This research on the digital asset named VeChain (Tracker: VET) was done on August 16, 2023. To this day, no major regulatory organization in Canada including the Ontario Securities Commission (OSC) has expressed an opinion regarding the legality of VeChain and its native digital currency called the VET. There is no legal opinion that binds VEChain to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset.
What is VeChain (VET)?
VeChain is a decentralized protocol that allows a network of computers to be deployed remotely. The resources of these devices can be used to help deploy potentially powerful decentralized applications and smart contracts.
Many other platforms boast about harnessing the full power of the decentralized computing opportunity, they are mostly Layer-2 solutions built on top of Ethereum or other programmable blockchains. VeChain is different proposition altogether as it is a Layer-1 solution like Ethereum itself.
Background and Working
VeChain started with a much more humble promise; to streamline the supply chain sector through blockchain technology and hence the name. Over time, it has instead started focusing on the whole enterprise blockchain technology and decentralized applications instead of just the supply chain economy. The main argument from VeChain is that older Layer-1 solutions like Ethereum are simply too slow and non-scalable to work as a true network for deploying powerful smart contracts based applications. It does acknowledge the important breakthroughs that the Ethereum network introduced into the crypto scene but it wants to be Ethereum 2.0.
Native Token
The native cryptocurrency of the VeChain ecosystem is called VET. The token was launched back in late 2018 and has a current market capitalization of around $1.2 billion which places it around #38 in the coin charts. The total number of coins in circulation is 85.98 billion while the 24-hour trading volume is $31.3 million. The token can be traded on major crypto exchanges and wallets like Binance, ByBit, Deepcoin, Exodus, Atomic Wallet and others.
Another secondary token on the platform is called VTHO and is generated with the help of VET. It is used to pay for on-chain expenditures and such like gas fees. The value of VTHO isn’t the same as VET and is variable based on the network activity.
Users can set up nodes on the VeChain network to get rewards from the system. The Annual Percentage Rate (APR) is variable and depends on the number of coins staked on the service.
Staking Operation
The native VET token can be locked in place to help earn passive staking rewards. They are similar to fixed deposits in a central bank and they depend on the total amount staked and the duration for which the tokens are locked in place.
Potential Risks
Digital currencies carry some intrinsic risks as they are maintained by digital records that are often the target of cyber attacks. VET is no exception and problems can arise in the valuation of its token, transactions, etc.
Here are potential risks you need to keep in mind while investing in VET:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
For an in-depth analysis of these individual risks, please see our detailed guide on these individual risk types.
Evaluation Process
Howey’s Test
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things.
Cryptocurrencies aka digital assets aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions, and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under the Howey’s Test to be considered a security.
- It involves an investment of Money
- It must have a common enterprise
- An expectation of Profits or direct returns
- Profits to be derived from the efforts of others
VET Howey’s Test
- VET fulfills the first clause of the Howey’s Test. An investment of money is required to own VET and there is not other way around it. If someone claims to offer them for free, it is likely a sign of a fraudulent activity.
- VET is indeed a common enterprise as there are common objectives for the entire network. For example, the VeChain network needs to expand and this will drive the price up. Increasing number of use cases will also include more people into the network. So, VET is a common enterprise in the very true sense of the word.
- The third condition for the Howey’s Test is also fulfilled as there is certainly an expectation of profits when one invests in VET. There is also an expectation of staking rewards for those who have locked their VET in place.
- The fourth condition of the Howey’s Test puts VET in a grey area. This is because the network in theory is decentralized and since it is decentralized, all node operators and even regular users are involved in the enrichment of the network and thus driving up the price of the token. Users can also choose how much tokens to stake and they are given rewards based on their contributions to the system. However, the system is sometimes managed by the centralized managing committee of the VeChain system and they define how many nodes there can be. They can also expel bad actors in the network.
Concluding, VET is not a security because there is a decent level of decentralization in the network. While the users depend on others, they also depend on themselves and their own actions. However, in order to be truly immune from securities regulations, the VeChain network needs to be further decentralized. Otherwise, the interpretation of the Howey’s Test can create problems for them. For us, VET is decentralized enough.
