SEC Explains Why Polygon, Terra Luna Classic, and Three Other Cryptocurrencies Are Securities

The United States Securities and Exchanges Commission (SEC) has reiterated its stance on cryptocurrencies. In a recent suit against Consensys, the regulator clarified why it deemed Polygon (MATIC), Terra Luna Classic (LUNA), and three others as securities.

The suit filing noted that crypto exchanges offered and sold these cryptocurrencies as investment contracts, subjecting them to securities laws.

Crypto Assets That Fall Under Securities

As part of its efforts to oversee the crypto industry, the US SEC has sued Blockchain company Consensys. The securities regulator alleged that Consensys facilitated the trading of unregistered securities through its subsidiary platform, MetaMask Swaps.

The digital assets mentioned in SEC's complaints include Polygon (MATIC), Terra Luna Classic (LUNA), The Sandbox (SAND), Decentraland (MANA), and Chiliz (CHZ).

According to the SEC, these tokens were marketed by promising investors gains from the efforts of Consensys, issuing entities, and associated third parties.

The token issuers promoted these profit expectations via several means, including marketing materials, public statements, and outlined operational strategies.

Among the alleged securities is MATIC, the native token of the Ethereum-based layer-2 scaling solution Polygon. MATIC is essential for powering Polygon network transactions and governance. It incentivizes holders via staking rewards and other economic activities on the Polygon ecosystem.

Therefore, the SEC argues that MATIC's issuers promoted and sold it as an investment vehicle from inception. The filing also noted that investors expect Polygon's expansion efforts and ongoing ecosystem development to drive the value of MATIC. The SEC also cited details from MATIC's whitepaper as proof.

Furthermore, Polygon disclosed that it raised funding from renowned investors. The SEC also cited a November 2022 statement by Sandeep Nailwal, Polygon's co-founder. In the tweet, Nailwal said he wouldn't rest until Polygon became one of the top three cryptocurrencies.

The regulator argues that such a statement and marketing strategies influenced its decision to categorize MATIC as a security.

The same goes for MANA, the utility token of Decentraland, an Ethereum-based 3D virtual reality and social networking platform. MANA is the cryptocurrency that powers all transactions and activities within the Decentraland ecosystem. MANA holders can participate in governance and create content on the platform.

The regulator cited MANA's ICO sales and subsequent trading on platforms like MetaMask Swaps. The watchdog contends that investors conduct these activities expecting to profit from the growth and increased adoption of Decentraland.

The Sandbox, Terra Luna Classic, and Chiliz as Securities

The SEC also highlighted why it considers Sandbox (SAND), Chiliz (CHZ), and Terra Luna Classic (LUNA) securities.

CHZ is the utility token that powers activities on the blockchain sports and entertainment provider Chiliz. CHZ enables fans to purchase voting rights, allowing them to influence decisions during matches and in their favorite teams. Users also earn rewards in CHZ tokens.

In its filing against Consensys, the SEC alleges that Chiliz promoted CHZ as an investment opportunity. During its ICO, Chiliz sold CHZ tokens to raise funds for the development of its platform.

The regulator also cited various marketing efforts and the mode of user acquisition as contributing to a potential increase in the price of CHZ.

Similarly, the SEC's latest litigation also listed SAND, the utility token of The Sandbox, an online gaming platform, as a security. The commission argues that SAND's ICO marketed the token as an investment vehicle.

Therefore, since investors expect returns from The Sandbox platform's expansion and growth, SAND falls under securities regulation.

Finally, the SEC says LUNA, the native token of the Terra ecosystem, is a security. The SEC argues that LUNA's issuance and trading tout it as an investment opportunity with investors expecting a profit.

The regulator also noted that Terra's head of business development touted LUNA as equity in the company. Terra's co-founder and CEO, Do Kwon, said LUNA has long-term value and grows alongside the ecosystem. These, among other reasons, are why the SEC asserts that Terra Luna Classic is a security.

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