Declaring war on the entire industry: How did the US SEC determine that more than ten tokens are securities?

Author: Blockingcryptonaitive

The latest news is that the US SEC has sued cryptocurrency exchange Coinbase in the New York Federal Court and has listed SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO as securities.

On June 5, 2023, the US Securities and Exchange Commission (SEC) filed 13 charges against Binance and its founder, Changpeng Zhao, in the US District Court for the District of Columbia, including operating an unregistered exchange, broker-dealer, and clearing agency; distorting trade controls and supervision on the Binance.US platform; and issuing and selling unregistered securities.

One of the main charges is the issuance and sale of unregistered securities. The SEC alleges that the Binance platform widely sells cryptocurrency securities tokens to anyone who creates an account, without limiting the purchase quantity or restricting their use, and that these assets can be transferred and resold on the Binance platform or other cryptocurrency asset trading platforms without clear resale restrictions. Cryptocurrency issuers can offer, sell, or distribute their cryptocurrency securities through the Binance platform directly or through intermediaries.

In its charges against Binance and Zhao, the SEC not only identified BNB and BUSD as securities, but also considered ten common cryptocurrency tokens, including SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI, as securities. The SEC also stated that it had previously identified AMP, REP, UST, and TRX cryptocurrency tokens as securities, which are also traded on the Binance platform.

From this perspective, the SEC is almost declaring war on the entire cryptocurrency industry.

To make the charges seem credible, the SEC used nearly 40 pages to explain in detail why these ten tokens are considered security tokens. After reading these charges, Blocking reporters summarized how the SEC determined that dozens of tokens are securities in five sentences for each token.

1. SOL

1. SOL is the native token of the Solana blockchain, which was created by Solana Labs for building decentralized applications. Solana Labs was founded in 2018 by Anatoly Yakovenko (referred to as “Yakovenko”) and Raj Gokal (the current CEO and COO of Solana Labs). The founders of Solana Labs previously worked at the Solana Foundation, with Yakovenko serving as a member and chairman of the Solana Foundation committee.

2. SOL can be staked on the Solana blockchain to earn rewards and requires a small amount of SOL to be paid as a burn fee in transactions to prevent abuse.

3. Solana Labs raised tens of millions of dollars through multiple security sales and conducted SOL sales on platforms such as CoinList and Binance. SOL can be purchased, sold, and traded on platforms such as Binance.US and Binance.com.

4. Solana Labs publicly promotes its expertise in blockchain development on its website and social media pages, and showcases its efforts to develop the Solana blockchain protocol and attract users who need a certain amount of SOL. Solana Labs has also conducted other promotional activities, such as podcasts, YouTube channels, and various social media platforms, to increase participation in the Solana network and SOL token.

5. Holders view SOL as an investment, expecting to profit from the development of the Solana protocol and hoping to increase the demand and value of SOL.

II. ADA

1. ADA is the native token of the Cardano blockchain, created by Charles Hoskinson and Jeremy Wood in 2015. The Cardano blockchain adopts its own proof-of-stake consensus protocol Ouroboros, which is known for being energy efficient.

2. Cardano has three entities responsible: the Cardano Foundation is the legal custodian and brand owner, IOHK is responsible for designing and building the Cardano blockchain, and Emurgo is the for-profit sector that promotes commercial adoption.

3. After the initial mining, the Cardano Foundation, IOHK, and Emurgo collectively received 5.2 billion ADA, accounting for about 16.7% of the initial token supply.

4. These three entities used the revenue from ADA sales to fund the development, marketing, business operations, and growth of the Cardano protocol, including implementing roadmaps and developing each “era”.

5. The public dissemination of information by the Cardano Foundation, IOHK, and Emurgo reasonably allowed ADA holders to view ADA as an investment in driving Cardano growth, expecting to profit from it, thereby increasing the demand and value of ADA. They detail their expertise and efforts to develop the Cardano protocol, including plans to create smart contracts, introduce innovative features and capabilities, and improve network performance, on social media and websites.

III. MATIC

1. “MATIC” is the native token of the Polygon blockchain, created by the founders of Polygon in 2017. Polygon is an Ethereum scaling platform that aims to build scalable and user-friendly dApps and reduce transaction costs through sidechains.

