The debate over what constitutes a security contract is still raging within the crypto industry. Recently, well-known crypto lawyer John Deaton retaliated against MicroStrategy chairman Michael Saylor due to a remark he made about security tokens.
Deaton specifically told Saylor that anyone who “truly understands securities legislation is aware that a funding contract is not the underlying asset or token.”
Previously, Deaton criticized the US Securities and Exchange Commission’s (SEC) declaration that Ripple’s native blockchain token, XRP, constituted a security contract. To support his case, the lawyer cited a 2018 US company finance regulation provision.
According to the rule:
“The digital asset is nothing more than code. However, the manner in which it is purchased as part of a funding to non-users by promoters to develop the business will be, in that context, secure.”
Deaton stated that because an asset can only be considered a security if promoters purchased it as part of the funding to non-users, such an outline does not apply to Ripple’s token.
Furthermore, Deaton drew an inference from another legislation provision stating that a digital asset is unlikely to meet the Howey test. Check to see if:
“It can be instantly used to make money in a variety of contexts or as an alternative to actual (or fiat) foreign money.”
Notably, the Howey test determines whether an asset qualifies as a funding contract, subjecting it to federal safety regulations. Previously, the SEC chairman argued that proof-of-stake blockchains such as Ethereum (ETH), Cardano (ADA), and Solana (SOL) could pass the Howey test.
