The SEC recently named several popular crypto assets as securities including ADA, ATOM, SOL and MATIC with the full list now up to 68 in total!
Interestingly the SEC has steered clear of Proof of Work blockchains because these don't have an initial central point of issuance, hence why you don't see BTC or LTC on the list, at least that seems to be the logic.
Some of the foundations linked to some of the tokens named as securities have already come out and challenged this definition by the SEC, with the Cardano foundation being the most overt, clearly stating that ADA is not a security.
According to current Supreme Court Case Law, these guys have a point....
This relatively short paper on why crypto assets aren't securities from the Harvard Law School Forum on Corporate Governance outlines in fairly simple terms why crypto assets are not securities....
The Howey Test emerged out of Superme Court case in which the SEC took the Howey company to court for failing to registering their business as selling securities - their business involved leasing Citrus Groves in Florida, investors had to do nothing to get a profit.
The company was found to be dealing in securities because it was doing four things, and this set the definition for what counts as a security, which is now known as the Howey Test...
According to the test, a transaction is a security if it is
Of course this is now 80 years ago, and so this case study may just be too old to be applied to such a new industry, but in this case the SEC should have maybe tried harder to introduce some new guidance, and in the absence of doing so before it's gone after crypt I think it has to suck it up!
Well it's down to number two above: most of them are sufficiently decentralised to be able to claim they aren't common enterprises.
That is we just have private actors all interacting via a blockchain, they are not, so to speak, headed by any one CEO so there isn't commonality, cryptos are.
Apparently all of this concern by the SEC labelling everything crypto a security game out of the 2018 ICO craze phase, when maybe some of the above coins were securities, coming from one central point of issue, and with a lot of tokens staying with the issuers.
However nowadays, four years on with more equal distribution and dapps built on most of these chains, ADA/ SOLANA/ MATIC etc. are just governance and utility tokens, NOT securities, they have different functions, and don't meet that second criteria because they are held for diverse purposes, by multiple enterprises, NOT one common enterprise.
So maybe technically every token on the SEC's list was a security, but some or all aren't anymore, and if they're not is that going to depend on what counts as decentralisation....
And are the exchanges up in court (Binance and Coinbase) going to make legal cases for every single crypto on that list and fight their battle for them?
And are the courts going to ignore the initial origins of the tokens in all of this and consider them on current merits.....?
I guess that's one of the joys and curses of crypto... with decentralised governance the technical definition of a token can be changed.
Maybe some of the other chains on the list should consider forking like SOL is and change the rules with the fork slightly to make sure they can't classify as a security, leaving all the original tokens as a (possible) security..?!?
