The SEC Division of Corporate Finance recently granted a welcome ‘no action position’ for Delaware Corporation IMVU Inc in relation to an in-game blockchain currency. This published position allows IMVU’s digital asset/stablecoin VCOIN to be sold on their virtual world platform without registering the offer and sale of a security under the Securities Act of 1993 and Securities Exchange Act of 1934. Put another way, it enables the VCOIN to be used without fear of SEC prosecution.
This position allows IMVU to depart from in game credits to
a digital asset that - unlike credits - has real value and can be transacted both on and off the platform.
VCOIN is primarily intended to streamline 3 key areas including: compensating service providers, improving royalty systems for creators and converting to fiat currency.
While this is a non-binding decision by the SEC, given the grey legal issues which have plagued token issuers, it provides some insight into factors the SEC (and perhaps other regulators like ASIC) may consider when assessing whether a digital asset should be subject to securities regulation.
Eight factors influencing the Department's decision were flagged which broadly fit into 3 categories:
1. Functionality
VCOIN’s integral platform functionality is structured solely for consumptive use and as a means of exchanging value on and in connection with the gaming platform, and has been made available from day one, with the proceeds of sale not being used to fund the development of the game. That is, it is not a fundraising mechanism to build out a game.
2. Advertising
VCOIN's marketing will be careful and limited. IMVU assured the SEC that it:
will advertise VCOIN solely as a digital asset intended for Platform-related use, and in the same manner as it currently markets credits
and not as an investment in any way.
IMVU went as far as mandating that VCOIN purchasers warrant and acknowledge they are acquiring the asset purely for consumptive use, have no expectation of economic profit and do not intend to sell VCOIN to anyone else (but they may be able to do so)
3. Fixed Price / Unlimited Supply
Finally, VCOIN's fixed price and unlimited supply (to maintain a fixed price) contribute to the position. IMVU have imposed steps to discourage users acquiring the asset for off platform purchases such as imposing daily purchase limits, holding periods on the platform and daily exit limits. The price is to be solely managed by the platform (it is specifically designed to be a stablecoin) and IMVU is not going to promote or support listing or trading VCOIN on any third party trading venue.
Takeaways
VCOIN is a tangible example of how an appropriately structured digital asset can use the power of blockchain without falling within the definition of a security. As noted, this is not a binding ruling for ASIC but may help provide some indicia for local blockchain developers seeking to utilise tokens in their products.
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