Many cryptocurrencies that are sold for fundraising purposes can be considered securities. The SEC is in the process of evaluating those offerings and taking appropriate action. Polkadot and the Web3 Foundation want to stay one step ahead and have issued a self-certification to avoid that label.

The SEC and cryptocurrencies

It is a well-known fact that any cryptocurrency used to secure funding is, in theory, an unrecorded security. The 2017-2018 ICO period has given rise to this popular fundraising model, even though the people organizing such campaigns may have violated federal security laws. Simultaneously, the SEC has established FinHub, a financial technology and innovation hub.

FinHub’s purpose is to investigate whether digital assets sold for fundraising purposes are securities. An early research paper, dubbed “the Framework,” would suggest that all digital assets violate security laws. However, the document also mentioned that tokens can evolve over time and therefore escape the “security” label if there is enough argumentation. Still, it’s up to SEC officials to make the final judgment.

Polkadot and the Web3 Foundation have made strong arguments for DOT not being a security. More specifically, a document was recently presented to self-certify DOT as “software”. This does not mean that the SEC will see things in the same way. Still, DOT has a utility that goes beyond the initial approach of raising funds for Polkadot. The asset may have had the elements of a value when the fundraiser occurred, but has since “transformed” into much more.

Also, it is essential to note that the Web3 Foundation took the bold step of engaging in an open dialogue with FinHub. Polkadot and DOT’s transformation began three years ago, but there was a clear goal to achieve. Ensuring that the DOT becomes software is ambitious and, for now, it is nothing more than a self-certification. However, there are many valid arguments outlined in this post. Those three years of discussions with the SEC have to count for something, and almost half of the 50 engagements have been formal meetings.

Checking all the boxes

All aspects of Polkadot and DOT have been covered during those meetings and engagements. That includes the technology, the usefulness of the asset, and where the project is headed in the Web3 era. By doing extensive work to ensure that the dialogue is kept open, Polkadot paves the way for other projects to take similar steps. It’s not a guarantee to avoid the “security” tag, but it does offer a glimmer of hope.

The big question is how the SEC will evaluate the long list of assets to investigate. More specifically, former SEC Chairman Jay Clayton was not convinced and reclaimed everything except bitcoin should be a security. The current SEC Chairman, Gary Gensler, is of a similar opinion regarding these matters. If there is no room for the SEC to even consider another strategy, the uphill battle may not be over for Polkadot and the Web3 Foundation.

Being an active participant in the Blockchain world, I always look forward to participating in opportunities where I can share my love of digital transformation.

The content presented may include the personal opinion of the author and is subject to market conditions. Do your market research before investing in cryptocurrency. The author or publication has no responsibility for your personal financial loss.