Friend.tech, a new social media platform in the cryptocurrency world, is being examined to determine if its keys should be considered securities and regulated by the U.S. Securities and Exchange Commission (SEC).
In a recent Unchained Podcast episode hosted by Laura Shin, legal expert J.W. Verret and tax specialist Jason Schwartz discussed the legal and tax implications surrounding Friend.tech. The debate primarily focuses on whether Friend.tech keys could be considered securities under the Howey Test, a legal framework for assessing if an investment qualifies as a security.
The Howey Test consists of four criteria:[1] an investment of money, [2] in a common enterprise, [3] with an expectation of profits, and [4] derived primarily from the efforts of others.
Verret, a securities law specialist, suggested that Friend.tech keys might not meet this definition due to several factors.
Verret argued that Friend.tech keys lack many typical attributes associated with traditional securities, such as voting rights, dividends, and liquidation rights. He also pointed out that the common enterprise element isn’t straightforward, as keys mainly provide access to chat rooms rather than pooling assets for profit.
Schwartz added to the discussion by mentioning the emergence of wrapped Friend.tech tokens, which are ERC-20 tokens representing keys. The debate considered whether these wrapped tokens might be seen as securities due to potential secondary market trading. However, Verret suggested that the absence of direct financial contributions to key creators could work in favor of not classifying them as securities.
Friend.tech, a fast-growing platform in the cryptocurrency space, has garnered significant attention since its August 2023 launch. Essentially, Friend.tech allows users to purchase keys (formerly known as shares) that grant access to chat rooms moderated by friends. The price of keys is determined by a bonding curve, and key holders can redeem them for the current market price, introducing a financial aspect to the platform.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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