On November 19, 2020, IMVU, Inc. (“IMVU”) acquired no-action relief from the Securities and Change Fee (the “SEC”) confirming that the Division of Company Finance won’t advocate enforcement motion in opposition to IMVU for promoting its digital asset, VCOIN. IMVU intends to subject and promote VCOIN for rapid use inside its on-line three-dimensional avatar-based social group, “IMVU.” IMVU will provide a vast variety of VCOIN at a hard and fast value of $0.004 per VCOIN to exchange its present system of offering in-platform “credit” for individuals to make use of to buy digital items and providers throughout the platform.
IMVU’s No-Action Letter Request to the SEC argued that VCOIN just isn’t a “safety” throughout the that means of Part 2(a)(1) of the Securities Act of 1933, as amended (the “Securities Act”), or Part 3(a)(10) of the Change Act of 1943, as amended (the “Change Act”), and, subsequently, that registration underneath the Securities Act just isn’t required. IMVU’s argument centered on the Howey “funding contract” check and requested no-action reduction solely with respect to VCOIN’s potential classification as an funding contract. Underneath the Howey check, an funding contract is a safety if there’s (i) an funding of cash; (ii) in a standard enterprise; (iii) with an expectation of income derived from the efforts of others.
Acknowledging that purchasers of VCOIN have been arguably investing of cash in a standard enterprise as a result of they’ll pay fiat foreign money to IMVU once they buy VCOIN, IMVU efficiently centered its argument on refuting any attainable declare that purchasers of VCOIN have been doing so with the expectation of income derived from the efforts of others. IMVU underscored that argument elaborating on 4 key elements, together with:
- VCOIN will likely be utilized by individuals in IMVU for consumptive, platform-related makes use of.
- VCOIN will likely be instantly usable throughout the platform when offered by IMVU.
- IMVU will promote VCOIN to individuals and repurchase VCOIN from individuals at a hard and fast value.
- IMVU will implement controls to encourage the precise use of VCOINs throughout the platform and deter any hypothesis.
Along with the above, IMVU famous in its letter that it’ll register as a Cash Providers Enterprise (“MSB”) or state cash transmitter as required, or alternatively will three way partnership with an entity that’s already licensed as an MSB. IMVU’s letter locations a heavy emphasis on anti-money laundering and know-your buyer controls (“AML/KYC”) and goes so far as to recommend the implantation of the VCOIN within the IMVU platform will enhance the IMVU’s potential to observe transactions and determine probably fraudulent exercise utilizing blockchain analytics.
IMVU summarized its Howey evaluation succinctly stating, “No [u]ser who purchases VCOIN would fairly count on income or capital appreciation ensuing from IMVU’s efforts. VCOIN is a digital asset that IMVU’s tens of millions of [u]sers will buy as a way of participating in digital commerce in reference to the [p]latform. IMVU will generate a vast provide of VCOIN, promote every VCOIN on the mounted value of $0.004, and repurchase VCOIN on the similar value, making it irrational for any VCOIN purchaser to count on capital appreciation in VCOIN.”
SEC’s No-Motion Willpower
In granting its no-action reduction, the SEC highlighted the next causes for its willpower that the VCOIN just isn’t a safety:
- IMVU won’t use proceeds from the sale of VCOIN to finance the implementation of the blockchain-based coin, which has been totally developed and will likely be totally useful and operational instantly upon its launch and earlier than any VCOIN is offered;
- VCOIN will likely be instantly usable for its supposed objective on the time it’s offered;
- IMVU will impose specified limits on VCOIN purchases, conversions, and transfers;
- VCOIN holders will likely be topic to KYC/AML checks once they set up VCOIN wallets and thereafter on an ongoing foundation;
- VCOIN will likely be made repeatedly accessible in limitless portions and at a hard and fast value, and IMVU will at all times generate sufficient provide of VCOIN to keep up VCOIN’s mounted value;
- IMVU won’t promote or assist itemizing or buying and selling of VCOIN on any third-party buying and selling platform;
- IMVU will market and promote VCOIN to individuals solely for consumptive use as a way of exchanging worth on, and in reference to, the IMVU platform; and
- IMVU would require individuals who buy VCOIN from IMVU to affirm that, amongst different issues, they’re buying the VCOIN for consumptive use and never for speculative functions.
The SEC’s no-action reduction for IMVU’s VCOIN alerts one other steps in direction of the regulator distinguishing utility tokens/cash from the broader umbrella of digital property which might be presumptively securities. IMVU just isn’t utilizing the sale of VCOIN as a fundraising scheme to develop the digital asset, which, bolstered by the maturity of the IMVU platform, possible helped the SEC attain its willpower that VCOIN just isn’t a safety. As well as, the limitless provide of VCOIN at a hard and fast value clarify that IMVU has designed VCOIN in such a technique to particularly deter hypothesis by passive traders. This no-action reduction for IMVU’s VCOIN creates a possible roadmap for related platforms to develop and launch in-app digital currencies.
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