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November 29, 2022
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Can the SEC go after Cardano or Polkadot next?

Regulatory concerns have loomed over cryptocurrencies and related businesses around the world. With cryptographic assets like XRP being accused of being a security by the US Securities and Exchange Commission [SEC] and Binance facing strict warnings everywhere, the crypto industry may want to remain cautious.

With XRP’s fate in the US being debated at length in court, other altcoins may want to secure their positions as a digital asset before the SEC appears. Mainly projects that got big investments from traders like Polkadot and Cardano.

Can DOT and ADA avoid the SEC trap?

According to the SEC, a security is anything that is sold or transferred for a price where the buyer trusts the seller to increase the value of the thing purchased.

According to attorney Jeremy Hogan, the SEC has been successful in arguing that simply trading a cryptocurrency in a certain way could be evidence that there was a common venture for profit between seller and buyer. Therefore, we see that the definition has been “further expanded in the last 80 years”.

The SEC also considers most ICOs to be bond sales, which has pushed many projects, including ADA and DOT, into the danger zone. However, according to Hogan, “the ADA managed to avoid the legal complications” of an ICO in the US, as its ICO took place in Japan. Given the country’s liberal perspective on crypto, around 95% of the ICO was for Japanese citizens and from there, sales went to sales to America.

The SEC has no jurisdiction in Japan and therefore cannot charge Cardano with violating its securities law. This makes the ADA a safe project, at least from a regulatory perspective in the US.

However, things are not so good for the DOT, added the lawyer.

The Web3 Foundation, which designed and configured the Polkadot platform, led several ICOs in 2017 and reportedly has raised nearly $200 million to date. These ICOs occurred before the Polkadot platform was fully functional, and this brings it closer to the SEC definition.

Hogan explained,

That’s bad because DOT currency sales seem more like an investment contract where buyers rely on developers’ efforts to increase the value of tokens, because when tokens are sold before there is even a platform to use them – the The token’s inherent value is Zero – nothing, so of course you’re relying on the developer to make the platform so that the currency has some value

To make matters worse, he highlighted that 50% of the initial tokens were given to investors, while 8.4% were offered to private investors for sale [como as bolsas]. In contrast, 11.6% were held by the Web3 Foundation for future fundraising purposes and 30% were allocated to Web3 to develop and build the infrastructure.

Unfortunately, as bad as this may sound, the Web3 Foundation is a non-profit organization located outside the US. Therefore, it escapes the regulatory jurisdiction of the SEC. In addition, ICO’s sales were blocked in China and America due to the same regulatory concerns mentioned by the SEC.

All of these defenses will be used if the SEC’s attacks make a switch over the conclusion that the DOT was sold in the form of a bond. If an in-country Exchange sold DOT as its ICO, the SEC’s hammer could hit.

In light of recent SEC actions, cryptoprojects may want to start preparing their defense. While the ADA may ignore the SEC’s regulatory loop, the DOT may not be so lucky. Only time will tell whether it is actually pulled by the regulators.

Source: AMBCrypto

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