[Insight] U.S. Financial Authorities Became Generous with Token Issuance

It is indeed some actual winds of change are blowing. For the first time in recent 3-years, Bitcoin has returned to the price of KRW 20 million-degree. It almost seems like the enthusiasm for Bitcoin in 2017 and 2018 is returning. Furthermore, unlike in the past, the U.S. financial regulatory authorities has become much more generous to the issuance of digital token, which is raising our expectations.

SEC U.S. Giving Full Permission for VCOIN Issuance

In the Last 17 November, the Securities and Exchange Commission (SEC), the financial agency of the U.S., made an authentic interpretation in the No-action Letter to the company named IMVU. They said that VCOIN, the new token that the company is about to bring out, can be issued without reporting it as Securities (which will have further regulation at the same level as stocks or bonds).

When it comes to the launching of new businesses or the development of new products, the financial firms can ask the financial authorities whether there are no violations of the law in this. And the financial authorities are obliged to answer whether there are violations or not. If it reveals that there is no problem, the authorities issue a pre-indulgence, saying they will take no legal actions, including regulations. And that is what we call the No-action Letter. The fact that they gave this letter to the IMVU means that there is no problem in the issuance of VCOIN. And the authorities will take no regulations, even if it comes to causing troubles afterward.

IMVU is a company that created a kind of social platform that users can make their own avatar resembling themselves to converse and chat with each other. And monthly 7 million of users are currently acting in this platform already. The company is planning to issue a token called VCOIN for the sake of funding and growing the platform. Users can purchase VCOIN for various reasons, such as adorning their Avatars, buying products within the platform, or transfer them to others and change them into cash.

First Time for the ERC-20 Tokens

However, that does not mean that the SEC gave permission to the issuance of VCOIN without any conditions. The suggested conditions are the followings. First of all, they said that VCOIN can only be sold at a fixed price of USD 0.004, which is its initial price. Furthermore, the purchasers should buy them for the usage within the platform only, not in the prospect of expecting price rise. They also mentioned that the issuer should not use assets collected by VCOIN issuance before the circulation of the token for the purpose of network development or upgrades. And of course, they should follow the basic Know-Your-Customers (KYC) and Anti-Money Laundering guidelines for sure.

Under these conditions, though, it is indeed a noteworthy change that the SEC allowed the issuance of the stablecoin called VCOIN without applying the Securities Act. John Burris, the Chief Strategy Officer, also said, “The decision is meaningful from the aspect that the SEC permitted the issuance of the ERC-20 token for the first time.” He added, “It would be allowed to the time back in the days when the token issuances were many,”

Well, of course, the grant of the No-action Letter by the SEC for the token issuance like this is not the first time. There has been a precedent that they have granted a No-action Letter for the token issuance by the companies named Turnkey Jets and Pocketful of Quarters. However, the SEC has regulated the trading between the users after the token has been issued back then.

Further Movement for Change in ‘Howey Test’

On the other hand, Facebook’s Libra had been declared as a security from the start, putting brakes on its further developments. The case is quite a direct opposite to the case of Libra. And there were no substantial regulations like prohibiting trades as in the case of Turnkey Jets or Pocketful of Quarters. So in these perspectives, we can carefully forecast that the SEC has decided to take a positive stance towards the tokens that are more like securities in nature.

In fact, the SEC is deciding the certain asset is security or not through Howey Test, which is introduced in 1933. The elements of the Howey test to decide whether the asset is a target of regulation on the securities act basis had been the following △From the efforts of others △With an expectation of profits △In a common enterprise △Investment of money. However, there are many criticisms that these 4 elements are quite ambiguous, so the SEC is considering how to improve this.

Furthermore, since Joe Biden of the Democratic Party has been elected as the 46th President of the U.S., the current chairman Jay Clayton is about to resign. Clayton has been the one who kept his conservative stance towards Bitcoin or Bitcoin ETFs. It is uncertain who will be his successor. But since Gary Gensler, the former chairman of Commodity Futures Trading Commission (CFTC), who has been showing friendly gestures towards the virtual asset, is with the financial policy transition team of Biden. So we are expecting to see further changes in policies.

*This research and analysis document has been prepared for the purpose of providing information that can be used as a reference based on our reliable data and information, but we cannot guarantee its accuracy or completeness.

*The document has reflected the individual’s opinion and it may not be consistent with the company’s official point of view.