The United States Securities and Exchange Commission has filed a 101-page lawsuit against the leading US-based cryptocurrency exchange – Coinbase. The claim is that the firm has been violating securities regulations.
The move came just a day after the SEC also filed against Binance.
In the complaint against Coinbase, however, the Commission has made strong claims, classifying a list of 13 cryptocurrencies as securities. One of them is Cardano’s ADA, so let’s have a look at what the SEC has to say on this matter.
The agency presents a non-exhaustive list of 13 “crypto asset securities,” which include the likes of SOL, MATIC, FIL, SAND, AXS, and more. For the full list, please check out our recent report.
ADA is also present. The Commission is laying down the following considerations, referring to the three entities that are responsible for Cardano. Namely, these are the Cardano Foundation, IOHK, and Emurgo – the for-profit arm of Cardano.
According to the claim:
“These three entities have used the proceeds from ADA sales to fund the development, marketing, business operations, and growth of the Cardano protocol. For example, investor funds were used to enact the Cardano Roadmap created by IOHK – specifically, to develop each of the Cardano development “eras…”
The Expectation of Profit
The SEC uses the popular Howey Test to determine whether an asset is a security, especially in relation to cryptocurrencies.
The Howey Test’s core principle on the matter can be boiled down to the following sentence, according to SECLaw:
“…an investment of money in a common enterprise with profits to come solely from the efforts of others; and, if that test be satisfied, it is immaterial whether the enterprise is speculative or nonspeculative, or whether there is a sale of property with or without intrinsic value.”
In regards to that, the SEC’s claim also reads:
The information publicly disseminated by Cardano, IOHK, and Emurgo – including since the initial sales of ADA – have led ADA holders, including those who purchased ADA since March 2021, reasonably to view ADA as an investment in and expect to profit from the Cardano Foundation’s, IOHK’s, and Emurgo’s efforts to grow the Cardano platform, which, in turn, would increase the demand for and the value of ADA.
It appears that the SEC fully believes that ADA fulfills the definitions of security. The problem with that, according to many, including Coinbase, is that the SEC relies on a test created almost 60 years ago and fails to reflect modern considerations and emerging assets.
It’s interesting to note that the SEC has filed a lawsuit against Ripple – the company behind XRP, alleging that the latter is a security.
It’s also worth mentioning that the Cardano Foundation has already issued a statement in regard to the SEC’s claims, which reads:
The Cardano Foundation disagrees with the recent qualification of ADA as a security under US law. We look forward to the continued engagement with regulators and policymakers to achieve legal clarity and certainty on these matters.
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