In a recent Twitter exchange, attorney Bill Morgan and Charles Hoskinson, the creator of Cardano (ADA), engaged in a heated debate over the U.S. Securities and Exchange Commission’s (SEC) classification of ADA as a security.
The disagreement stems from the SEC’s assertion that ADA became a security when it became available to U.S. investors through exchanges.
Morgan challenged the SEC’s perception, arguing that if a product is improved and enhanced without being marketed as an investment, it should not be considered a security.
He expressed concerns that positive statements or enhancements made in a blog post about Cardano could be used as evidence by the SEC to classify ADA as a security, potentially stifling innovation and growth in the industry.
Hoskinson defended Cardano’s compliance, emphasizing the specific circumstances surrounding the token’s financing and launch.
However, Morgan countered that unless the SEC limits its allegations to ongoing sales through Coinbase, where ADA is used as an intermediary, the SEC essentially argues that the token itself is a security, which Morgan finds absurd.
The Exemption Argument: Cardano’s Initial Offering
The debate has garnered attention from the community, with varying opinions surfacing. Some argue that the original offering was exempt from registration under U.S. law, similar to a domestic private placement. They contend that nothing is “becoming” a security through exchanges.
Others maintain that secondary market sales should not classify an item as a security, even if the initial sale outside the country would be considered a security within the U.S. jurisdiction. They highlight the concept of jurisdiction arbitrage.
Furthermore, some community members raise the point that the profits from Cardano’s product sales are reinvested to enhance its value by developing features and support for partners. It, they argue, creates an expectation of future profits for purchasers.
Another perspective highlighted the fact that during the initial coin offering (ICO), only vouchers were sold, not ADA tokens. Therefore, according to this viewpoint, only the vouchers would have been part of the investment contract, and ADA does not need to be distinguished from the original sale.
As the debate continues, the question of whether ADA should be classified as a security remains unresolved, yet. The outcome could have significant implications for the cryptocurrency industry and its future innovations.
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