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Kik and Kin made a surprise move by issuing a detailed Wells Response to the SEC investigation. Ted Livingston, CEO of Kik and the founder of the Kin Foundation, and Patrick Gibbs, partner at Cooley, are not suing the SEC unless the SEC brings a suit against them, at which point they will fight the SEC in court. The SEC has not issued a decision on whether or not they will pursue enforcement, but they are approaching an internal deadline from the initial notification, which means they could reach a decision soon, unless they choose to extend the deadline.
During their interview with Laura Shin on the Unchained podcast, they went into what the Howey test is, which is what the SEC has “used so far to determine whether or not tokens would be considered securities”:
- The token has to be an investment of money
- in common enterprise
- with an expectation of profits
- dependent on the efforts of others
Kik and Kin said that the reason they did not initially go through proper channels for the ICO is because “it is not practical, in a business that is moving this quickly, as this business was in 2016/2017, to go and ask the SEC for a no-action letter like that because the process just takes too long”. They also believed that their business was “outside the scope of the SEC’s authority” and thus did not need to ask them.
Need for clear rules to foster innovation
Ted and Patrick emphasized the need for more concise regulations so entrepreneurs and developers can be free to innovate within the space. They hope that if the SEC does pursue enforcement, then future cryptocurrency activists can use their actions as precedent. Their predicament is prevalent throughout the cryptocurrency space since just the other day, the cryptocurrency exchange Poloniex restricted access to Decred and eight other cryptocurrencies specifically citing regulatory uncertainty in the U.S. market. Kraken, another cryptocurrency exchange, also specifically called out U.S. regulation costs as a barrier to entry that stifles competition and thus benefits for consumers.
However, not all individuals believe that the Kin counter arguments are based in good faith. Emin Gün Sirer, Cornell University professor and CEO of Ava Labs, mentioned that overall U.S. cryptocurrency regulations are relatively good and that “[a] shady business practices is to sell tokens for non-existent, non-credible projects and failing to deliver”, elaborating that “[n]ot all ICOs are bad, but most are”.
Jeremy has it right. Crypto isn't under attack in the US, had never been. The regulators have been amazing. The problem lies with shady business practices. https://t.co/s8mLK6yAIC— Emin Gün Sirer (@el33th4xor) May 28, 2019
Dash building infrastructure for innovation
Dash has also been pursuing a no-action letter since last year to give users further confidence that Dash is digital cash, but as Ted and Patrick mentioned, the process is long. The no-action letter will become beneficial as Dash further builds out its Evolution platform with Dash Drive and DAPI to allow developers to build more value added products on top of the Dash blockchain. So far, the Dash community has been able to overcome regulatory hurdles such as the Dash Core Group being able to create the Dash DAO Irrevocable Trust, which allows Dash masternodes and thus, the network, to own property. Further, the Dash Core Group was also able to create the Dash Investment Foundation for the network to take a stake in ventures and earn returns on profitable businesses. These advancements illustrate Dash’s ability to overcome regulatory difficulties without having to wait for external laws to change.