3rd Party Audit
Several third party audits have been carried out on the VeChain platform and its network for transparency purposes. Herea are some of the top such audits from top organizations:
OKB Token (OKB) Digital Asset Statement, Howey’s Test and Research
This research on the digital asset named OKB Token (Tracker: OKB) was done on September 19, 2023. To this day, no major regulatory organization in Canada including the Ontario Securities Commission (OSC) has expressed an opinion regarding the legality of the OKB token or ordered OKEx to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset. The parent exchange OKEx is planning to exit from the Canadian market and had given an ultimatum of June 22 to users to close their trading positions. However, the move according to the executives of the OKEx platform is temporary and subject to change. The native token of OKB is not the cause of contention with the authorities.
What is OK Blockchain?
OK Blockchain is the native blockchain network developed and deployed by the OKEx cryptocurrency exchange. OKEx is one of the largest digital asset exchanges anywhere and it is one of the most recognizable names in the digital currency scene. The move was widely seen as a domino effect as other cryptocurrency exchanges were coming up with their own native blockchain networks. Some of these platforms became successful with their crypto projects while others not so much. OKB was a moderate success for OKEx.
Background and Working
The OKEx was launched back in 2017 by Star Xu during a time when crypto exchanges were mushrooming all around the globe. Most of these platforms couldn’t deliver or were hacked and eventually shut down. However, several big names like OKEx, Binance (2018) were able to leave a mark and infuse the digital currency exchange situation with much-needed innovation and improvements. The OK Blockchain was created in parallel with the OKEx exchange ecosystem. Its primary purpose was to help develop and deploy the OKB token.
Native Token
The native token of OKEx is called OKB token and it currently ranks #26 on the list of all cryptocurrencies on coinmarketcap.com. There are around 60 million OKB tokens in circulation while the eventual hard cap is set at 300 million OKB. Its current price is around $43.22 but it is not having a great time out there in the last year or so due to the ongoing bear market cycle.
Risks
Digital currencies are known to be risky financial instruments and OKB (OKB) is no exception. Problems can arise in both the OKB token infrastructure and its supposedly decentralized governance model.
Here are the potential risks associated with the OKB token:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
For an in-depth analysis of these individual risks, please see our detailed guide on these individual risk types.
Evaluation Process
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things.
Cryptocurrencies aka digital assets aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions, and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under the Howey’s Test to be considered a security.
- It involves an investment of Money
- It must have a common enterprise
- An expectation of Profits or direct returns
- Profits to be derived from the efforts of others
Let us see how OKB (OKB) fares when viewed from a Howey’s Test perspective:
OKB Howey’s Test
- The first condition of the Howey’s Test is satisfied as the owning the OKB token involves an investment of money or coins that have value of their own. OKB tokens have a value of around $42 at the moment and if you want to own them,
- The second condition of the Howey’s Test is also satisfied. OKB is a common enterprise as users are hoping that the exchange does well. If the exchange gives meaningful results and profits, they too will be enriched by that wealth. There is a clear common goal here.
- There is certainly an expectation of profits or direct returns from investing in OKB. OKB holders also have certain monetary benefits on the parent OKEx. They include discounts in trading fees and such.
- The fourth condition of the Howey’s Test is in the gray area. Profits are to be derived solely from the efforts of others but not exactly. Users can stake their OKB tokens on the OKEx and earn rewards. So, profits are dependent on their own actions as well to a certain degree. But, the coin system is certainly quite centralized and token holders don’t have a lot of say on the matter and needs further improvement on this front to be truly considered not a security.
Conclusion
OKB is a mixed bag at the moment. While the token itself can theoretically be listed on the exchange, it doesn’t present any significant benefits outside the OKEx platform. Add it to the fact that the OKEx has exited the Canadian market amid regulatory issues with the Canadian Securities Administrators (CSA) then it becomes an even bigger problem. The exchange has also had trouble with the Ontario Securities Commission (OSC) back in 2021 regarding unregistered securities offerings. It survived that episode but now it is feeling a lot of trouble once again and has chosen to exit the scene for the time being. For these multitude of reasons, it is advised that the OKB token not be listed on exchange platforms in Canada till there is further clarity on the matter.
