SEC says decentralization doesn't exempt a securities

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SEC says decentralization doesn't exempt a securities

In a lawsuit filed against Bittrex on Monday, the regulatory agency said that decentralization doesn't exempt a protocol or token from SEC oversight.

SEC Chairman Gary Gensler is expected to double down on that point during a recent appearance before a Congressional subcommittee, according to a copy of his remarks.

The SEC alleges that Bittrex sold unregistered securities. The alleged securities include DASH, one of the hundreds largest tokens by market capitalization.

The SEC also said that Algorand's ALGO, one of the 50-largest tokens by market capitalization, is a security measure.

The SEC said the two organizations, the Algorand Foundation and Algorand Inc., both support the Algorand blockchain. The people who bought ALGO were able to'reasonably believe' they would benefit from both entities' effort to grow the blockchain, which would, in turn, drive demand for ALGO.

The SEC said Algorand is a 'common enterprise' whose investors can expect profits based on others' efforts. According to US law, the expectation of profit based on other people's work is one of the key criteria that determines whether a specific asset is a security.

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.

Crypto industry is well-known for the protocol-and-foundation arrangement. The founding team of the protocol, known as the protocols, often receives support from a foundation or a company run by the protocols' founding team.

Gensler has previously said that most crypto tokens are securities. He intends to make the case before the House Committee on Financial Services Tuesday, according to a copy of his prepared testimony available on the committee's website.

Crypto industry experts say that the SEC has not been acting in good faith, and point to the fact that the SEC has declined to provide a viable path to registration or to list the tokens it believes to be securities.

Bittrex said in a statement that it would be leaving the U.S. market by April 30, citing the current U.S. regulatory and economic environment.