In the dynamic world of cryptocurrency, the United States Securities and Exchange Commission (SEC) finds itself at crossroads as it grapples with litigation against leading platforms Coinbase and Ripple Labs. The bone of contention is centered around the regulatory definition of what deems a security.
Historically, the SEC’s versatile legal definition, as established by the Supreme Court in the 1946 case SEC vs. Howey, has been instrumental in flagging outright frauds and scams with little economic merit. This gave the SEC an upper hand, as judges in such cases extended the benefit of doubt to the commission, making the test adaptable over a series of historic scam cases. However, when this flexible test is applied to legitimate crypto projects, it blurs the lines, leaving crypto projects with little to no pathway to registration.
A turning point in the ongoing saga is the recent ruling by Judge Analisa Torres in SEC vs. Ripple. The Judge differentiated the sale of XRP tokens from the entrepreneurial efforts of Ripple, dispelling one aspect of the Howey test. Given the fact that in the crypto world, tokens don’t represent an equity interest in the issuer, this breaks away from traditional norms, as investors of crypto tokens are not as closely linked to the efforts of the founders.
This unconventional perspective effectively flips the SEC’s case against Coinbase. Following the ruling, Coinbase responded forthrightly by relisting the XRP token within hours. While this victory presents a considerable challenge for the SEC, it sets a new narrative that significantly mitigates the SEC’s ability to target secondary markets in crypto securities, such as secondary trading on Coinbase’s platform.
That being said, there is no denial that the rules pertaining to board of directors, executive compensation, shareholder proposals, and financial statements are not designed to fit the crypto world. For instance, how would “register” Ethereum today? This decentralized blockchain platform has no board and no CEO, raising the question of what would be declared on the balance sheet about Ethereum.
The need of the hour is for the SEC to settle its cases with Coinbase and Ripple labs and work closely with crypto lawyers to create an adaptive legal framework that better protects crypto asset buyers. It is crucial for the SEC to move past its rigid registration rhetoric and embrace an alternative approach that is suited for the innovative nature of crypto assets. This not only ensures the safety and protection of crypto asset buyers but also paves the way for a more sustainable and legally sound future in the world of blockchain technology.
Source: Cointelegraph
