A border with variable geometry – In the United States, the relationship between Securities and Exchange Commission (SEC) and cryptocurrencies is more than tumultuous. The financial policeman leads in particular an (endless) hunt against Ripple and its XRPwhich it accuses of being a security, or securities. But that she is difference between these security tokens and the utility tokens ? She is both blurry and very slim.
Securities : the SEC fights messy battles against crypto projects
Before looking at the (almost wet-finger) methods of DRY to find out whether or not a cryptocurrency is a securities in his eyes, let’s do a little summary quick in its actions.
Mainly since the crazy period of ICOs (initial coin offerings) of the years 2017-2018, the Securities and Exchange Commission had to face a new guy of assets that did not fit into any of these pre-built boxes: crypto-assets so.
Faced with the unknown, the SEC first dealt with most obvious targetsAnd this, from the year 2018. The financial policeman went as far as to block an ICO even before until it takes place, at the end of 2019: the public fundraising of the Telegram’s TON project could never be done.
Most recently, this month of July 2022, it is the yet very established crypto-stock exchange Coinbase which had trouble with the SEC. The latter accuses the platform of sell security tokens without having permission.
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Security tokens and utility tokens : the SEC itself does not know how to define them well
Why Coinbase rather than any other exchange that offers, for example, XRP, or any other crypto perceived as securities ? We sometimes wonder if it’s not right at the customer’s headif the latter does not return to the SEC.
But then, how does this body define what a security is? According to a law that dates back to… drum roll… 1933. Soon not far froma century so. Just with this element, we begin to understand themaladjustment with cryptocurrencies, the oldest of which, Bitcoin (BTC), was born in January 2009.
To find out if a crypto falls under this law – called the Securities Act -, the SEC uses the Howey Test. The latter was defined in 1946with 4 criteria defining a security:
- It has to be a investment silver ;
- What investors expect generate profit ;
- That this investment of money be made in a joint venture ;
- And if the profits come from the efforts of a promoter or a third.
Suffice to say that this definition very large can potentially concern… well all crypto projects that have a team (or even worse, a company) of development. And if in addition to tokens have been sold at the start of the project (or even at any time): the SEC’s sword of Damocles can fall on them.
Ethereum and its classified ethers “ utility tokens according to the SEC
What irritates Ripple in its lawsuit with the SEC, which it regularly qualifies “unfair”it is the fact of being accused whileEthereum (ETH) gets away with ethers considered utility tokens – Bitcoin being frankly considered as merchandise (commodities), as’gold.
Indeed, in 2018, William HinmanDirector of Institutional Finance of the SEC, had explained that – despite the sale of ETH at the launch of this project – this network had now become “highly decentralized”.
The utility tokens (literally, utility tokens) are considered as such if they have a concrete non-speculative utility (basic): to carry out operations on a network, or to obtain services on an exchange platform, for example. Of course, these tokens can still gain a lot of value with an increase in their demand/utility, as is the case with ethers.
With a law and criteria dating from the beginning of the last centuryand cryptocurrencies whose nature changes with lightning speed, the SEC therefore finds itself in a very difficult situation to know which crypto to attack. Because, if in its very beginnings in 2015, Ethereum could very well have to be considered as securities, this is clearly no longer the case today, according to a representative of the SEC himself. Why the XRP is entitled to this (bad) treatment in securities then ? The fact that this project is still a society (Ripple Labs) in the service of the development of its ecosystem seems suffice. We warned you: security tokens Where utility tokensit is at the extreme limit of being decided on a wet finger by the SEC.
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