On FinCEN fines and regulations - the fate of token IPOs

Yesterday the news about Ripple Labs being fined by FinCEN for their sale of XRP without an MSB license came out. While some have rejoiced in this development since Ripple has been getting some bad press lately (1, 2), some of us are weary of what precedent this might set for other token IPOs. Lets ponder some of the possibilities.

(Disclosure: I am not a lawyer, nor do I have any formal education in law-related fields. I am a software developer, so take anything stated here with a grain of salt)

FinCEN regulations

FinCEN came out with some definitions and regulations back in 2014. Some of the most important parts of that document are:

  • "FinCEN's regulations define currency (also referred to as "real" currency) as “the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.”"
  • "In contrast to real currency, “virtual” currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction."
  • "The guidance addresses “convertible” virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency."
  • "An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency. An administrator is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency."
  • "The guidance makes clear that an administrator or exchanger of convertible virtual currencies that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency in exchange for currency of legal tender or another convertible virtual currency for any reason (including when intermediating between a user and a seller of goods or services the user is purchasing on the user’s behalf) is a money transmitter under FinCEN's regulations, unless a limitation to or exemption from the definition applies to the person."
Which seems to be pretty straightforward - cryptocurrencies without a fiat peg are virtual currencies and doesn't appear to fall under FinCEN's regulation. Cryptos with a fiat peg, such as Tether or various Ripple IOUs are convertible virtual currencies and therefore fall into this category.

However, if we look at "Statement of facts and violations":
  • "From at least March 6, 2013, through April 29, 2013, Ripple Labs sold convertible virtual currency known as “XRP.” "
I don't know about you, but the last time I checked XRPs were a free market currency like Bitcoin (minus being "premined" and mostly owned by a single entity). This might indicate that any virtual currencies sharing the characteristics of XRPs might be under scrutiny soon...

Token IPOs - are the days numbered?

In our short crypto history, there have been a few notable token presales / IPOs (and a lot more less notable ones). We had:
All of those presales have been done in a similar fashion - people could freely send their coins to a given Bitcoin address and they would in turn receive the tokens they paid for. Fast, easy and hassle-free - an elegant solution for the Internet age.

Now, imagine if those companies had to account for every token sold and verify each of their customers. People would have to sign up for some services, verify their identities and so on. In essence, an elegant presale would turn into something akin to going onto an exchange - more centralized and not as frictionless.

So the question remains - are those tokens virtual currencies, or convertible virtual currencies? If the former, the presales might continue unhindered. If the latter - the current IPO model might need to change...


Whether you like or hate Ripple Labs, there appears to be much more at play here than just the fine imposed on one company.


  1. "Cryptos with a fiat peg, such as Tether or various Ripple IOUs are convertible virtual currencies and therefore fall into this category"
    I think this is inaccurate.

    According to this,
    convertibility has nothing to do with pegged exchange rate, and instead is just about whether it is effectively possible to exchange one for another.

    A non-convertible currency is one where regulations prevent it from being exchanged, such as RMB because of China's capital controls.

    All cryptocurrencies I know of seem to be convertible, whether pegged or not.

  2. Yes i always knew that Ripple had some problems. Centralized crypto is no crypto, we need only decentralized ones.

    1. You can argue Ripple is decentralized in a sense that if Ripple Labs went away someone else could pick the project up and continue the development. So far the Ripple network hasn't had any entity go into it and alter it based on central entity - Jed's XRPs remain his, no transactions have been reversed, etc.