As part of a “complaint document” released overnight, DRY (Security exchange commission, the US financial policeman) exposes the content of the American grievances against Caroline Ellisson and Gary Wang, ex-managers of Alameda, the financial armed wing of fire-FTX. And on this occasion, the SEC takes the opportunity to discuss the nature of the FTT token, the internal token of the now cursed exchange. However, this small definition could have giant repercussions on the whole crypto sector.
FTX/Alameda vs. SEC
As part of the procedure initiated by the SEC (the US financial policeman) against Caroline Ellisson and Gary Wang ex CEO and CTO of Alameda, the token FTT is referred to as ” security “. A very small word, for (very) big potential consequences for the whole crypto industry.
While Sam Bankman Fried has just accepted his extradition to the United States (his cockroach tolerance having probably reached its limits), the SEC seems to be sharpening its weapons.
Indeed, not only does the financial policeman want to ensure that the former crypto darling is brought to justice, but more broadly SEC regulators likely see a historically unique opportunity to do – finally– put the turbulent and indefinable “cryptos” into a more traditional tax and regulatory yoke.
Indeed, and on reading the document the equation for the SEC is perfectly clear: FTT token = investment contract = security.
“From its launch, the FTT was offered and sold as an investment contract and therefore as a security […] If demand for trading on the FTX platform increases, demand for the FTT token may increase, so any increase in the price of FTT would benefit FTT holders equally and directly proportional to their holding of FTT.”
A qualification that refers to a sword of Damocles threatening the entire industry since at least 2017, and whose fiscal and administrative consequences are difficult to anticipate and assess. But what are these consequences?
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Securities vs commodities
If you can refresh your memory with this article that exposes the securities/utilities/commodities differences, basically remember that the status of security implies much heavier administrative, legal and tax constraints (and prudential supervision) on the assets thus qualified.
So, if you find the KYC of the exchanges intrusive, wait until you have to fill out 30-page files to obtain the status of authorized investor allowing you, 3 months later if all goes well, to buy your first ETH.
It may of course be objected that we are only talking about measures concerning the market and American investors. However, we will keep in mind the impact of the measure on a crypto industry vitally based on dollar inflows and having to conform, willingly or by force, to the economic tempo imposed by the USA.
In the end, if the SEC considers itself legitimate to qualify the FTT as security, it opens a Pandora’s box likely to impact more or less widely most of the crypto ecosystem, from exchange tokens, to Ethereum- that the SEC has precisely in its sights at this very moment, what a coincidence – and all crypto assets in PoS, to name only the obvious.
And if on this particular subject, all eyes have until now been rather on the SEC-Ripple duel, it is perhaps ironically thanks to the FTX/Alameda industrial disaster that the SEC will find the point of vulnerability that it stalked for so long.
As we can see, the potential consequences for the industry are real and likely to change its face. The only glimmer of hope, perhaps, is the inability of US regulators to agree among themselves to correctly qualify what remains largely in their eyes elusive financial UFOs.
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