A Tokenized Future: Regulatory Lessons from Crowdfunding and Standard Form Contracts

This Article examines the world of risk investing in the cryptoeconomy. The broader crypto market is booming despite the latest downturn. People and institutions are buying in. The question is now how to regulate it. This Article first tackles the question of whether coins, tokens, and other investable cryptoassets are securities. Second, for those cryptoassets that are not securities, this Article seeks to find a regulatory solution that balances promoting innovation with investor protection, just as the Securities and Exchange Commission (SEC) would do. To strike the right balance, this Article adopts a proposal by Ian Ayres and Alan Schwartz for policing standard form contracts that accompany consumer product purchases. That is, crypto issuers would be required to include a short, prominent “warning box” on their websites that includes only unexpected and harmful features of the crypto. Coupled with the whitepapers already provided by crypto developers—a shining example of voluntary disclosure working—the warning-box add-on completes the crypto regulation picture and properly balances innovation and investor protection. For well-known cryptos like bitcoin, nothing would be required in the warning box. Risks from investing in bitcoin, from environmental impact to price volatility, are generally understood. Tether developers, however, should have disclosed that their stablecoins were not fully backed by fiat currency reserves by using a warning box, and Ethereum developers should be disclosing that gas fees can be much higher than normal transaction fees investors may be accustomed to. This Article’s approach to crypto regulation favors market mechanisms over regulatory overreach in this emerging area