Aptos Token (APT) Digital Asset Statement, Howey’s Test and Research
This research on the digital asset named Aptos Token (Tracker: APT) was done on September 12, 2023. To this day, no major regulatory organization in Canada including the Ontario Securities Commission (OSC) has expressed an opinion regarding the legality of Aptos and its native token APT. There is no legal opinion that binds Aptos to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset.
What is Aptos?
Aptos is a layer one blockchain network that claims to have a futuristic smart contracts capability called Move. Aptos is a Proof of Stake (PoS) network and its goal is to create a decentralized environment where decentralized applications (DApps) can help solve some of the world’s problems.
Background and Working
Aptos is based on the Move smart contracts capability which uses a Rust-based programming language. This is important because the rust-based approach was developed by Meta (formerly Facebook) for its digital currency project Libra aka Diem in 2020-2021. The Facebook digital currency project itself was shelved because of immediate backlash from the authorities. However, two former employees of Meta Mo Sheikh and Avery Ching got together to use this pioneering concept in an altogether new blockchain system. The decentralized system was started in 2022 after the Diem project had an early demise.
The main plus point of the Aptos blockchain is its claimed speed and scalability. According to claims made by the company, it can process a massive 150,000 transactions per second. The company likes to compare it to Ethereum which can only process 10-15 transactions per second but it is not a fair comparison as Ethereum is a different beast altogether. Aptos is a Proof of Stake blockchain system and followed Ethereum’s success. The smart contract capability of the Aptos blockchain also claims to be much bigger than its rivals but considering the small nature of the system, it may not be adequately tested to make this claim verifiable.
Native Token
The native cryptocurrency of the Aptos network is called the Aptos token (APT). The total number of APT tokens in circulation are around 236 million APT at the moment. The eventual hard cap is set at 1.05 billion APT. The current unit price is around $5.1.
Aptos raised around $250 million in two big funding series and had a determined valuation of around $4 billion at that time. However, the current coin market capitalization of the digital token is around $1.2 billion as the coin’s value has fallen sharply because of the ongoing bear market. In the beginning of the network, around 20 million APT tokens were airdropped to around 110,000 eligible addresses to drum up interest. However, this was relatively small compared to other similar digital currencies as it represents only 2% of the entire coin supply.
Potential Risks
Digital currencies are known to be risky financial instruments and Aptos (APT) is no exception. Problems can arise in both the APT token infrastructure and its supposedly decentralized governance model.
Here are the potential risks associated with the APT token:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
For an in-depth analysis of these individual risks, please see our detailed guide on these individual risk types.
Evaluation Process
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things.
Cryptocurrencies aka digital assets aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions, and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under the Howey’s Test to be considered a security.
- It involves an investment of Money
- It must have a common enterprise
- An expectation of Profits or direct returns
- Profits to be derived from the efforts of others
Let us see how Aptos (APT) fares when viewed from a Howey’s Test perspective:
Aptos Howey’s Test
- Aptos fulfills the first condition of the Howey’s Test. Investing in APT involves some amount of money or coins that have value of their own. Many users also got APT tokens in an airdrop but each users’ share was minimal, often less than $10 each. For serious investing, APT tokens cost money.
- The second condition of the Howey’s Test is also fulfilled here. Aptos is a common enterprise as it is a layer one solution that is quite independent of other blockchain networks. It is in fact, a competitor of some of the top programmable networks like Ethereum, Solana and Polygon. Therefore, the common goal of the Aptos ecosystem is that it becomes better over time and presents a viable solution to the limitations of the blockchain experience.
- The third condition of the Howey’s Test is also satisfied as there is an expectation of profits when it comes to investment in Aptos. Token holders want the crypto network to succeed and that will, in turn, cause the token’s price to skyrocket.
- The fourth condition of the Howey’s Test is not satisfied as profits aren’t derived just from the efforts of others. The network is open for everyone and token holders are involved in different facets of the Aptos chain. However, it is not as decentralized as one would hope while looking at it from a blockchain purist perspective but a fair assessment is that it is sufficiently decentralized.
