A recent letter from the U.S. Securities and Exchange Commission (SEC) to leading investment management firm Grayscale has sparked a reaction among the crypto and Filecoin community. The SEC labeled Filecoin a financial security while responding to Grayscale’s Filcoin Trust registration statement.
Billionaire investor Mark Cuban commented on a recent tweet about the SEC’s claims. While articulating his response, Cuban suggested ways crypto firms can avoid future SEC lawsuits on potential securities law violations.
Mark Cuban’s Lawsuit-Evading Idea
Mark Cuban narrated a scenario where cryptocurrency issuing firms could evade an SEC lawsuit by releasing their entire token supply without leaving treasury reserves. Cuban suggested that the companies use their tokens for liquidity on decentralized finance (DeFi) applications.
Then, dissolve the original entity that released the tokens, circling in the secondary market without direct ties to the underlying blockchain.
The billionaire tagged his idea “true decentralization.” That will prevent regulators like the SEC from closing down the token like it’s trying to do with Filecoin and others.
Cuban’s suggestion stirred reactions from the crypto community members. Someone said the US securities laws are “black holes that suck in everything invested.”
Another respondent said Cuban’s idea wouldn’t work with protocols as it requires minting all token supplies upfront, which is limiting. However, a smart contract could hold the token supply, releasing it under governance or in a predetermined manner.
Even the pro-XRP lawyer, John Deaton, weighed in. Deaton commented on Cuban’s suggestion, describing it as “smart and probably someone’s playbook at the moment.”
However, the lawyer insisted that the crypto ecosystem continue fighting the SEC’s narrative that tags every token but Bitcoin as a security. Summing it up, Deaton wrote: “The underlying asset in an investment contract is never a security.”
Grayscale Disagrees With SEC Claims On Filecoin
These discussions weigh in on a press release that said Grayscale disagreed with the SEC’s claim that Filecoin, the underlying asset in its new trust fund, is a security.
Grayscale Investments filed a registration statement of its Grayscale Filecoin Trust (OTCQB: FILG) with the SEC on April 14, 2023.
The digital asset management firm wanted to register the trust’s shares under section 12(g) of the Securities Exchange Act of 1934. But, the firm received a letter from the SEC stating that FIL, the trust’s underlying asset, is a security.
Grayscale intends to respond to the regulator’s letter. While it cannot predict the SEC’s reaction to its response, Grayscale would seek other ways to register the trust should the regulator disagree.
Featured image from Pexels, a chart from Tradingview.com