SEC Claims Filecoin is a Security: Mark Cuban Suggests Lawsuit-Evading Idea
In a recent letter to Grayscale, the leading investment management firm, the U.S. Securities and Exchange Commission (SEC) labeled Filecoin a financial security. This has sparked reactions from the crypto and Filecoin community.
Billionaire investor, Mark Cuban, commented on a tweet about the SEC’s claims and suggested ways for crypto firms to avoid future SEC lawsuits regarding potential securities law violations. Cuban proposed a scenario where cryptocurrency issuing firms could evade an SEC lawsuit by releasing their entire token supply without leaving treasury reserves. The companies could use their tokens for liquidity on decentralized finance (DeFi) applications, then dissolve the original entity that released the tokens, circling in the secondary market without direct ties to the underlying blockchain.
The idea, according to Cuban, is “true decentralization,” which would prevent regulators like the SEC from closing down the token like it’s trying to do with Filecoin and others. Cuban’s suggestion stirred reactions from the crypto community members. While someone said the US securities laws are “black holes that suck in everything invested,” another respondent said Cuban’s idea wouldn’t work with protocols as it requires minting all token supplies upfront, which is limiting. However, a smart contract could hold the token supply, releasing it under governance or in a predetermined manner.
Even the pro-XRP lawyer, John Deaton, weighed in. He described Cuban’s suggestion as “smart and probably someone’s playbook at the moment” but insisted that the crypto ecosystem continue fighting the SEC’s narrative that tags every token but Bitcoin as a security. Summing it up, Deaton wrote, “The underlying asset in an investment contract is never a security.”
Grayscale disagreed with the SEC’s claim that Filecoin, the underlying asset in its new trust fund, is a security. The digital asset management firm filed a registration statement of its Grayscale Filecoin Trust (OTCQB: FILG) with the SEC on April 14, 2023. While Grayscale intends to respond to the regulator’s letter, seeking other ways to register the trust should the regulator disagree.
It remains to be seen how this will play out, but Cuba’s idea presents a potential solution for crypto firms to avoid future SEC lawsuits.