Conclusion
The Aptos (APT) token is not a security as it doesn’t satisfy the fourth condition of the Howey’s Test. Therefore, it is advised that barring any specific regulatory action from OSC or any other financial markets authority, APT can be listed on a cryptocurrency exchange network.
3rd Party Audit
Certik, a major 3rd party audit firm has analyzed the code of Aptos blockchain considerably and come up with an extensive report. The audit was done back in 2022 so there is time for an update.
Optimism Token (OP) Digital Asset Statement, Howey’s Test and Research
This research on the digital asset named Optimish Token (Tracker: OP) was done on September 8, 2023. To this day, no major regulatory organization in Canada including the Ontario Securities Commission (OSC) has expressed an opinion regarding the legality of Optimism and its native token OP. There is no legal opinion that binds Optimism to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset.
What is Optimism?
Optimism is a Level 2 solution built on top of the Ethereum blockchain. The Optimism network benefits from the secure nature of the Ethereum blockchain to help record transactions eventually. Before the interaction with Ethereum, they are stored on the Optimism network in a trustless manner. Due to this Level 2 approach toward solving some of the scaling issues on the Ethereum network, Optimism is considered a great 3rd party scaling solution that can harness the untapped power of the network.
Background and Working
Optimism was launched back in 2019 by its three co-founders Jinglan Wang, Karl Floersch and Kevin Ho. The organization’s main premise was to offer something called Optimistic rollups. These involve using off-chain state storage and execution of transactions outside the Ethereum network. However, eventually, the transactions do end up on the network itself; the data is limited, thus reducing any strain on Ethereum’s limited scalable nature. This practice of rolling up or limiting transactional data on the actual network was named Optimistic because the OP network assumes all of these are actually valid. They were doled out for the consumption of Ethereum users in December 2021.
Rolling up Optimistic transactions gives the users a big advantage and that is time. Not only is the Optimism network faster, it also effectively makes the whole Ethereum experience faster overall as the latter only needs to process a fraction of the total transactional data.
Other networks have also come up with an initiative similar to Optimism. One of its biggest competitors is Arbitrum. Loopring and Immutable X are also envisioned along the same lines.
Native Token
The primary token of the Optimism network is the OP Token. The network has a total supply of 4.294 billion tokens. Optimism conducted one of the biggest airdrops in the history of crypto as 5% of the total supply was parachuted to 248,699 eligible users of the Ethereum blockchain. But, the airdrop didn’t go as well as the Optimism team had planned. During the airdrop, several glitches appeared as the airdrop addresses were able to get the tokens before the actual airdrop was to take place. Also, the Optimism network slowed down considerably as well, dealing a further blow to the network’s credibility. The token’s price reached an all-time high of $4.57 back in May 2022, when the crypto was in its early stages. The glitchy airdrop resulted in a massive price drop that wiped around 90% its value in a matter of a few months. However, the crypto has been in recovery ever since and recovered well above $1.2 ever since, even recovering to as high as $3.1 in early 2023. Its current market capitalization is close to $1.1 billion and quite stable overall in the middle of the bear market.
Potential Risks
Digital currencies are known to be risky financial instruments and Optimism (OP) is no exception. Problems can arise in both the OP token infrastructure and its supposedly decentralized governance model. Here are the potential risks associated with the OP token:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
For an in-depth analysis of these individual risks, please see our detailed guide on these individual risk types.
Evaluation Process
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things. Cryptocurrencies aka digital assets aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions, and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under the Howey’s Test to be considered a security.
- It involves an investment of money
- It must have a common enterprise
- An expectation of Profits or direct returns
- Profits to be derived from the efforts of others
Let us see how Optimism (OP) fares when viewed from a Howey’s Test perspective:
OP Token Howey’s Test
- Optimism token (OP) fulfills the first condition of the Howey’s Test. It does involve an investment of money or tokens that cost some amount of money.
- Optimism is a common enterprise and therefore it fulfills the second condition of the Howey’s Test. There is a common goal at Optimism and that is to develop and deploy the best Ethereum Level 2 solution out there.
