Blockchain has brought about a diversity of crypto-assets, and because of the lack of a regulatory framework, thousands of crypto-assets are currently traded in a disorderly and unsecured market. This disorder has caused so many problems that many countries and regions around the world have imposed severe bans on the issuance and trading of cryptocurrencies. However the rapid growth of the crypto-asset market has also forced lawmakers to take the market seriously.
The Trend of Compliance
In the year of 2021, we see that the conflicts between the crypto market and the SEC and CFTC has become more and more frequent. Starting with the SEC’s lawsuit against Ripple, followed by Binance, one of the most influential crypto exchange, been warning by regulatory authorities in several countries around the world, to Congress urging the SEC and CFTC to establish a joint working group on digital assets to promote an active dialogue between federal regulators and crypto market participants. A path to a compliant crypto asset issuing and trading with clear regulatory policies doesn’t seem too far away.
Also, at a hearing in September, new SEC Chairman Gensler assured members of Congress that Wall Street’s top regulator is working overtime to develop a set of rules to regulate the volatile Crypto market while balancing the interests of U.S. innovators.
Why is Regulatory Needed?
1. The Need for Anti-Money Laundering
Because of its technical characteristics such as anonymity and immutability, the crypto industry can easily become a disaster area for fraud and money laundering. This adds to the difficulty of combating economic crimes.
In May, Bloomberg news reported that Binance was facing an probe by U.S. Money-laundering and Tax sleuths. Since then, Binance has received warnings from the Financial Services Authority FCA in the UK, the Financial Services Agency (FSA) in Japan, the Ontario Securities Commission (OSC) in Canada and regulators in Malaysia, the US, Italy and Thailand. Binance had to gradually shut down its operations in the aforementioned countries.
2. The Need to Protect Investors
The crypto industry has a well known saying: “Code is Law” . It seems that everything can be regulated by code. However, since its inception, the crypto industry has faced countless scams, disappears, and asset thefts, and countless investors have suffered losses as a result of these scams.
The most recent one occurred on October 6, when “Evil Ape”, the anonymous developer behind the “Evolved Apes” project, suddenly disappeared along with his Twitter account, website, and $2.7 million. This shows that the lack of regulation and legal constraints exposes investors to a huge risk of losing their assets.
Is Regulation Inhibiting the Growth of the Crypto Industry？
Many practitioners in the crypto industry think that regulation will hinder the growth of the crypto industry. It is true that crypto projects proactively choosing the right regulatory framework will bring some constraints to the development of the project, but that will not be the main factor that hinders the development of the project. What really hinders the development of projects is usually their own lack of innovation or difficulty in being accepted by the current market.
In fact, choosing the right regulatory framework for financing will brings more attention and investment to a project. In April of this year, Exodus, a multi-asset crypto software wallet, closed a $75 million funding round through a public offering under the SEC Reg A+ regulatory framework.
Current Applicable Compliance Framework (U.S.)
Under the U.S. federal securities laws, there are only two ways to comply with any offering or sale of securities.
A) Registration of the securities with the SEC
B) Exemption from the relevant regulations
Currently, there are four exemptions: Regulation D, Regulation S, Regulation CF and Regulation A+.
Reg D
Reg D is primarily for private offerings of securities to qualified investors and includes the small offering exemption under Rule 504 and the private offering exemptions under Rule 506(b) and Rule 506(c). Form D.
Reg S
Reg S applies to offerings of securities outside the U.S. Securities exempted under this rule may only be offered outside the U.S. to non-U.S. citizens, must be offered and traded outside the U.S., and may not be advertised, offered or publicly solicited in the U.S.
The securities subject to the Reg S exemption must both be offered and traded outside the United States and must not be issued to a U.S. citizen.
Reg CF
The revised Reg CF has no restrictions on investor qualifications or number of investors. However, companies must offer securities online through an SEC-registered agent, may not raise more than $5 million per 12-month period, and are required to make required disclosures.
Reg A+
Reg A+ has the most user-friendly regulations in all areas, but also has the highest compliance costs.
Reg A+ allows companies to raise capital through public advertising, and there are no restrictions on the qualifications or number of investors. For issuer eligibility, Reg A+ applies only to entities with their place of incorporation or principal place of business in the U.S. or Canada; the revised Reg A+ regulations increase the small offering exemption to $75 million.
HGC’s STO Options
HGC is a leading developer of SaaS systems for logistics and freight transportation in China. After 40 years of rapid economic development and industrial internet innovation, China has become the world’s most promising digital capacity market. HGC has established a first-mover advantage in the industry through business model innovation, open system construction, and compliant operations. HGC saw the tremendous opportunities and changes that blockchain technology and the pass-through economy would bring, and decided to combine its business with the blockchain pass-through economy.
1. Securities-based Token Issuance
HGC sees the promise and dynamism of a compliant ST program and is actively embracing regulation. the Trucpal Token (HGC Token) issuance is under SEC Reg D and Reg S. It is a securities-based token based on real freight transactions, backed by a Chinese operating company, and issued in compliance with US securities laws.
2. Embracing the Ownership Economy
The blockchain token economy allows users to stay financially aligned with the projects they back and share in the network’s revenue. This new economic model is known as the “Ownership Economy”.
Trucpal Token is based on the revenue of the new capacity ecosystem built by HGC, and the service fees collected from each transaction on Trucpal ecosystem will be distributed to Trucpal Token holders in a certain percentage. The platform will allocate 75% of the revenue to Trucpal Token holders.
3. Innovative “ Bi-nominal Hybrid Token” design
In order to meet the needs of various regulatory and user scenarios, Trucpal has innovatively proposed a “Bi-nominal Hybrid Token” design, where both Trucpal Token and DeTrucpal Token will exist. DeTrucpal Token is a 1:1 Token mapped from Trucpal Token, which can be exchanged through the blockchain network.
The Bi-nominal Hybrid Token can be widely used in the trucking ecosystem in a regulatory compliant manner for different transaction scenarios to incentivize users, activate and maintain user stickiness, and further encourage ecosystem growth.