2. Polygon issued 10 billion Matic tokens which can be obtained through staking, delegating, or pledging. Matic is designed to provide economic incentives for Polygon, giving participants the motivation to provide services for the network.

3. Polygon raised funds to support the network’s development through early sales and initial exchange offerings, while reserving a portion of Matic for ecosystem support and team compensation.

4. Polygon increased the demand and value of Matic by publicly spreading information and creating the expectation that Matic holders would profit from Polygon’s growth. Polygon regularly updates network growth and financial data and encourages Matic to be viewed as an investment. Moreover, Polygon reduces the total supply by destroying Matic tokens, increasing investors’ expectations of Matic’s potential profit.

4. FIL

1. “FIL” is the native encrypted asset of the Filecoin network, an open-source data storage network that operates on the blockchain. Filecoin aims to establish a decentralized data storage network and create value by incentivizing miners to provide storage services and participate in network operations.

2. Protocol Labs, Inc. is the laboratory that created the Filecoin network. They released the Filecoin white paper in 2014 and conducted a token sale in 2017. The 2017 FIL sale raised over $205 million for the development and growth of the Filecoin network.

3. The economic structure of the FIL token distribution includes allocations to miners, Protocol Labs, investors, and the Filecoin Foundation. The allocation economic structure of FIL and public statements regarding the structure encourage investors to view FIL as an investment in Protocol Labs and the Filecoin Foundation’s efforts.

4. Tokens allocated to Protocol Labs and the Filecoin Foundation will be gradually unlocked over six years after network launch. Protocol Labs and the Filecoin Foundation “aim to create massive long-term value for Filecoin and hope to attract investors who are equally interested in creating and growing long-term value,” while “unlocks create long-term consistency” because “Protocol Labs and the Filecoin Foundation have a deep commitment to long-term commitment, and the six-year unlock provides clear evidence to all other network participants.”

5. Filecoin also implements a mechanism for destroying FIL tokens, reducing the supply of FIL. The FIL destruction, which is advertised by Filecoin as part of its economic characteristics, reasonably leads investors to believe that the FIL they purchased has the potential for profit.

5. ATOM

1. ATOM is the native cryptocurrency of Cosmos Hub, a blockchain ecosystem designed to achieve scalability and interoperability. The goal of the Cosmos team is to create a blockchain network that can communicate with each other in a decentralized manner.

2. Cosmos Hub is a centralized blockchain that provides services to other blockchains connected to it, including cross-chain token exchange, shared security, bridging with Ethereum and Bitcoin, and secure custody of digital assets.

3. ATOM is described as a license that holders can vote, validate, or delegate to other validators, and can be used to pay transaction fees.

4. ICF is one of the entities closely related to Cosmos development, which raised about $17.3 million in investor funds in the 2017 Cosmos fundraising campaign.

5. Overall, ATOM holders view it as an investment in the development of the Cosmos protocol and expect to profit from it, which increases the demand and value of ATOM.

6. SAND

1. “SAND” is the native token of The Sandbox, a sandbox platform created on the Ethereum blockchain. It was initially developed as a mobile game by Pixowl, Inc. in 2012 and acquired by Animoca Brands in 2018.

2. SAND tokens are used to access the sandbox platform, participate in governance, and earn rewards through staking.

3. Prior to the creation of SAND tokens, Animoca Brands raised about $2.5 million in cash and cryptocurrency through a series of Simple Agreements for Future Equity (SAFEs) and a SAND token sale. The funding round was led by Hashed, with participation from other cryptocurrency venture capitalists.

4. The total supply of 3 billion SAND tokens was minted on the Ethereum blockchain in July 2019 and raised funds through private sales and an IEO on the Binance.com platform in August 2020.

5. SAND tokens can be traded on exchanges such as Binance.US, and the Sandbox team plans to manage the token market by controlling the supply mechanism. The funds raised are used for platform development, marketing, legal fees, and administrative costs. The Sandbox Foundation supports ecosystem development and incentivizes the creation of high-quality content and games.

7. MANA

1. Decentraland is a virtual reality platform founded by Metaverse Holdings and launched to the public in February 2020. Its native token is MANA, with a total supply of approximately 2.19 billion, and can be traded on platforms such as Binance.

