Poloniex set to become the USA’s first regulated exchange under Circle
Circle plans working relations with the SEC and intends to list securities tokens on Poloniex.
The New York Times writer Nathaniel Popper has posted a photo on Twitter, reportedly taken from a confidential Circle presentation. You can tell it's good because it's labelled "confidential."
Just got this slide from a confidential Circle presentation. It does more to explain Circle's acquisition of Poloniex than anything I have seen today. pic.twitter.com/gRXxDeXvxl
— Nathaniel Popper (@nathanielpopper) February 26, 2018
Each of the three points reveals something new about the widely reported Circle acquisition of Poloniex.
1. Standalone Exchange Business
"Circle will continue to operate Poloniex as a stand-alone business line within a new Circle Holding Company subsidiary, but will leverage common Circle capabilities across technology, operations, risk and compliance, regulatory and global marketing. Our pro forma operating plan anticipates adding 80-100 personnel to this business line."
This squares with Circle's announcement that it plans to first "address customer support and scale risk, compliance, and technical operations to bolster the existing product and platform" of Poloniex but puts a more concrete figure around the scale of planned changes. Hiring 80-100 new staff members will buy you a lot of customer service and compliance work, and it suggests a clear intention to grow Poloniex quickly and substantially.
2. SEC Approach
"Circle has briefed the SEC on the transaction and indicated that upon closing that we will begin the process of registering the new entity with the SEC (Securities and Exchange Commission) and FINRA (Financial Industry Regulatory Authority) as a Broker/Dealer and in turn as a licensed ATS (electronic trading marketplace). The SEC was very favorable on this approach and indicated that they would not pursue any enforcement action for prior activity. They said we are the first and only company in the space to approach them and were very progressive on working closely with us."
This shows Circle's intention of working closely with a range of authorities, with an emphasis on securities. This has previously been a pain point on US exchanges, where tokens classified as securities have been delisted for fear of inadvertently breaching laws in the ambiguous cryptocurrency space.
These include cryptocurrencies that pay dividends or represent a share of a business. Sometimes this is straightforward, but when those dividends are paid in another kind of token, such as NEO and GAS, or only in certain situations, such as when staking a token for PoS mining, it can get very unclear very quickly. Whether an exchange chooses to list such tokens is up to them, and it seems that to date US exchanges have opted to go one way or another rather than consult the SEC directly.
3. The US's First Regulated Crypto Exchange
"By becoming the first regulated Crypto Exchange, it will enable Circle to list and provide a platform for all forms of emerging crypto tokens, including tokens that would be deemed securities. We believe the market for security-like tokens will continue to expand, creating demand for this market infrastructure."
Circle, and now by extension Poloniex, seems to reckon that security-like tokens will be very popular going forward, and they might be right. Tokens that can reliably pay dividends have previously proved fairly popular, even with the difficulties involved in getting them listed on US exchanges.
Circle said that Poloniex's wide range of tokens was one of the main things that drew them to the exchange in the first place, and it looks like they intend to expand it considerably. If so, they might soon be in a position to offer the widest range of tokens of any US exchange.
This might also help clarify some of the regulations around cryptocurrencies in the country, and with Poloniex as a crash test dummy, it might be the start of clearer regulations around tokens.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, SALT and BTC.