U.S. District Court Rules LBRY Token Is a Security
Last updated on December 4th, 2022 at 09:02 pm
Following the ICO surge in 2017, the US Securities and Exchange Commission (SEC) spent years tracking different tokens that launched in this period. The goal of this research is to determine whether these tokens are utility tokens or illegal digital securities.
The regulator filed a case against LBRY in March 2022. The SEC recently won a summary judgement against LBRY and the LBC token.
According to Judge Paul J. Barbadoro of the United States District Court for the District of New Hampshire, the SEC’s assessment was correct, and the LBRY token was officially proclaimed a security.
The ruling took place on November 7th, 2022, and the result might have major consequences for the broader crypto industry, especially for XRP, another cryptocurrency that the SEC has accused of being an unregistered security.
LBRY is a content-sharing platform that the SEC accused of selling a security token while claiming that it is a utility cryptocurrency.
Following the regulator’s lawsuit, the Supreme Court applied the Howey test, which is typically used to determine whether an asset is a security under federal securities laws.
The court relied on LBRY’s own sentiment about its cryptocurrency, the LBC token while trying to determine the token’s category.
In the end, the ruling marks another major victory for the SEC, further encouraging the regulator’s efforts to ramp up enforcement against digital assets, their issuers and other market participants.
SEC Cases Against Crypto
While it is expected that some in the crypto industry will criticize Judge Barbadoro’s decision, the truth is that the Court engaged in a fact-specific analysis
The court used the same test that courts have been using for decades in order to determine the true nature of assets. As such, the court did not break new ground in reaching the decision.
In short, the fact of the matter is that there is still a strong debate about whether tokens should be regulated as securities.
Some are even debating whether the SEC should be the regulatory body in charge of digital currencies at all. This debate is taking place not just between those in the crypto community, but among regulators as well.
However, the LBRY decision is only the latest in a series of similar cases, which previously saw the SEC come out victorious against the likes of Kik and Telegram as well.
The courts have been focusing on specific details of digital tokens put before them, and that is the only method that they used to determine the nature of specific cryptocurrencies.
Determining if cryptocurrency tokens are securities will likely be a long and contensious road.
However, there are some crypto tokens which are designed as a security token. Learn more about these types of tokens here.
What is LBRY?
LBRY is a content-sharing platform created to use the potential of blockchain technology to enable its users to share digital content. Anything digital could be used on the platform, including images, videos, files etc.
The idea was to create a platform for all forms of digital content that would not be centralized, unlike major platforms such as YouTube, Twitch and Instagram. This type of decentralized, blockchain based social media is a necessity in today’s world of cancel culture.
Want to understand about how this technology can help maintain the free flow of ideas and speech?
I have dedicated an entire article to how LBRY and their video sharing platform Odysee will help to protect these ideals for future generations.
The LBC token is the platform’s native cryptocurrency. It is used to interact with the network. LBC is also used for publishing content, creating new channels, tipping creators, boosting content and more.
The tokens could be easily obtained by mining or through rewards for specific activities within the network. Alternatively, tokens can simply be purchased on crypto exchanges that have it listed.
However, instead of issuing it through an ICO, the token issuers decided to keep 400 million LBC for themselves as a premine. The tokens were then released on secondary exchanges in order to raise money for funding operations.
Learn more about premined cryptocurrency as I go into greater depth on the token creation beyond and ICO.
This lack of an ICO is something that the representatives of LBRY focused on during the court case, insisting that their token is not a security.
However, the court decided that this is not enough to ensure LBC’s status as a non-security.
Learn about ICOs in more detail in this article.
Impact On XRP’s Court Case
Many believe that LBRY’s loss should be particularly concerning for Ripple users, as the industry has yet to see a victory against SEC when it comes to targeting potential securities.
However, Crypto Law founder, John Deaton, stated that the LBRY verdict might hold little significance when it comes to the SEC’s case against Ripple and its token XRP.
According to Deaton, he feels this way because these two cases are in completely separate circuits of the U.S.
Next, he believes that LBRY’s attorney decided to concede to the first two parts of the Howey Test and they only disputed the third part, while Ripple’s attorneys have challenged the regulator’s claims on all three parts.
Finally, the case against LBRY was influenced by a previous case that was in the same circuit, while there are no previous cases that the court could use in order to make its decision regarding Ripple.
Deaton also argued that the utility of XRP has been pointed out to the court time and time again and that numerous firms have offered to file amici briefs to demonstrate why XRP should not be considered a security.
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