In a recent lawsuit against Consensys, the U.S. Securities and Exchange Commission (SEC) clarified its stance on the classification of some major cryptocurrencies as securities. These cryptocurrencies include Terra Luna Classic (LUNC coin), Polygon (MATIC), The Sandbox (SAND), Chiliz (CHZ) and Decentraland (MANA). This legal action supports the SEC’s claim that these crypto assets were initially offered and sold as an investment contract. Therefore, the SEC believes that these cryptocurrencies should be regulated under securities laws. For clarity, Consensys, a major player in the cryptocurrency space, is accused of facilitating the trading of these assets through its MetaMask Swaps platform.
SEC’s securities benchmark affected by projects’ whitepapers
One of the tokens under investigation is MATIC, the native token of the Ethereum scaling blockchain platform Polygon. Polygon positions MATIC as essential for network operations and management and incentivizes investors through staking mechanisms and other economic activities. Therefore, the SEC alleges that MATIC has been marketed and sold as an investment vehicle since its launch. He notes that investors expect the value of MATIC to increase with Polygon’s ongoing development and expansion efforts. To prove this, he mentions the details in MATIC’s whitepaper. The whitepaper includes the following statement:
MATIC Tokens are expected to provide economic incentives on the Matic Network [now Polygon]… Without Matic Tokens, users have no incentive to spend resources to provide services or participate in activities in the overall ecosystem on the Matic Network.
Additionally, Polygon announced that it has raised funds from well-known and famous investors. Especially, Polygon co-founder Sandeep Nailwal said in a tweet in November 2022, “I won’t stop until Polygon gets the ‘top 3’ spot it deserves (along with BTC and ETH). No other project even comes close.” ” said. Marketing efforts and the statements of the founding partner were also among the factors affecting the SEC decision.
What are the arguments for Decentraland, Chiliz, LUNC coin and others?
Similarly, MANA, the cryptocurrency of Decentraland, the metaverse platform running on Ethereum, has also been classified as a security by the SEC. MANA facilitates transactions within the Decentraland ecosystem and gives investors rights to participate in management and content creation. The SEC has scrutinized the sale of MANA tokens during its ICO and ongoing trading activities on platforms such as MetaMask Swaps. He also noted that these activities were conducted with the expectation of potentially profiting from the growth and adoption of the Decentraland platform.
Another token under investigation is Chiliz’s utility token, CHZ, which is used on the Socios platform for fan engagement in sports and entertainment. CHZ allows fans to buy into and influence decisions on their favorite teams through voting rights and rewards programs. The SEC alleges that CHZ was promoted as an investment opportunity. He points out that funds are clearly earmarked for platform development, user acquisition and marketing efforts. These factors have all contributed to potential increases in the value of CHZ. SAND, the token of the blockchain-powered metaverse The Sandbox, is also one of the highlights in the SEC case. The SEC argues that SAND’s initial offering portrays it as an investment vehicle.
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