- Staking or buying OP involves an expectation of profits so OP fulfills the third condition of Howey’s Test as well. The main motive here is that the coin’s price will increase in the near future and holders will be able to profit from it.
- The fourth condition of the Howey’s Test is not satisfied as profits aren’t derived solely from the efforts of others. The OP token is a governance token used to make decisions on the Optimism network. These decisions directly impact the network’s monetary value and it is decentralized to a certain degree.
Conclusion
In light of the analysis on the OP token vis-a-vis the Howey’s test, OP is not a security as it doesn’t satisfy the important fourth condition of the Howey’s Test. It is therefore advised that it can be listed on the Chicks exchange barring any direct intervention from the Ontario Securities Commission (OSC) against it.
3rd Party Audits
Multiple 3rd party audits have been carried out on the Optimism Network. Some of them includes Open Zeppelin
Arbitrum Token, Digital Asset Statement, Howey’s Test and Research
This research on the digital asset named Arbitrum (Tracker: ARB) was done on September 8, 2023. To this day no regulatory organization in Canada including the Ontario Securities Commission (OSC) has expressed an opinion regarding the legality of Arbitrum and its native token ARB. There is no legal opinion that binds Arbitrum to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset.
What is Arbitrum?
Arbitrum is an Ethereum Level 2 solution that has become popular among crypto users in recent times. The project follows a range of level 2 solutions that have come out of the limitations posed by Ethereum in its current form. The growing adoption of Arbitrum and other layer 2 solutions has resulted in a massive shift towards off-chain protocols. They basically offer a scaling solution to Ethereum but each has its own approach towards achieving it. Arbitrum is a natural progression of the crypto sector as it looks for viable solutions for programmable blockchains. However, let us see in detail whether the project actually delivers on its promise. Arbitrum, like Optimism, uses optimistic rollups to improve speed, efficiency and cost effectiveness of the whole smart contract experience.
Background and Working
Arbitrum is the brainchild of the former Obama administration associate named Ed Felton. Felton founded a company named Offchain Labs and secured $20 million in funding for its development. It further raised around $100 million in a Series B funding round.
The main premise of the Arbitrum network was to make Ethereum more scalable and workable. The Ethereum 2.0 shift of 2021-2023 changed the primary network considerably, rendering many scalable solutions obsolete. However, Arbitrum, like other forward-thinking solutions, managed to thrive in this scenario as well.
Arbitrum, as discussed previously noted, promotes the concept of off-chain functionality through a secondary decentralized network. This capability works with the Ethereum blockchain as a force multiplier. The native interface of Arbitrum is called ArbOS and the consensus mechanism is called AnyTrust Guarantee. All blocks are added via consensus so it appears to have a certain degree of decentralization which is vital in any blockchain system.
Native Token
The native cryptocurrency of the Arbitrum network is called the Arbitrum token (ARB). It is a governance token and was launched back in March 2023. The total supply or hard cap of the token is set at 10 billion ARB tokens. Around 12.75% of the total supply was supplied to eligible recipients and Decentralized Autonomous Organizations (DAOs). The current 24-hour volume of the digital currency is around $136 million and the unit price is $0.85 per ARB.
The token can be purchased on all top cryptocurrency exchanges including Binance, Coinbase, Ku Coin among others. It is also available on popular decentralized exchanges like Uniswap and Sushiswap.
Potential Risks
Digital currencies are known to be risky financial instruments and Arbitrum (ARB) is no exception. Problems can arise in both the ARB token infrastructure and its supposedly decentralized governance model.
Here are the potential risks associated with the ARB token:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
For an in-depth analysis of these individual risks, please see our detailed guide on these individual risk types.
Evaluation Process
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things. Cryptocurrencies aka digital assets aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions, and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under the Howey’s Test to be considered a security.
- It involves an investment of Money
- It must have a common enterprise
- An expectation of Profits or direct returns
- Profits to be derived from the efforts of others
Let us see how Arbitrum (ARB) fares when viewed from a Howey’s Test perspective:
Arbitrum Howey’s Test
- Arbitrum fulfills the first condition of the Howey’s Test. Buying ARB tokens costs money or other digital currencies that cost a certain amount of money.
