted Grayscale earlier this year, CoinDesk’s Danny Nelson reported over the weekend, asking about the trust products tied to those three cryptocurrencies.

What’s more, reading between the lines, it would appear the SEC has said those cryptocurrencies might be securities.

“The SEC staff has not provided any guidance as to the security status of ZEC and the sponsor has been contacted by staff from the SEC’s Divisions of Corporation Finance and Enforcement concerning the sponsor’s securities law analysis of ZEC,” the filing for Zcash said in June.

The filing in August said Grayscale received a memorandum from its “external securities lawyer,” which led the company to feel comfortable in saying those three cryptocurrencies aren’t securities, but nevertheless, based on what the SEC has said, Grayscale “acknowledges that ZEC [etc.] may currently be a security, based on the facts as they exist today, or may in the future be found by the SEC or a federal court to be a security under the federal securities laws.”

Jon Breyfogle

Digital Securities Lab Community Manager
Staff member
May 30, 2022
Findlay, Ohio
I hate to sound like a commercial, but this sure seems to beat the drum for why this DS Lab Community exists. Part of our mission is to influence policy and at this early state of the Tokenized Digital Securities market development, we who are trying to build the market infrastructure have more knowledge and stake (skin in the game) than those you would legislate and/or regulate the market. Doesn't that make it incumbent on us to engage the SEC in a meaningful way, individually and as a group. Our take is to welcome regulation and build solutions to accommodate their compliance within smart contracts and other such token attributes associated with an Issuance. Ensuring that approach as well as the application of custody, transfer and other processes will at some point require some regulatory oversight and the sooner that is established and ready for real-world application by the SEC, et al, the better.

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