The latest in securities law and cryptomorphology is not a revolution, but a step forward.
What does the SEC clearance to VCOIN mean for securities law and cryptomorons? ACCOMPANYMENT
As the Cointelegraph reported a fortnight ago, the Securities and Exchange Commission published a rare letter banning action in defence of the new VCOIN based on the IMVU blockchain. VCOIN is only the third digital token to obtain this legal protection from the US securities regulator, making its development interesting.
The SEC has been extremely active in punishing the initial currency offerings it sees as unregistered bond offerings, but has been very reluctant to define what does not count as a bond – a problem that Commissioner Hester Peirce noted last night.
A letter of prohibition of action, however, is not the same as an SEC rule or a statute of Congress. The protection that a prohibition of action letter provides applies only to that specific case. They can also leave as soon as, say, VCOIN deviates from the standards set out in the letter. And it is definitely a narrow route that VCOIN has ahead of it.
Michelle Gitlitz, who leads Crowell & Moring’s blockchain and digital asset practice, explained to the Cointelegraph:
“I think VCOIN is a little different than its normal token offering, because VCOIN’s revenues would not be used to fund any network upgrade and the network was fully developed. I think it is a fundamental distinction with VCOIN compared to BitQT some of the other products. ”
The issue of using token sales funds to build a network that was not yet complete was critical to the SEC’s closure of the planned Telegram network.
While a prohibition letter does not formally protect other projects that follow the same guidelines, it points to a model that the SEC is seeking in the future. Gitlitz explained the main factors:
“The currency was immediately usable at the time it was sold. There were AML / KYC checks. There were limits on purchases, conversions and transfers. This is an easier prohibition letter than some of the more difficult proposals: I am selling a currency to use the profits to develop my network, which is not fully developed. This is totally different. ”
That said, VCOIN is certainly the most ambitious project that has received the SEC’s approval. It is a freely convertible token to and from US dollars for the IMVU’s 7 million user base. It is also remarkable that VCOIN is designed to function as a kind of stablecoin, although without a formal link to reserve assets.
The IMVU promised to buy and sell VCOINs for a fixed price of $0.004. Philip Moustakis, a former SEC lawyer and current lawyer at Seward & Kissel, observed this as a development: “The fact that the SEC has issued a Letter prohibiting action for a token that can be exchanged for decree is encouraging.
It is especially significant that VCOIN tokens will be able to leave the platform. The first action prohibition letters for utility tokens will be more closed. The SEC agreement preserves VCOIN’s price stability and will prevent these platforms from becoming profit opportunities.
According to the prohibition letter:
“Although the IMVU does not promote or support trading of VCOIN on third-party trading platforms, the transferable nature of VCOIN means that it can be traded outside the Platform, either bilaterally or on a third-party trading platform. However, it would still be irrational for VCOIN buyers to expect that they could sell VCOIN at a higher price to a counterparty outside the platform. ”
Moustakis explained how the price stability of VCOIN is a means of avoiding classification as a title:
“The fact that the supply of VCOIN would not be limited in any way and the IMVU would continuously sell and buy back VCOIN at a fixed price, taken together, would practically resolve the issue of securities law. The IMVU’s measures set forth in its letter regarding limitations on purchase or transfer may have given additional comfort to the SEC staff, but the core of the matter, in my opinion, was unlimited supply and a fixed price. ”
Although VCOIN is an interesting legal consideration for the crypto market, the token itself is not a classic cryptomeda because its functionality is very compressed and obviously centralised to the maximum. Many in the industry, as well as within the SEC, are seeking to gather more assertive guidelines that new projects can develop.