Regulation in the blockchain sphere grabbed the spotlight recently when Quantstamp, a popular blockchain security firm, found itself at the receiving end of a $28 million penalty by the U.S. Securities and Exchange Commission (SEC). The firm was accused of orchestrating an unregistered initial coin offering (ICO) in 2017, selling their native QSP tokens to approximately 5,000 investors. The ICO was primarily aimed at developing Ethereum blockchain technology for automatic security audits of smart contracts.
In an unexpected move post-ICO, Quantstamp permitted QSP tokens to be traded on third-party digital asset platforms – an act that raised regulatory concerns since the issuance and sale were not registered. Consequently, Quantstamp had to part with nearly $2.5 million in disgorgement, prejudgment interest, and a $1 million civil penalty, as part of the settlement – all without admitting or rejecting SEC’s charges.
A repercussion of this kerfuffle is the initiation of a “Fair Fund” to reimburse concerned investors. Quantstamp will be transferring its QSP token holdings to this fund’s administrator, leading to a probable permanent disablement or destruction of these tokens.
Quantstamp, offering risk assessment and security services on the Ethereum blockchain, was touted as a bulwark against security threats to the decentralized internet. It proposed an elaborate network of contributors, validators, and voters to protect the blockchain realm from bad actors. The QSP tokens were integral to this operation with participants using them for varied purposes – a potentially beneficial use-case stifled by regulatory hurdles.
The SEC’s intervention rests on the premise that the QSP tokens, sold on third-party platforms, gave purchasers a “reasonable expectation of profit from Quantstamp’s efforts.” The firm’s failure to meet exemption criteria led to the charge of unregistered offers and sales of QSP tokens, declared as securities according to the SEC.
Post-settlement, Quantstamp, which completed its automated smart contract security auditing platform in June 2019, has had to halt operations. A topping on this bitter cake is the 4.79% drop of the QSP token in the last 24 hours and a shrinkage to $0.0115 per QSP, a staggering 98.68% collapse from its all-time high of $0.87.
This incident serves as a reality check for the blockchain community, reflecting the palpable tension between the deregulated ethos of blockchain and the need for regulatory compliance. This clash can potentially induce a chilling effect on promising blockchain tech-ventures, as they navigate choppy regulatory waters and strive to safeguard investor interests.
Source: Cryptonews
