06 Jun 2023
Cardano (ADA) Ruled A Security in Latest SEC Filing
We look at ruling by the SEC claiming ADA is a security during their recent filing against Binance and Coinbase
The recent lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Binance and Coinbase has sent shockwaves through the cryptocurrency industry. Concerns have been raised about the regulatory status of various cryptocurrencies, including Cardano (ADA). We look at why Cardano's native token may be able to fight back against this classification.
ICO Structure and Precedent:
As has been highlighted by industry experts such as Dan Gambardello Cardano's that ADA's initial coin offering (ICO) was organized in Japan, explicitly prohibiting U.S. investors from participating. This crucial detail sets Cardano apart from other cryptocurrencies, as it eliminates the possibility of charging Input Output Global, EMURGO, and other firms associated with Cardano's development with offering unregistered securities.
In addition to the sale taking place outside of the US a recent ruling in LBRY case that secondary sales of $LBC tokens were not securities further helps. This sets an important precedent for things like $ADA.
Avoiding the "Security" Label:
Being labeled a security can have severe regulatory implications for cryptocurrencies and their tokenholders. One doesn't have to look further than the alleged security status of Binance USD (BUSD) which led to the issuer, Paxos Global, ceasing the minting of tokens. Similarly, the legal battle between Ripple Inc. and the SEC over the security status of XRP has continued for over two years without a clear resolution. If Ripple were to lose, its founders could face charges for an unregistered securities offering worth $2 billion. Obtaining a confirmed "nonsecurity" status is rare in the crypto industry, with Polkadot (DOT) being the only token to achieve this distinction in 2022.
The SEC Lawsuit and Cardano's Differentiation:
The recent SEC lawsuit against Binance specifically mentions Cardano's ADA, along with several other altcoins. However, the specific reasons why these cryptocurrencies were highlighted remain unclear. The lawsuit alleges that Binance violated federal securities laws by conducting unregistered offers and sales of securities to U.S. investors through various programs and tokens.
Cardano Founder, Charles Hoskinson, responds
Charles Hoskinson posted a long tweet calling the SEC action “a series of steps to implement chokepoint 2.0 in the United States”. He said that the SEC has an “agenda” of pushing the CBDC in the market by partnering with top banks and maintaining end-to-end control over the broader financial space. Hoskinson added that the recent SEC action seems more like enforcement by force, instead of enforcement through dialogue and debate. He also referred to the SEC’s action as a fight between “freedom and authoritarianism” just that there are different players and technology in place.
The Cardano chief called this event a political and philosophical dispute concerning the fundamental nature of cryptocurrencies and their underlying principles. He added that now only a group of individuals, not elected, are making decisions to eliminate concepts such as self-sovereign identity, wallet ownership, and the ability to exercise economic freedom. As a result, Hoskinson called for the crypto industry players to unite and collectively fight against the regulatory action instead of undertaking a fragmented approach.
Impact on price of ADA
Unsurprisingly ADA did see a marked sell-off when the news broke. There has been some recovery, but the next few days will be telling to see how the market digests this update from the SEC and determines the likelihood of organisations like IOG or Emurgo being charged alongside Binance and Coinbase.
Flagship Thought
While the SEC's recent lawsuit against Binance has raised concerns about the regulatory status of various cryptocurrencies, including Cardano (ADA), expert analysis suggests that Cardano is unlikely to be ruled a security. The unique structure of Cardano's ICO, along with legal precedents, sets it apart from other cryptocurrencies mentioned in the lawsuit. Despite the challenges, there is still optimism within the industry about its future, with expectations that the future of the Crypto industry will be driven by innovation in Europe and the East.
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