- The second condition of the Howey’s Test is also fulfilled as ARB represents a common enterprise. Users of the network have a common goal and that is to improve the Arbitrum experience over time and become the best Ethereum scaling solution. This improvement will eventually lead to the network becoming more and more valuable over time.
- The third condition of the Howey’s Test is also fulfilled. There is certainly an expectation of profits when one invests in the ARB token. Same is the case with many other Ethereum scaling solutions and their native digital currencies.
- The fourth condition of the Howey’s Test is not satisfied. This is because profits aren’t derived solely from the efforts of others. The ARB token is a governance token and holders can indulge in all sorts of activities to help improve the Arbitrum experience. These decisions directly impact the monetary value of the ARB token and thus, the experience is quite decentralized overall.
Conclusion
In the absence of any regulatory effort against the Arbitrum network, it is advised to list the ARB token on any exchange in Canada. The asset doesn’t satisfy all conditions of the Howey’s Test and therefore, it is not a security as per my research. However, the future regulatory scenario is quite unclear and dynamic in nature and we await further instructions from the regulators on this regard.
3rd Party Audits
Various third party audits of the Arbitrum network have been conducted over the years to help prove the claims made by the company. They include:
Cronos CRO Digital Asset Statement, Howey’s Test and Research
This research on the digital asset named Cronous (Tracker: CRO) was done on August 21, 2023. To this day, no major regulatory organization in Canada including the Ontario Securities Commission (OSC) has expressed an opinion regarding the legality of Cronos and its native digital currency called the CRO. There is no legal opinion that binds Cronos to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset.
What is Cronos (CRO)?
Cronos (CRO) is the name of the native currency of a blockchain system called Cronos Chain, which is a decentralized, open-source concept developed by crypto.com, a crypto exchange. According to information from the company, CRO is the backbone of the decentralized ecosystem that powers the Crypto.com mobile payments solution.
Background and Working
The founders of Crypto.com include Kris Marszalek, Rafael Melo, Gary Or and Bobby Bao. They have a variety of experience from Finance to tech and their mission with Crypto.com was to develop a digital currency exchange that works for everybody. The exchange claims over 80 million users from around the world. It was launched back in 2019 and has since seen periodic waves of mass adoption followed by some flatlining and some exodus as well. The exchange is a self-claimed leader in regulatory compliance after getting a license in the USA which is reportedly one of the most difficult countries in the world to get one. However, the exchange is not one of the pioneers of the crypto economy and other platforms like Coinbase, Binance, Bittrex and others had a head start against it.
To counter this, Crypto.com has been on an aggressive expansion technique for the last couple of years, especially after the arrival of the latest bear market. It has reportedly gotten licenses to operate in many European and South American countries.
Native Token
The native token of the Cronos blockchain aka Cronos Chain is called Cronos (CRO) and has been around since December 2018. The CRO token has seen its ups and downs during this time. It started around the valuation of just more than one cent ($0.01) and reached as high as $0.97 during the peak of the 2021 bull run in November. However, due to various challenges faced by the exchange, CRO has taken a beating and is now trading around $0.05 at the moment.
The total market capitalization of CRO was $1.315 billion and its rank on the coin market share charts was #36. The total number of CRO currently in circulation is 25 billion CRO and the hard cap is 30 billion CRO. The company went on a major token burning scheme in 2021 and removed a massive 70 billion CRO from circulation. But, the burning itself had mixed reactions. So, the token itself has had mixed feelings from the community, mostly because of its centralized power.
Potential Risks
Digital currencies often carry a lot of potential risks due to the nature of this sector. CRO holders can face extensive issues because of these risks. Here are the potential risks one can keep in mind while investing in CRO:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
There are other risks associated with a digital currency like CRO. For more information regarding this, read our in-depth guide regarding these specific risks.
Evaluation: Howey’s Test
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things. Cryptocurrencies aka digital assets aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under the Howey’s Test to be considered a security.
