As Cointelegraph reported two weeks ago, The Securities and Exchange Commission issued a rare letter in which no action was taken in defense of IMVU’s new blockchain-based VCOIN.
VCOIN is only the third digital token to receive such legal protection from the U.S. Securities and Exchange Commission, which makes for an exciting development. The SEC has been extremely active in punishing offers of coins that it considers to be offers of unregistered securities, but has been reluctant to define what does not count as value. A problem that Commissioner Hester Peirce pointed out last night. However, a prohibition on action is not the same as an SEC rule or a Congressional law.
The protection offered by a prohibition to act applies only to this specific case. They could also disappear if, for example, VCOIN deviates from the standards set out in the charter. And it’s definitely a narrow alley that VCOIN has in front of it.
Michelle Gitlitz, who leads Crowell Moring’s blockchain and digital assets practice, told Cointelegraph:
“I think VCOIN is a little different from your normal token offering as the VCOIN proceeds are not used to fund network upgrades and the network is fully developed. I think there is a major difference between VCOIN and some other products. “
The problem of using funds from token sales to build a network that was not yet complete was central to the SEC’s shutdown of Telegram’s proposed network.
While a Letter of No Action doesn’t officially protect other projects that follow the same guidelines, it does provide a template for what the SEC is looking for in the future.. Gitlitz explained the key factors:
“The coin could be used immediately after it was sold. There were AML / KYC controls. There were restrictions on purchases, conversions, and transfers. This is a simpler no-action card than some of the more difficult suggestions: I’ll sell a coin to use the proceeds to develop my network, which isn’t fully developed yet. It’s very different. “
Even so, VCOIN is without a doubt the most ambitious project to receive SEC approval. It is a freely convertible token to and from US dollars for the IMVU user base of 7 million.
It’s also noteworthy that VCOIN is designed to act as a kind of stablecoin, albeit with no formal association with reserve assets. IMVU has agreed to buy and sell VCOIN at a fixed price of $ 0.004. Philip Moustakis, former SEC attorney and current Seward Kissel attorney, noted this as a development: “The fact that the SEC has issued a letter of no action for a token that can be exchanged for fiat money is encouraging.”
It is particularly important that VCOIN tokens can leave the platform. Previous letters with no action for utility tokens had more closed silos. The SEC settlement states that VCOIN’s price stability will prevent these platforms from becoming opportunities for profit. After writing without action:
“While IMVU will not promote or support VCOIN trading on third-party trading platforms, the portability of VCOIN means that off-platform transactions can be conducted either bilaterally or on a third-party trading platform. However, it would still be irrational for VCOIN buyers to expect to be able to sell VCOIN to a counterparty outside of the platform at a higher price. “
Moustakis explained how VCOIN price stability is a means of not being classified as a security:
“The fact that the supply of VCOIN would not be restricted in any way and that IMVU would continuously sell and buy VCOIN at a fixed price has practically solved the problem of securities law. The measures the IMVU outlined in its letter regarding purchase or transfer restrictions may have added convenience to SEC staff, but the crux of the matter, in my opinion, was the unlimited supply and the fixed price. “
While VCOIN is an interesting legal consideration for cryptocurrencies, the token itself is not a classic cryptocurrency as its functionality is highly compressed and obviously maximally centralized. Many in the industry, as well as within the SEC, are trying to put together more enforceable guidelines within which new projects can be built.