The U.S. Securities and Exchange Commission (SEC) rarely issued a letter of inaction in response to a blockchain-based platform’s request for the issuance of digital assets.
The SEC stated in a letter issued on November 19 that its corporate finance department recommended “no enforcement actions against the social platform IMVU” and allowed it to issue VCOIN digital assets under certain conditions. The SEC will allow companies to issue tokens without registering them as securities.
Cryptocurrency companies that issue their own tokens usually have to comply with the SEC’s regulatory framework, which has proven to be controversial. The classification of “securities” refers to assets that rely on the work of a third party for profit. In order to comply with the letter of inaction, IMVU needs to prevent its new stablecoin from looking like an investment opportunity. For example, Facebook made a mistake with its Libra stablecoin.
As part of the staff recommendation letter terms, the US Securities and Exchange Commission stated that IMVU will still be subject to “know your customer” (KYC) and “anti-money laundering” (AML) in addition to “specific restrictions” on the purchase, exchange and transfer of VCOIN. Regulations. The letter of inaction stated that IMVU will need to make the tokens “continuously available at a fixed price of $0.004 and unlimited”, and must not “promote or support the listing or trading of tokens” on any third-party platform. In addition, the company cannot use VCOIN sales revenue to upgrade its network until the tokens are available.
However, it is clear that the regulator stated that it recommends not to take enforcement action against IMVU so that VCOIN can achieve its “intended purpose.” According to this platform, users can buy from IMVU, earn and transfer tokens, and exchange them for legal currency.
This letter of inaction expresses the opinions of the staff of the Securities Commission on law enforcement, not a legal decision. However, this inaction letter has only been issued twice for cryptocurrency companies. In April 2019, the SEC confirmed that it would not recommend enforcement actions against aircraft company Turnkey Jet’s sale of TKJ tokens.
A few months later, the SEC issued a similar letter of inaction to an eighth-grade student who wanted to issue tokens for its crypto gaming company Pocketful of Quarters. However, both of these tokens are more conservative than VCOIN and are therefore approved because they do not allow tokens to be exchanged for legal tender.
John Burris, Chief Strategy Officer of IMVU, told Cointelegraph: “Unlike the other two letters of inaction, this one is of great significance because this is the first time the US Securities and Exchange Commission has approved ERC-20 tokens. It is saying,’Hey, let it leave the platform. ‘. It can be said that it will be allowed to enter the public view.”
Although the use cases of Pocketful of Quarters and Turnkey Jet are very limited, IMVU is already a mature platform with approximately 7 million players using virtual transactions every month. Burris believes that the SEC’s decision is based on establishing a “true proof case” for the broader cryptocurrency and blockchain fields:
“Our users are very accustomed to buying digital currency with cash and then spending each other on the platform. We are very confident in adoption.”
As the SEC’s inaction letter stated that VCOIN tokens cannot be transferred to third-party platforms, IMVU users only need to pay a 10% transaction fee to transfer tokens from the virtual world to a private wallet. IMVU stated that it will buy back the tokens upon request. VCOIN is definitely not Bitcoin. It will be sold at a fixed price, which can increase the supply of tokens in the future.
IMVU plans to start selling tokens in a virtual environment from January next year.
