Decentralization doesn't exempt a protocol or token from SEC oversight, the regulatory authorities said Monday in a lawsuit filed against Bittrex.
SEC Chairman Gary Gensler, SEC Chairman, is expected to double down on that point during an appearance before a Congressional subcommittee on Tuesday, according to a copy of his remarks.
The SEC has said Bittrex sold unregistered securities. The alleged securities include DASH, one of the hundreds largest tokens by market capitalization.
The SEC also alleged that Algorand's ALGO, one of the 50 largest tokens by market capitalization, is a security measure.
The SEC said that the Algorand Foundation and Algorand Inc. both support the Algorand blockchain. People who bought AlGO may'reasonably believe' they would benefit from both parties' efforts to grow the blockchain, growth that would, in turn, drive demand for ALGO.
Algorand, according to the SEC, is a 'common enterprise' whose investors can expect profit based on others' efforts. The key criteria that determines whether a particular asset is a security depends on the work of other people, according to US law.
It's clear the SEC thinks the foundation can be the 'others' upon which investors are relying for a reasonable expectation of profits', said Zach Rosenberg, chief executive of Degen Legal.
The crypto industry is well-known for the protocol-and-foundation arrangement. The tokenholders of a distributed group of tokenholders frequently receive support from a foundation or a company run by the protocols' founding team.
He previously had said that most crypto tokens are securities. He intends to make that case before the House Committee on Financial Services Tuesday, according to a copy of his prepared testimony available on the committee's website.
The crypto industry has criticized the SEC's failure to provide a viable path to registration or to list the tokens it believes to be securities.
Two weeks ago, Bittrex said it would leave the U.S. market by April 30, citing the current U.S. regulatory and economic environment.