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A crypto startup has launched a platform to shine light on the floundering ICO market

Quick Take

  • Crypto startup Messari is encouraging the floundering ICO market to become more transparent 
  • Its new token registry will charge token projects to disclose information that’ll investors make better informed investment decisions
  • Messari CEO thinks most tokens are not securities

As regulators begin to increase their scrutiny of crypto projects and ICOs, Messari is pushing for the crypto ecosystem to become more transparent.

On Tuesday, the self-proclaimed “open-source EDGAR” announced its initial cohort of 12 projects that have opted to subscribe to its token registry. As part of Messari’s new platform, crypto projects will disclose documents that cover details about their token sales, treasury management, and key project communications channels. 

“Transparency is something we’ve taken to the heart of our project at its entire existence,” said Alexander Khoriaty, project manager of district0x, one of Messari’s initial project partners. “Messari aligns with that value,” Khoriaty added.

The registry structure that Messari is working towards is what many in the crypto world call a token-curated registry or TCR. A TCR is an incentivized voting structure that helps create trusted lists that are maintained by the folks that use them. Members of a registry can use their voting power — usually in the form of a native token — to vote on whether or not a new member should be accepted onto their list. Each member of a TCR is incentivized to keep the list clean and avoid accepting bad actors onto the list, as the proverbial bad apple would spoil the bunch.

As for Messari, token projects are paying $10K per year to be included on the current registry, have Messari validate their disclosures, and push out standardized data regarding their projects via APIs to third-party data services.

“We are wide-open to applicants. It is not that we are hand picking. We are looking to get good quality projects with a level of transparency already who are interested in updated their investor basis,” Ryan Selkis, Founder and CEO of Messari, told The Block.

To be sure, the registry will not rate tokens based on the disclosures. “We want to stay away from the ratings. Who are your key personnel? Who are your advisers? What wallet addresses do you manage? There is nothing qualitative about it. We are aggregating all of those black-and-white inputs into one place. Other people can come up with their own research on those data sets. To start, it is pass/fail. We will look to see if other firms can review this information.”

To be sure, in the U.S., regulators have already set disclosure standards for companies selling securities.

However, Selkis does not believe those standards will apply to utility tokens. In fact, Selkis does not “believe all — or even most — tokens are securities” and hopes that “[Messari’s] efforts can demonstrate the good faith that most token teams are operating under to ensure their protocols are more transparent and de-centrally managed.”

Selkis added that even if every token is deemed a security Messari will still have a system to help their users make sense of the chaos. “In 10 years we are going to think about traditional disclosures as absurdly obsolete,” Selkis said.

In light of current market conditions, it’s striking that Messari was able to convince token projects to ante up funds to pay for its services. As per data compiled by Autonomous Research, ICO funding was down 90% in September from a peak of $3 billion to $300 million, according to a report by Bloomberg. A regulatory clamp down on the market is also underway. The Securities and Exchange Commission slapped two ICO projects with fines for offering unregistered securities, and that might be just the beginning. Stephen Palley, a D.C.-based lawyer at Anderson Kill, told CoinDesk the SEC orders “would appear to apply to 95% of all the token sales in the last two years.”

Steven Zheng contributed to this report. 

Clarification: This post was updated to remove a reference to a potential SAFT offering. Messari’s Ryan Selkis told The Block that there is no specific plan for a token at this time, but the firm hopes to move the project into a token-based registry in 2019.