SEC Clarifies Classification of Terra Luna Classic and Polygon as Securities

Overview of SEC’s Classification

The Securities and Exchange Commission (SEC) has recently clarified its stance on the classification of several prominent cryptocurrencies as securities. These include Terra Luna Classic (LUNA), Polygon (MATIC), Decentrland (MANA), The Sandbox (SAND), and Chiliz (CHZ). The SEC contends that these digital assets were initially offered and sold as investment contracts.

Legal Action Against Consensys

In a significant legal action filed against Consensys, the SEC asserts that the trading of these assets, facilitated through Consensys’ MetaMask Swaps platform, falls under securities laws.

Reasons for SEC’s Decision

The SEC argues that each token was marketed with promises of future profits derived from the efforts of the issuing entities and related third parties. This expectation of profit was cultivated through public statements, marketing materials, and operational strategies.

Analysis of Specific Cryptocurrencies

Polygon (MATIC)

Polygon’s MATIC token, integral to its blockchain platform, was marketed as an investment vehicle. Investors expected value increases tied to Polygon’s development and expansion efforts, as outlined in its whitepaper.

Decentrland (MANA)

Decentraland’s MANA token, facilitating transactions and governance within its virtual reality platform, was also classified as a security due to expectations of profit from platform growth and adoption.

Chiliz (CHZ) and The Sandbox (SAND)

CHZ, used for fan engagement on the Socios platform, and SAND, powering The Sandbox gaming platform, were similarly scrutinized for their initial offerings as investment vehicles, subjecting them to securities regulations.

Terra Luna Classic (LUNA)

Terra Luna Classic, supporting stablecoin transactions and governance on Terra’s ecosystem, was classified as an investment contract. Terraform’s marketing emphasized profit expectations tied to ecosystem growth and market adoption.

Legal Implications and Court Ruling

The Federal Court for the Southern District of New York ruled on December 28, 2023, that LUNA and wLUNA were sold as investment contracts. The SEC continues to uphold this decision, impacting the regulatory landscape for these cryptocurrencies.