Another sad day for crypto. Trillions of dollars evaporated from the market, while billions of dollars were hacked this year. Now US Securities and Exchange Commission (SEC) won the case against LBRY. The case outcome worries other crypto enthusiasts as it threatens the whole cryptocurrency industry in the United States.
LBRY lost the case
The SEC has been involved in the crypto space since the hype around the initial coin offering (ICO) in 2017, causing a headache to crypto startups like LBRY. According to a federal judge, when LBRY sold LBC, the protocol’s native token, it had completed an unregistered securities sale.
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In March 2021, LBRY was sued by the SEC for selling the tokens without first registering with the organization. The LBRY team did hold tokens for themselves in a “pre-mine stage,” which were later issued on secondary exchanges to support operations, even though they did not offer tokens to the general public via an ICO or other similar process.
We lost. Sorry everyone.
— LBRY 🚀 (@LBRYcom) November 7, 2022
The tokens reportedly encouraged the team to expand the network and gave investors hope that LBC would be a successful investment in the secondary market. LBC allegedly has consumptive and investment utility, which is why they marked it as a security according to the Howey Test.
The SEC clearly intensifies its enforcement operations against crypto projects. The Howey Test, which establishes what constitutes an “investment contract” subject to securities laws, has become a hot topic in the cryptocurrency space. LBRY is not alone in this trouble.
If the global economic decline was not enough to push prices lower, SEC’s decision sent LBC even lower. Minutes after ruling, LBC fell more than 30%, pushing its market cap to just a few million dollars. Now the future of the whole project is uncertain. However, LBRY is not giving up, as they could opt to appeal Monday’s ruling. This could still end up in a trial.
LBRY chart, source: coinmarketcap.com
“We’re going to lick our wounds for a little bit but we’re not giving up. We’ve got a bright team, tens of millions of pieces of content, hundreds of thousands of creators, and one of the most popular web3 apps in the world. The best is yet to come,” said LBRY in a tweet.
Is Ripple next?
This result could be ugly for other crypto startups that claim to have utility tokens. Needless to say that there are hundreds or thousands of utility tokens and Ripple is one of them.
The lawsuit brought by SEC against Ripple began in December 2020, claiming the company raised more than a billion dollars illegally. Ripple may be in trouble because it also didn’t sell XRP tokens through an ICO. However, Ripple seems to have more support from and outside of its community, which could be essential in winning the case.
A dozen independent voices – companies, developers, exchanges, public interest and trade assoc.’s, retail holders – all filing in SEC v Ripple to explain how dangerously wrong the SEC is. The SEC’s response? We need more time, not to listen or engage, but to blindly bulldoze on, Stuart Alderoty, the General Counsel of Ripple tweeted.
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Jeremy Hogan, the most-outspoken lawyer of the Ripple community also has a say in this debate. He claims that this is why the SEC cannot meet its burden on at least one element of the Howey test.
“In order to win at Summary Judgment, the SEC has to do two things: Prove every element by the greater weight of the evidence and prove that there is no genuine dispute of a material fact,” he tweeted.
Conclusion
More people are indeed fighting for Ripple than there were for LBRY. Ripple obviously also has more capital to fight this case. However, there are undeniable similarities between the case of LBRY vs. SEC and XRP vs. SEC. The battle will probably drag to 2023 while billions of dollars are at stake for XRP holders.
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