2. The MANA token plays an important role in the Decentraland virtual reality ecosystem and is used for all transactions. Approximately $24.1 million was raised through an ICO in 2017, with a portion allocated to early contributors to purchase MANA at a discounted price.

3. Decentraland continues to develop the platform and controls the supply of MANA through a continuous token model to support platform expansion and improve user experience.

4. Decentraland created the Decentraland Foundation, which owns the platform’s intellectual property. In the initial supply, 20% was allocated to the founding team and early contributors, 20% was allocated to the foundation, 40% was available for public purchase, and the remaining 20% was used to incentivize early users and partners.

5. Decentraland promotes network development through financial incentives such as competitions, bonuses, and subsidies, and implements a burning protocol when using MANA tokens.

8. “ALGO” is the native token of the Algorand blockchain with a total supply of 10 billion. Algorand is a blockchain protocol founded by Silvio Micali that uses the “pure proof-of-stake” consensus algorithm.

2. The Algorand Foundation conducted its first ALGO token sale in 2019, raising approximately $60 million. They offered a refund policy that allowed investors to receive 90% of their ALGO tokens back at the original purchase price after one year.

3. The Algorand Foundation continues to distribute tokens through reward programs and incentive structures, with approximately 6.9 billion ALGO tokens in circulation as of September 2022.

4. Algorand Inc. and the Algorand Foundation collaborate on projects and initiatives for the Algorand community, promoting the Algorand protocol and claiming to use their founder’s tokens to protect the network, support ecosystem development, and encourage development.

5. The Algorand Foundation takes measures to incentivize third-party participation and attract user adoption of the ALGO protocol, such as launching incentive programs and establishing the AlgoHub virtual community. These efforts increase expectations for Algorand technology and ecosystem and may increase demand for ALGO.

9. Axie Infinity is a blockchain game developed by Sky Mavis, in which players can interact in a virtual world using digital pets called “Axies”. The native token in the game is called Axie Infinity Shards (AXS).

2. Sky Mavis is led by CEO Trung Nguyen and COO Aleksander Leonard Larsen, with a team of 40 full-time employees responsible for key decisions in product development, marketing, digital design, and software engineering.

3. Players of the Axie game can earn AXS tokens by successfully playing and can use AXS for in-game purchases. AXS can also be staked in the Axie ecosystem. The total supply of AXS is 270 million, with a circulating supply of over 100 million.

4. In 2020, Sky Mavis raised approximately $864,000 in AXS tokens through a private sale to strategic investors. They also conducted a public sale distributing 29.7 million AXS tokens, raising $2.9 million for Axie. The AXS tokens sold to strategic investors were sold at a 20% discount to the public offering price and were gradually unlocked over a two-year period according to a quarterly unlocking schedule.

5. AXS tokens were tradable on Binance.com in October 2020 and on Binance.US in November 2021. Public information released by Sky Mavis reasonably led buyers of AXS since August 2021 to view it as an investment, expecting to profit from Sky Mavis’ efforts to increase the Axie protocol and thus increase demand and value for AXS.

10. COTI

1. COTI is a company that claims to provide digital infrastructure for payments, with its native token being COTI. The company was founded by Samuel Falkon and David Assaraf, and the CEO is Shahaf Bar-Geffen. Coti’s website is operated by Coti (BVI) Limited registered in the British Virgin Islands.

2. COTI conducted an IEO on June 4, 2019, raising about 46 million COTI tokens and approximately $3 million. The maximum supply of COTI is 2 billion tokens.

3. Since February 2020, COTI has been available for trading on the Binance.com platform and has been available for trading on the Binance.US platform since April 2022. Publicly disseminated information by Coti reasonably led COTI holders to view it as an investment, expecting to profit from Coti’s efforts to grow the Coti protocol and thus increase demand and value for COTI.

4. Coti announced the allocation of private and seed sales before the IEO, with private sales accounting for 10.01% of the total supply at a price of $0.08 per COTI and seed sales accounting for 2.87% of the total supply at a price of $0.06 per COTI.

5. Coti introduced team members and their efforts to develop the Coti blockchain and attract users through social media, Medium articles, and public statements on the website. They emphasized the integrated development within the company to provide one-stop solutions for enterprises, and outlined their future plans and growth.

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