A keystone to governance for blockchain businesses is compliance, which is a process by which companies follow the law. Creating a culture of compliance is critical on Algorand to ensure value is created and captured in as cost-efficient manner as possible. Effective compliance is also a sterling method for ensuring a professional culture and stimulating the production of intellectual property and work product. Compliance is particularly important for asset creators and exchanges in the context of U.S. Securities laws.
Generally, a digital security is an investment and represents some securitized interest or ownership share where profits are promised solely from the efforts of others. By contrast, a non-security digital asset is a product operating like a key for use or utility. For many projects on Algorand, ensuring compliance with U.S. Securities Laws is of vital importance. Projects wishing to offer digital securities or operate security exchanges are required to register with the SEC if they are operating in the United States.
Still, an ongoing problem in the Algorand ecosystem is the idea that the activities of foreign business entities are outside the jurisdiction of the United States, even when the principal place of business for such activities is within the United States. In a recent case, the SEC charged a company with a Cayman Island corporate entity for securities fraud spawning for the sale of a digital asset on Ethereum in the United States (Source) (Asset). Importantly, many projects within in the Algorand ecosystem such as NFDs, Humble, and Angeles of Ares are actively violating the Securities Act of 1933 and the Securities Exchange Act of 1934, which work in conjunction to regulate the disclosure of securities and exchange information to investors.
For projects operating exchanges, they must register with the SEC if they are operating in the United States, regardless of whether there is a foreign entity associated with the project. For digital asset creators operating in the United States, there are only two ways to comply with federal securities laws: (1) the first is to create a security asset and register the asset with the SEC; (2) the second is to create a non-security asset, which does not require registration with the SEC. For creators wishing to create security assets, Securitize is a great option for collaboration. For projects wishing to create non-security assets, Choice Coin is developing open source software for compliance and offering supporting compliance as a service to help (Choice Coin Compliance).
Choice Coin has made great progress with our compliance software on Algorand. We’ve used it to aid the Choice Coin Compliance program internally and to aid AlgoStake in forming their compliance program. Additionally, Choice Coin more recently won a grant from the Solana Foundation to continue our work in compliance, with supporting research and development specifically tailored to the Solana Ecosystem (Solana-Compliance). Moving forward, we expect this software to be an interchain services offering on both Algorand and Solana.
If you’re a creator and interested in learning more or potentially partnering with Choice Coin on compliance, feel free to reach out!
Disclaimer: Nothing in this post should be construed as legal advice. This post is intended only to provide general compliance information for the betterment of the Algorand network and public interest. Before creating a digital asset in the United States you should properly seek legal counsel.