Over the last few months, the SEC has found itself in the spotlight for labeling certain crypto assets as securities in unrelated lawsuits. However, some industry participants argue that the agency’s understanding of the technology behind these tokens is insufficient to make such claims.
In its complaint against Coinbase, the SEC listed 12 additional crypto tokens as securities, including ADA, CHZ, SOL, AXS, FIL, ICP, FLOW, NEAR, MATIC, VGX, SAND, and DASH. Additionally, in the Binance lawsuit, the SEC claimed that 10 tokens including SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI are securities.
Critics argue that the SEC’s designation of these assets as securities is flawed due to a general lack of understanding of the relationship between individual tokens and the protocols behind them.
Take, for example, the ATOM token. The SEC cites the “New Tendermint” as a significant contributor to the ATOM token, a claim refuted by Zaki Manian, co-founder of Sommelier Finance. Manian states that there’s no evidence supporting the SEC’s claim and calls the agency’s characterization of blockchain networks “superficial and largely inaccurate.”
Furthermore, the SEC has been designating crypto assets as securities partly due to their “deflationary model.” However, critics argue that their analysis is flawed and incomplete. For instance, the SEC claims that the supply of Polygon’s MATIC token will decrease due to burning, similar to how Ethereum’s EIP-1559 works. But experts like Matt Cutler, co-founder and CEO of Blocknative, point out that if EIP-1559 is an issue, then it would also be a concern for Ethereum, as it works in almost the same way.
Additionally, the SEC overlooks the fundamental purpose of the deflationary models, which is to prevent block builders from manipulating fees in a bid to extract more from protocol users. They also fail to acknowledge the fact that these mechanisms have been made more equitable, predictable, and easier to work with than their predecessors.
In conclusion, the many inaccuracies and misunderstandings in the SEC’s arguments to designate certain crypto assets as securities highlight the need for a more comprehensive understanding of the technology and relationships behind these tokens. As the crypto market continues to develop, it is crucial for regulatory bodies to carefully assess the complexities of new assets before making any hasty decisions.