The rapid growth of the cryptocurrency industry has created immense opportunities, but it has also brought regulatory challenges, especially in the U.S. market. One of the biggest obstacles for crypto companies has been ensuring compliance with U.S. securities laws. Many digital assets in the crypto space do not pass the Howey Test, which is used to determine whether a transaction qualifies as an investment contract and, therefore, a security under the Securities Act of 1933. When these assets are deemed securities, crypto companies face significant hurdles if they do not comply with the required regulations.
But what if crypto projects could transition into Reg A+ compliance for their primary offerings and secondary trading? This shift could provide the clarity and legal framework necessary to ensure compliance and bring much-needed transparency to the space. In this article, we’ll explore how transforming into Reg A+ compliant offerings could solve the regulatory challenges for U.S.-based crypto companies and how the Ohanae Platform is poised to lead the way in offering a compliant path for both primary and secondary markets.
Why Crypto Projects Struggle with the Howey Test
The Howey Test is used to evaluate whether an asset is considered a security. For most digital assets in the crypto space, the test often results in a classification of the asset as a security, which brings it under the regulatory purview of the SEC.
Unfortunately, many crypto companies have ignored or bypassed these regulations, opting for Initial Coin Offerings (ICOs) or other fundraising methods that have drawn scrutiny from the SEC. This has led to enforcement actions, fines, and even lawsuits. In short, most U.S.-based crypto projects have found themselves in legal gray areas, unable to comply fully with securities laws and operate within the regulatory framework.
Reg A+ Compliance: A Clear Path Forward
To address this issue, transitioning crypto projects into Reg A+ offerings could be the ideal solution. Reg A+ allows companies to raise up to $75 million annually from both accredited and retail investors while staying compliant with U.S. securities laws. This framework provides several key benefits for crypto companies:
- Securities Law Compliance: By going through the Reg A+ offering process, crypto projects can adhere to SEC regulations and avoid enforcement actions. This ensures that offerings are conducted within a clear legal framework.
- Retail Investor Access: Unlike traditional securities exemptions like Reg D, Reg A+ allows retail investors to participate in offerings. This opens a wider pool of investors and creates greater liquidity for projects.
- Ongoing Transparency: Reg A+ requires companies to provide ongoing financial disclosures, offering greater transparency to investors and regulators. This transparency builds trust and credibility for crypto projects.
- Secondary Trading Compliance: Once a crypto project is compliant under Reg A+, its securities can be traded on an Alternative Trading System (ATS), such as the Ohanae Platform, ensuring secondary market activity follows all necessary regulatory requirements.
Ohanae: Leading the Charge for a Regulated Crypto Market
The Ohanae Platform, is designed specifically to support the transformation of crypto projects into fully compliant Reg A+ offerings. Ohanae addresses the regulatory challenges that U.S.-based crypto companies face by offering a platform built for compliance, transparency, and liquidity.
Here's how Ohanae plans to solve these challenges:
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Reg A+ Primary Offerings on Ohanae
Ohanae enables crypto projects to conduct primary offerings under Reg A+, providing the necessary infrastructure for companies to raise funds legally within the U.S. market. These offerings are conducted in accordance with U.S. securities regulations, and Ohanae ensures that all participants undergo KYC/AML verification, adhering to stringent compliance requirements.
Ohanae's platform allows crypto projects to tokenize their securities and manage their cap tables on the Ohanae Blockchain, which serves as the single source of truth for all records, ensuring accuracy and transparency. This process enables crypto companies to transition their projects from non-compliant ICOs to fully compliant Reg A+ offerings.
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Secondary Trading on a Compliant ATS
One of the key challenges for crypto companies is enabling the secondary trading of their digital asset securities in a compliant environment.
Ohanae's Alternative Trading System (ATS) is built for this purpose. Once a project has conducted its Reg A+ offering, the Ohanae Platform facilitates secondary trading, allowing both retail and accredited investors to trade these securities in a compliant manner.
Ohanae employs an Automated Market Maker (AMM), which operates based on the Constant Product Formula, ensuring built-in liquidity for digital asset securities. This ensures that trades are executed transparently and efficiently, without relying on traditional order books, further mitigating risks of market manipulation.
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End-to-End Compliance and Oversight
Ohanae's compliance monitoring system is designed to handle the complexities of U.S. securities laws, including KYC/AML verification, market conduct rules, and disclosure obligations. These systems are embedded into the platform’s smart contracts and compliance tools, ensuring that crypto projects adhere to the highest standards of regulatory oversight throughout both the primary offering and secondary trading processes.
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Integrated Payment System with Ohanae Coins (OUSD)
Ohanae also integrates a deposit coin system (OUSD) pegged 1:1 to the U.S. dollar, allowing investors to participate in both primary and secondary markets using a stable, compliant digital currency. OUSD ensures the transparency of funds used in transactions and eliminates the volatility associated with traditional cryptocurrencies.
The Future of U.S. Crypto Projects: A Regulated Market
The U.S. crypto market has long been at odds with regulatory bodies like the SEC, largely due to the failure of most digital assets to comply with the Howey Test. However, by transitioning to Reg A+ compliance and leveraging platforms like FINRA-approved ATS, crypto projects can overcome these challenges, ensuring compliance and transparency.
Ohanae is leading the charge in transforming the crypto landscape, offering a fully compliant solution for both primary and secondary markets. This approach not only protects investors but also creates a clear path forward for U.S.-based crypto companies to operate legally and securely in the rapidly evolving world of digital assets.
In summary, the future of crypto in the U.S. lies in compliance, transparency, and regulated markets. With the Ohanae Platform at the forefront, crypto projects now have a powerful tool to meet these challenges head-on, transforming into compliant Reg A+ offerings and driving the next wave of innovation in digital assets.
If you're interested in how the Ohanae Platform can help your crypto project comply with U.S. regulations and thrive in both primary and secondary markets, visit our website or reach out to our team for more information.
Disclaimer
Ohanae Securities LLC is a subsidiary of Ohanae, Inc. and member of FINRA/SIPC. Additional information about Ohanae Securities LLC can be found on BrokerCheck. Ohanae Securities LLC is in discussions with FINRA about exploring the expansion of business lines for the broker/dealer. Any statements regarding abilities of Ohanae Securities LLC are subject to FINRA approval and there are no guarantees FINRA will approve the broker/dealer's expansion.
Ohanae Securities is seeking approval to be a special purpose broker-dealer that is performing the full set of broker-dealer functions with respect to digital asset securities – including maintaining custody of these assets – in a manner that addresses the unique attributes of digital asset securities and minimizes risk to investors and other market participants. If approved, Ohanae Securities will limit its business to digital asset securities to isolate risk and having policies and procedures to, among other things, assess a given digital asset security's distributed ledger technology and protect the private keys necessary to transfer the digital asset security.