Before development could start in July 2017, the SEC issued a report concluding that DAO tokens are securities; and the offers and sales of digital assets are subject to the requirements of the federal securities laws. This news came as a bolt from the blue to DCORP and created a panic in the lightly regulated domain of ICOs. The SEC ruling now (in)formally required all ICOs to register their entity with the SEC, if they planned to distribute securities to the citizens of the United States.
This was a difficult development for DCORP, as they then had to act hurriedly in order to protect the interests of the US contributors as well as the viability of the corporation. Moreover, the team wanted to provide a fair solution for everyone who had already joined DCORP. It was going to be a difficult task, because the pseudonymous nature of the blockchain made it impossible to determine how many US Citizens had participated in the Initial Coin Offering.
Following careful deliberation, the DCORP team decided on a solution to comply with legal regulations including the tough SEC ruling. Due to the immutable nature of the original smart contract of DCORP, no change could be made that would result into DRP not being considered a security by the SEC.
DCORP created two new tokens out of the original DRP: a utility variant DRPU and a security variant DRPS. Both tokens are distributed in direct exchange for DRP through the use of a Token Changer. The existing DRP tokens would then be made useless by “burning” them after exchanging them for DRPU or DRPS.
In addition to the two new tokens, they further increased compliance by implementing a ‘Know Your Customer’ (KYC) process. To obtain one of these two new tokens, existing DRP holders have to verify their geographic location. If a DRP holder is in a jurisdiction which prevents its citizens from investing in securities, they are only able to exchange their DRP for DRPU, the utility variant. The security variant DRPS is only available to citizens of countries that have no such regulation. As DCORP prides itself on being democratic and transparent, the final approval of this proposed solution was sought from the DCORP community through a vote — the first and final vote utilized through the original DRP Token. The community voted in favor of releasing the DRP token and allowed DRPU and DRPS to come into existence in place of it. After surmounting this stumbling block, DCORP once again focused their efforts to create the VC platform.