What do cryptocurrencies listed as securities by the SEC have in common?

Original author:Crypto Analyst Miles Deutscher

Original compilation: PANews

Original compilation: PANews

On the evening of June 5, Beijing time, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against the cryptocurrency exchange Binance and its CEO Zhao Changpeng, and filed a lawsuit against the cryptocurrency exchange Coinbase a day later. In these two lawsuits, The U.S. Securities and Exchange Commission has designated 19 tokens as “securities,” a decision that could have huge ramifications for the tokens in question, and indeed the crypto industry as a whole.

This article will briefly sort out these tokens and explore what these tokens have in common.

First, crypto tokens identified as securities by the SEC include:

Listed on Binance: ATM, BNB, BUSD, COTI

Listed on Coinbase: CHZ, NEAR, FLOW, ICP, VGX, DASH, NEXO

Also listed on Binance and Coinbase: SOL, ADA, MATIC, FIL, SAND, MANA, ALGO, AXS

What do these crypto tokens have in common? There are three main ones:

1. Each token has had an initial sale/fundraising campaign.

2. The project party of each token promises to improve the protocol through continuous development (including business development or use of marketing expenses).

3. The official social media of each token has demonstrated the characteristics or advantages of the relevant protocol.

So why did the SEC decide that these tokens are “securities”? This is where the Howey test comes into play. The Howey test has four criteria for judging whether "something" is an investment contract (securities), namely:

1. “Something” involves an investment of money

2. "Something" for a specific cause

3. “Something” has profit expectations

4. The benefit of "something" comes from the efforts of others or the issuer

The SEC alleges that the 19 tokens sued this time have at least three of the four criteria listed above, creating an “expectation of profit” and therefore satisfying the Howey test.

The next question is, what would be the impact if these 19 tokens were qualified as securities? There are also three points:

1. These tokens will not be traded on US exchanges.

2. These tokens may be delisted from US exchanges (such as Coinbase and Robinhood) for a period of time.

3. These tokens bring about regulatory adjustments and set industry precedents.

The main problem here is that the Howey test is an outdated and relatively limited framework, created in 1946, and applying the regulations established in 1946 to the brand new digital asset industry will certainly pose challenges. Indeed, the SEC’s enforcement actions have been reckless, without regard to industry differences, and without foresight, compared to the different and more thoughtful approaches taken by the UAE, UK, and Australia.