Jul 26, 2023 - Economy & Business

SEC settles with Quantstamp over token offering

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Illustration: Sarah Grillo/Axios

One of the most hyped token projects to come out of the heady days of 2017's crypto boom was the security project Quantstamp.

Driving the news: The U.S. Securities and Exchange Commission announced a $3.5 million deal Friday with the firm behind that project to settle allegations that its initial coin offering was a violation of U.S. securities laws.

  • Quantstamp agreed to pay the civil penalty, while neither agreeing to or denying the charges.

Catch up fast: The company raised $28 million (in the form of 87,000 ETH) back in 2017 selling its QSP token to about 5,000 investors, according to the SEC.

  • At the time, it was pitching a decentralized platform for security researchers to check the code of new smart contracts in a decentralized way.

Details: The complaint alleges that the Quantstamp team aggressively touted the potential market for growth of the QSP token, as more smart contracts were created by entrepreneurs that needed security checks.

  • At the time of the initial token sale, Quantstamp founder Richard Ma said he got the idea after nearly losing a portion of his crypto assets in the infamous DAO hack of 2016.
  • Ma was not immediately available for comment.

Flashback: Controversy among Quantstamp's backers blew up in 2018 when they began complaining that the firm was not adequately committed to driving demand for the token it had sold.

  • The SEC says that the firm completed its platform in 2019, but no longer supports it.
  • For a time, Quantstamp was one of the leading providers of security audits in the crypto industry. Its name can be found on many lists of smart contract audit providers.

Be smart: Smart contracts are computer programs that can run autonomously, without human management, on blockchains like Ethereum and Avalanche.

  • Because many smart contracts cannot be updated after publication, it's crucial they are published in a safe way the first time.

What we're watching: The QSP token price fell on the news, however the token has had very weak liquidity for some time.

  • Its price has been so close to zero that it is hard to describe it as falling.
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