- SEC Classifies Chiliz, Polygon, Terra Luna Classic as Securities in New Filings
- SEC ramps up crackdown on DeFi, targeting MetaMask developer Consensys
- The Ethereum ETF approval in May signals a shift in the SEC’s stance on alternative assets.
In leaked court documents, the Securities and Exchange Commission (SEC) explains why it is cracking down on several cryptocurrencies, including Polygon (MATIC), Terra Luna Classic (LUNC), The Sandbox (SAND), Decentraland (MANA), and Chiliz (CHZ).
Chiles, Matić Under Scrutiny by SEC
The SEC believes that these cryptocurrencies were originally offered to investors as investment contracts, which gave rise to the companies associated with the tokens.
The SEC highlighted the April 2021 sale of 19% of MATIC’s supply, when Polygon Labs reportedly raised $5 million by selling unregistered securities on Binance through an initial exchange offering (IEO). The funds, which were sold for $0.00263, were used to develop the blockchain, according to court documents.
Similar claims were made about CHZ, a sports-focused blockchain with over 100 officially licensed crypto tokens tied to popular sports franchises. Citing Chiliz’s whitepaper, the SEC analyzed CHZ’s token economics, highlighting that 58% of the token is earmarked for operational expenses.
SEC Declares LUNC Company as Equity?
Citing the Terra Luna Classic case, the court documents describe TerraForm Labs’ original communications regarding LUNA tokens as a promise of equity in the company. The SEC claims that the 2018 LUNA token sale agreement explicitly stated that the funds were to be raised “for the purpose of building and operating the systems developed by Terraform.”
LUNC’s place in the SEC puzzle may vary. Just last month, the SEC secured a landmark $4.5 billion settlement with LUNC’s parent company, TerraForm Labs, along with other tokens listed in legal documents.
Following the bankruptcy of TerraForm Labs earlier this year, LUNC and USTC tokens are likely to be removed from circulation, as the digital assets are likely to be used to cover a $4.5 billion fine imposed by U.S. financial regulators.
On the other side
- Despite the long-running debate over cryptocurrencies being sold as unregistered securities, the SEC approved an Ether spot ETF on May 23, 2024.
- The SEC declared Ethereum (ETH) a security in 2023, but closed its investigation in June 2024 after concluding that Ethereum was a commodity and therefore no enforcement action was necessary.
Why this matters
Cryptocurrency marketing and business growth often comes under legal scrutiny due to unclear regulations. On the other hand, defining the boundaries between securities and commodities can help create a safer environment for cryptocurrency investors.
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