It has taken the U.S. Securities and Exchange Commission a little more than a year since the June 2016 Distributed Autonomous Organization fiasco to express its thoughts on initial coin offerings, but the regulator has drawn its line in the sand: Tokens sold to raise capital are securities, and the regulator will treat them as such.

The SEC has issued its report regarding the event and noted that although the DAO had been described as a crowd-funding venture-capital entity, it did not meet the requirements of Regulation Crowd Funding, which the regulator published the same month that the DAO launched.

“The innovative technology behind these virtual transactions does not exempt securities offering and trading platforms from the regulatory framework designed to protect investors and the integrity of the markets,” said Stephanie Avakian, co-director of the Enforcement Division at the SEC, in a prepared statement.

As such, those who participate in unregistered offerings may be violating securities law as well as unregistered venues that trade these securities, unless they are exempt

The SEC decided not to bring charges against those behind the DAO or make a finding of violation after completing its research for the report.

The report makes an excellent bookend for the history of the DAO event and does not affect existing companies that want to raise capital through the issuing of debt or equity using electronic instruments based on distributed ledger technology.

Earlier this week, July 24, the State of Delaware enacted legislation that permits state-registered corporations to issue and trade shares on blockchain-based platforms.

The biggest loser regarding the SEC’s new findings are the hedge funds and other institutional investors that seek to trade or invest in the next big thing as well as startups that have had, are running or plan to run ICOs for funding.

Research firm Smith+Crown has tracked 108 completed ICOs since the beginning of 2017 and is following 65 open ICOs and 54 planned ICOs.
Some of them are not open to US investors, so they fall outside the scope of the SEC.

Given the philosophy of many in the digital currency community, many ICOs likely will move offshore or to the underground economy, where investors accept the risk of an unregulated market.

For organizations that want to gain investors and participate in the financial markets, they will find that there are no technological short cuts that can bypass securities regulations.