The Silver Lining in Block.One's SEC 'Slap on the Wrist'

One's paltry penalty from the SEC over its 2017 sale of EOS ERC-20 tokens.

Was it because the SEC now implicitly recognized that EOS has evolved into a decentralized platform and that the new, on-platform tokens into which the ERC-20 tokens were swapped, were not securities? Maybe.

One has since gone to up its compliance game and do the right thing by the SEC. As legal commentator Katherine Wu put it in a scribbled comment that was included in another one of her extremely useful post-decision annotation exercises, "Fuck man, their lawyers are good."

One lawyer, not an SEC representative, the letter's details hint at what the SEC could be looking for from token-issuing entities.

Here, it's important to note that the Cooley letter came, in Udell's words, after "Settlement discussions with the SEC" - a line that Wu annotated with the observation that the two sides had "Def been back & forth for a hot minute." That suggests its contents captured agreed-to-elements that formed the SEC's implicit quid pro quo for its light touch.

One's cooperative position with the SEC - one adopted in stark contrast with the team from Kik, who have angrily refused to settle over their ICO and are going to court with the SEC. It's the section where the Cooley team highlights Block.

These include mechanisms aimed at cutting-edge "Identity verification and transfer restrictions that could be used to support compliance with securities laws" in the future, and others that could "Ensure that future tokens are only provided to individuals in jurisdictions where it has been confirmed that implementation of such token will be fully compliant with all applicable regulations."

On all these matters, the letter said, "Block.one is initiating a process of consultation and discussion with staff of the Division, including the SEC's Strategic Hub for Innovation and Financial Technology."

There's a positive takeaway here about the SEC. The Commission has been maddeningly on the fence, or at least stubbornly silent, on how or whether it should embrace some of the more innovative compliance solutions for strengthening security while reducing friction in science.

In a way, we have evidence that the SEC is not only open to innovation but willing even to reward transgressors who help them get their heads around that innovation.