The U.S. Securities and Exchange Commission has filed a lawsuit against crypto exchange Bittrex, naming six tokens listed on the platform as securities. The tokens listed in the complaint are DASH, ALGO, OMG, TKN, NGC, and IHT. The agency alleges that these tokens were offered and sold as securities because investors had a “reasonable expectation of profits” from their investment, which qualifies them as securities under U.S. law.
The agency further claims that Bittrex and its former CEO, William Shihara, coordinated with token issuers to remove “problematic statements” from public channels in an attempt to avoid regulatory scrutiny. The agency also accuses Bittrex of operating as an unregistered exchange, broker, and clearing agency, and charges its international affiliate, Bittrex Global GmbH, as well.
Notably, DASH and ALGO are singled out in the complaint for their specific features. The commission alleges that DASH incentivizes participation through its Masternode system, where users can stake DASH to validate transactions and receive a share of net revenue. According to the commission, this feature makes DASH a security because it affects the value of the token, potentially setting a precedent for other blockchain ecosystems that use similar feedback loops for network improvement, including Ethereum under the proof of stake.
SEC takes issue with the Algorand Foundation
Similarly, the SEC takes issue with the Algorand Foundation, a non-profit foundation that received a portion of the ALGO token supply to distribute throughout the ecosystem over time. The commission argues that investors benefit from the efforts of the foundation, which could also raise concerns for other blockchain ecosystems that rely on foundations to steward their development.
This lawsuit and the commission’s allegations raise questions about the regulatory treatment of tokens and blockchain ecosystems in the future. Some argue that the commission’s definition of securities may be too broad, as it includes tokens that were not initially offered through ICOs or investment contracts. Others express concerns about potential overreach by regulators and the impact on the development of blockchain technology.
It remains to be seen how this lawsuit will unfold and what implications it may have for the broader crypto industry. As the regulatory landscape continues to evolve, it is important for market participants to stay informed and compliant with applicable laws and regulations.
