Is Guapcoin a security regulated by the Security and Exchange Commission (SEC)?
Whether or not a cryptocurrency is a security, and therefore regulated by the SEC is a legal question that requires analysis and application of the law, SEC Rules and Regulations, and SEC Guidance to the cryptocurrency in question. While it cannot be said with certainty what determination the SEC would make beforehand, the SEC’s own guidance and Rules can be applied to Guapcoin to assess its risk of being deemed a security. Guapcoin has been evaluated and found to have a low risk of falling under the definition of security according to U.S. Securities Law due to the following factors:
- The Guapcoin network (meaning the nodes/wallets that make up the Guapcoin network) is decentralized.
- The Guapcoin network is an open source platform that can be used and extended by any user.
- There is no central entity or authority managing the network of nodes/wallets that make up the Guapcoin network.
- Creation of new Guapcoins is controlled through the network itself and the open source code underlying the network.
- Guapcoins can be obtained through minting as an alternative to purchasing on an exchange.
- Guapcoin network is fully realized and operational as a virtual currency and medium of exchange.
Whether a digital asset is deemed a security is determined by applying the Howey Test from the US Supreme Court case SEC v. W.J. Howey Co., 328 U.S. 293 (1946). By analyzing Guapcoin through the Howey Test it can be concluded that 1) the first prong of the test, “whether there is an investment of money or other tangible or definable consideration” is only partially satisfied because Guapcoins can be obtained through minting as an alternative to purchasing (ie. making an investment), that 2) the second prong of the test, “whether there is an investment of money in a common enterprise”, is likely satisfied based on the strict interpretation employed by the SEC, and that 3) the third prong, “whether there is an expectation of profits from the investment, which comes solely from the entrepreneurial or managerial efforts of others” is likely not satisfied because of the decentralized nature of the network of nodes/wallets that make up the Guapcoin network, that the Guapcoin network is fully realized and operational, and that there is no central entity or authority managing the network of nodes/wallets that make up the Guapcoin network.
In order for a virtual currency such as Guapcoin to be considered a security under U.S. Securities Law all three prongs of the Howey Test must be satisfied. Guapcoin does not satisfy all three therefore there is a low risk that Guapcoin will fall under the definition of security under U.S. Securities Law.
For a full explanation of this analysis and the above factors please see the full memo here: GUAP Legal Opinion-REV2.04