The U.S. Securities and Exchange Commission (SEC) has identified at least 68 blockchain tokens as securities, with assets such as Solana’s SOL and Cardano’s ADA included in this classification. The SEC’s stance indicates that over $100 billion worth of assets, approximately 10% of the total crypto market cap, are potentially being traded illegally. Despite SEC Chair Gary Gensler stating that the rules are clear, confusion remains surrounding crypto’s regulatory status in the U.S.
A crucial question is: What can users do with a token labeled as a security? On one hand, users should technically be able to trade the token and utilize its open-source code, as blockchain networks are stateless and typically decentralized. However, this perspective overlooks the fact that many crypto users access networks and purchase assets via centralized exchanges and services, which must abide by regulations.
If users are unable to access a token due to regulatory constraints on crypto’s on-ramps, discussions surrounding “stateless currencies” and open-source access become irrelevant for many people. Users’ abilities to interact with these so-called securities depend on the limitations set by the SEC.
The classification of a token as security impacts the disclosures required from companies to potential investors and the manner in which an asset can be offered. These restrictions could limit the types of platforms that can legally provide access to an asset, such as registered broker-dealers, securities exchanges, and other trading systems. Additionally, it may impact whether “accredited investors” are permitted to trade the tokens.
While classification as a security may not drastically affect the use cases for tokens, it does raise the question of whether centralized platforms like Robinhood, Coinbase, and eToro want to provide access to these tokens and whether doing so is legal. The delisting of Ripple’s XRP following a lawsuit by the SEC in 2020 serves as an example of what may happen when a token is declared a security: It becomes inaccessible to U.S. users but remains available for trading worldwide on offshore exchanges.
If a token is labeled a security, it can affect users’ access but not necessarily what they can do with the token. However, the classification may lead to reduced accessibility for U.S. investors. Balancing regulatory efforts with the open nature of blockchain technology remains a challenge, since the technology is accessible by design and the networks themselves are supra-regulatory.
Ultimately, the SEC’s liberal interpretation of the Howey Test in determining which tokens classify as securities is likely to result in litigation and federal legislation. In the meantime, the debate on how regulatory frameworks should evolve to cater to the unique attributes of cryptocurrencies continues.
Source: Coindesk
