Could Cardano or Polkadot be the SEC’s next target?

Regulatory concerns have been pervasive in the crypto space as well as in related companies around the world. With cryptocurrencies like XRP being accused of being securities by the United States Securities and Exchange Commission (SEC) and Binance facing tough warnings, the crypto industry may still need to be cautious.

With the fate of XRP being debated in court in the United States, other altcoins may want to secure their digital asset positions before they are beaten by the SEC. Especially projects that receive large investments from merchants like Polkadot and Cardano.

Will Polkadot and Cardano be able to escape? “Claws” the SEC?

According to the SEC, a security is anything that is sold or transferred for value, and the buyer relies on the seller to add to the value of the thing purchased.

According to attorney Jeremy Hogan, the SEC is correct in arguing that simply marketing cryptocurrencies in a certain way can be evidence that there is a common for-profit business organization between sellers and buyers. So we see that this definition has even expanded over the past 80 years or so.

The SEC also regards most ICOs as sales of securities. This has put many projects like Polkadot and Cardano at risk. However, according to Hogan, Cardano avoids the legal complications of an ICO in the United States when conducting an ICO in Japan. Given the Land of the Rising Sun’s liberal outlook for cryptocurrencies, roughly 95% of ICOs are conducted in Japan and from there the coins are moved into exchanges for sale to US investors.

The SEC has no jurisdiction in Japan and therefore cannot convict Cardano of violating its securities laws. This makes the ADA a safe project, at least from the point of view of the US regulator.

However, things did not go well for Polkadot, added the lawyer.

The Web3 Foundation, the organization that designed and established the Polkadot platform, ran multiple ICOs in 2017 and is believed to have raised nearly $ 200 million to date. These ICOs took place before the Polkadot platform was fully functional, which brings it closer to the SEC’s definition.

Hogan to explain:

“It sucks because DOT sales are more like an investment contract, where buyers rely on the developers’ efforts to add value to the tokens. Since tokens are sold before there is even a platform to use them, and the inherent value of the token is 0, it is obvious that you are relying on the developer to create the platform that will give the coin some cash .

He also pointed out that 50% of the tokens were originally given to investors, while 8.4% were made available to investors through a private sale (like an exchange). On the other hand, 11.6% will be held by the Web3 Foundation for future fundraising purposes and 30% will be allocated to Web3 for development and infrastructure building.

That may sound bad, but the Web3 Foundation is a nonprofit organization based outside of the United States. Therefore, they are not subject to SEC regulation. Additionally, ICOs in China and the US have been banned due to regulatory concerns similar to those of the SEC.

All of these defenses will come into play when the SEC determines that DOT has been sold as a security. If a local exchange sells DOT through an ICO, the SEC’s hammer could fall on them.

Based on recent SEC actions, many crypto projects may want to prepare for a defense. While Cardano is avoiding SEC regulation, Polkadot may not be as lucky. Only time will tell if it was really named by the regulators?

Minh Anh

According to AMBCrypto

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