As we’ve seen time and time again, a handful of cryptocurrencies are in the U.S. Securities and Exchange Commission (SEC) bad book. The results are usually disastrous for digital assets, their founders and investors. With the long-term battle between Ripple and the SEC causing assets to lose their appeal, it has become a mandatory requirement for investors to understand the risk factors that assets may be blacklisted by the SEC.
To answer the question of how dangerous some leading altcoins could be by analyzing the laws governing assets that are considered “securities,” attorney Jeremy Hogan recently attempted, and the results show that some of the best participants can be in danger.
As for Ripple, XRP is already in trouble with the Securities and Exchange Commission, and while Hogan hopes this war ends as soon as possible, it may last longer.
Cardano (ADA) could be at risk of being labelled as a security
As Hogan pointed out, legal tests developed in the United States in the 1930s are used to determine whether assets are securities and therefore subject to government supervision.
Although the SEC’s website states that “Under the Howey Test, an investment contract exists if there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
However, the US Securities and Exchange Commission is now using the marketing style of cryptocurrencies as evidence that there is a mutually profitable deal between buyers and sellers. Ultimately, this means that the cryptocurrency in question can be marked as a security.
Cardano in a safe zone
The Cardano (ADA) token was originally issued and sold as an ICO to make money to build a ledger. This in itself is dangerous for Cardano (ADA) as the SEC treats all ICOs as sales of securities.
But as Hogan said, Cardano circumvented the perceived danger by launching an ICO in Japan, which was very legally friendly to cryptocurrencies at the time. Ninety-five percent of ICOs went to Japanese investors, then to exchanges, and then exchanges sold assets to Americans. While the Cardano Foundation can be prosecuted, those opportunities are very slim, making Cardano’s legal risk level 2.5/10.
Dogecoin is Completely Safe from SEC
As Hogan found out, within a week of the meme coin being created, 6.58 billion Dogecoins were mined, which is 95% of all existing Dogecoins in a year. Since there is no ICO for sale. “If the SEC sues a Witzcoin (DogeCoin), it’ll just be a joke. So I don’t think there’s a problem here,” Hogan concluded.
Although many people believe that Elon Musk could face criminal prosecution in the future for market manipulation, lawyers say this will never happen. Even so, he insists that Dogecoin price will not be directly affected. In terms of legal summary, Dogecoin gets 2/10.
Polkadot is Currently Safe, But There Are Still Problems
Polkadot (DOT) aims to connect different blockchain networks into one network. It has proven to be a very attractive technology, but unfortunately the Web 3 foundation on which the network is based participated in the history of ICO and raised nearly $200 million since then.
Hogan pointed out that the sale of DOT tokens represented an investment contract as the ICO took place before the full launch of the Polkadot platform, and buyers appeared to be relying on the developers’ efforts to add value to the tokens.
Although the U.S. and Chinese can’t get ICO sales, the U.S. Securities and Exchange Commission concludes that DOT is sold “in the nature of securities,” it can still attack stock exchanges. According to Hogan’s analysis above, Polkadot (DOT) has a 5/10 danger level.
Uniswap May Need to be Careful
Uniswap’s move to distribute tokens through airdrops to achieve interstate decentralization could save it from trouble with the SEC, as there has been a longstanding controversy that airdrops are basically just securities transfers under applicable securities laws.
Stephen Parley, attorney at DC Law Firm, once said that UNI was “almost certainly a security”. However, the airdrop was free and Uniswap Labs did not benefit from it. That fact led Hogan to make an argument for Uniswap: “If the SEC sues Uniswap Labs and wins, Uniswap will have no profit at all.” Although Uniswap could potentially fall victim to other regulators, he said the possibility of SEC lawsuit “has no obvious results to prove, it seems pretty remote.” Increase Uniswap’s legal risk to 4/10.