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Custom Blockchain Could Create Legal Problems for Binance. Will BNB Tokens be Classified as Securities?

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Fri, 04/19/2019 - 16:44
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Contents

nOS founder Dean van Dugteren recently took to Twitter to explain how Binance Chain-based BNB (BEP2) coins could appear in the regulators’ crosshairs. He suggests that BEP2 could be classified as securities by the Securities Exchange Commission (SEC).     

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Ditching Ethereum    

As reported by U.Today, crypto juggernaut Binance recently launched the mainnet of its private Blockchain dubbed Binance Chain. The move, which solidifies Binance’s status of one of the most influential companies in the industry, raised centralization concerns given that the exchange will now directly compete with Ethereum, the second largest cryptocurrency network.

All ERC-20 tokens will be replaced with BEP2 tokens that will be powered by Binance Chain after the migration that will take place on Apr. 19-22. However, the real question is whether these two tokens are really similar from the regulatory standpoint.

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Facing regulatory obligations

Binance, like many cryptocurrency companies, is based in Malta that is commonly known as ‘Blockchain paradise’ because of its progressive crypto regulations. Under the 'Virtual Financial Assets' Act, all cryptocurrency assets are divided into Virtual Tokens (VTs) and Virtual Financial Assets (VFAs). Unlike VTs, VFAs are subjected to plenty of regulatory obligations.

BEP2 tokens cannot be classified as VTs since Binance Chain is described as an exchange platform.

Passing the Howey Test

Dugteren also claims that it is very likely that BEP2 tokens will be recognized as securities by the Securities Exchange Commission (SEC). That could essentially mean a looming regulatory clampdown for Binance investors. Due to US Securities Law, you have to be an accredited investor in order to engage in the sales of securities.

On March 12, SEC chairman Jay Clayton reaffirmed that Ethereum is not a security, but the cloud of uncertainty is still hovering above Ripple’s XRP.

About the author

Alex Dovbnya (aka AlexMorris) is a cryptocurrency expert, trader and journalist with extensive experience of covering everything related to the burgeoning industry — from price analysis to Blockchain disruption. Alex authored more than 1,000 stories for U.Today, CryptoComes and other fintech media outlets. He’s particularly interested in regulatory trends around the globe that are shaping the future of digital assets, can be contacted at alex.dovbnya@u.today.

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