Is Crypto In Danger After LBRY’s Defeat Against The SEC?

(November 7, 2022-Reynaldo Marquez)

The crypto company behind a peer-to-peer digital marketplace, LBRY, lost its legal battle against the U.S. Securities and Exchange Commission (SEC). The regulator filed a lawsuit against the crypto platform over the alleged illegal sales of an unregistered security, its native token LBRY Credits (LBC).

The team behind LBRY shared the news with its followers via social media regretting the outcome. Many considered this case, along with the Ripple versus SEC battle, one of the most important legal actions for the crypto industry.

LBC’s price trends to the downside on the daily chart following the legal decision. Source: LBCUSD Tradingview

Everything But Bitcoin, LBRY Case Might Shape Crypto Regulations

According to the court’s decision, LBRY’s legal representation failed to offer “a reasonable trier of fact” or sufficient proof to reject the SEC’s accusations. In addition, the judge determined that the SEC gave the crypto company fair notice about the classification of its token LBC.

Bitcoinist reported that the LBRY versus SEC cases began in 2021, a few months after the Ripple lawsuit. The crypto company argued that its native token, LBC, was created for utility, not financial purposes.

In that sense, they claimed that it never operated as a security. However, the judge disagreed, arguing that “some unknown number of purchases” bought the token to obtain profits. Thus, LBC operated as a security. In that sense, the team behind LBRY said:

We’re going to lick our wounds for a little bit but we’re not giving up. We’ve got a bright team, tens of millions of pieces of content, hundreds of thousands of creators, and one of the most popular web3 apps in the world. The best is yet to come.

Consequences For The Crypto Industry?

It’s dicta, but here the LBRY judge reasons that even if team is completely silent about efforts–no promises, no contracts–but premines tokens, that alone creates a sufficient expectation of profits from their efforts in common enterprise to pass the Howey test very bad result.

Shapiro believes there are no grounds for appealing the decision. Nevertheless, the outcome will be challenged by the nascent industry.