What to do with a security classified blockchain token?

The U.S. Securities and Exchange Commission’s enforcement division has identified at least 68 blockchain tokens as securities, according to the agency’s various lawsuits filed against crypto companies, promoters, and developers over the years. This includes bluechip tokens such as Solana’s SOL and Cardano’s ADA, along with dozens of other assets with greater or lesser utility. The SEC’s actions suggest that assets worth over $100 billion, which represents around 10% of the total crypto market cap, are being traded illegally. Despite SEC Chair Gary Gensler’s claims that the rules are clear, there is little certainty about crypto’s regulatory status in the US, especially when it comes to tokens labeled as securities. The classification of a token as a security affects the disclosures that companies need to provide to prospective investors and the manner in which an asset can be offered. These restrictions could limit the type of platforms that can legally offer an asset, like registered broker-dealers, securities exchanges, and other trading systems, and whether more than “accredited investors” can trade the tokens. Companies like Robinhood, Coinbase, and eToro may not be able to provide access to a token if it is classified as a security, and trading of SOL and ADA may be severely restricted in the US.The article discusses the issue of whether cryptocurrencies should be considered securities. While many people buy cryptocurrencies with the intention of making a profit, there are also cases where tokens are used for more than speculation. However, after the SEC declared XRP a security, most US exchanges delisted the token, making it inaccessible to US users. Nevertheless, XRP continues to thrive on offshore exchanges, with Binance leading the trading activity. The article argues that even under the worst-case scenario of cryptocurrencies being banned worldwide, the industry will find a way to thrive. The article also examines the regulatory uncertainties faced by the industry and discusses the different approaches taken by companies such as Bakkt, BitGo, and Coinbase in addressing these uncertainties. Finally, the article discusses the SEC’s liberal interpretation of the Howey Test and its relevance in the current regulatory landscape.

Essentially, categorizing cryptocurrencies as securities determines who can obtain a token, but not the actions they can perform with it.