- It involves an investment of Money
- It must have a common enterprise
- Expectation of Profits or direct returns
- Profits to be derived from the efforts of others
CRO Howey’s Test
- CRO fulfills the first condition of the Howey’s Test. This is because an investment in the digital currency involves a certain amount of money. While some of the tokens were reportedly airdropped, they were for a limited amount of time. Now, if you want to own CRO, you have to pay money for it.
- Cronos Chain, the primary blockchain of the CRO platform, is a common enterprise. Therefore, CRO token fulfills the second requirement of the Howey’s Test. There is a common goal for CRO holders and creators; make it a popular ecosystem for trading digital currencies.
- The third condition of the Howey’s Test is also satisfied because there is an expectation of profits while getting into the CRO token. There are billions of CRO tokens in circulation and while the valuation fluctuates a lot, traders look to get into it to make profits from these variations. There is a definite expectation of profits when one tries to get into the ownership of CRO.
- The fourth condition of the Howey’s Test doesn’t apply here. This is because CRO holders have a definite amount of say in the running of the decentralized Cronos Chain Distributed Ledger Technology (DLT). While there is a need to increase the level of decentralization on the Cronos Chain and the working of the Crypto.com exchange, the Howey’s Test fails here because profits aren’t derived exclusively from the efforts of others. This holds true for various other decentralized digital currencies as well and same goes for CRO as well.
Conclusion
Cronos (CRO) token is not a security according to the extensive Howey’s Test conducted by this analysis team. The token has elements of decentralization that mean its investors aren’t entirely dependent on others for making profit for the organization. The Cronos Chain itself is an Ethereum Virtual Machine-based blockchain and that brings a certain level of decentralization itself.
Third Party Audits
CRO has undergone some third party audits over the years. But, considering the size of the exchange and its native token ecosystem, we would like to see more audits in the near future for transparency purposes. CRO shouldn’t be another case of centralization and decentralization's garb. Here are a few audit examples:
Lido DAO (LDO) Digital Asset Statement, Howey’s Test and Research
This research on the digital asset named UNUS SED LEO (Tracker: LEO) was done on August 19, 2023. To this day, no major regulatory organization in Canada including the Ontario Securities Commission (OSC) has expressed an opinion regarding the legality of Lido DAO and its native digital currency called the LDO. There is no legal opinion that binds Lido DAO to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset.
What is Lido DAO (LDO)?
Lido DAO is essentially a Decentralized Autonomous Organization (DAO) which is designed to provide staking infrastructure and capabilities for different decentralized networks. Basically, it is a liquid solution for major crypto networks that have shifted to a more Proof of Stake (PoS) mining algorithm as opposed to Bitcoin’s Proof of Work (PoW) mechanism that has no staking rewards under its umbrella.
Background and Working
The Lido DAO platform was launched in response to the widespread adoption of the PoS system in the crypto sector. Most of the blockchain ecosystems shifted to it because Bitcoin’s energy-intensive mining process involved a lot of expensive resources which were difficult to maintain. The three co-founders of Lido DAO (LDO) include Konstantin Lomashuk, Vasiliy Shapovalov and Jordan Fish who started the system back in 2020. This was when Ethereum had started to shift away to the PoS mining protocol. The Lido DAO system uses a mix of decentralized governance (using the LDO token), some centralized running code, and on-chain smart contracts on the Ethereum blockchain. It is essentially a system beyond the limited capacities of a conventional DAO despite its naming system. It is a mix of Layer-1 and Layer-2 solutions.
The main benefit of staking through a platform like Lido DAO is that in lieu of your staked ETH, you receive stETH tokens that you can then trade and exchange. This is a big benefit for certain stakers as in a normal staking environment the funds are locked in place and they cannot do much about it. stETH tokens allow users to trade the staken tokens, thus opening a new avenue of opportunity. However, it may not be the most financially responsible thing to do as locking of tokens allows the coin to appreciate but it won’t if secondary tokens start populating the space like stETH itself. Due to the complexity of the Lido DAO platform, extensive audits have been undertaken to assess its capabilities and vulnerabilities. Lido DAO is available on major wallet and exchange platforms including MetaMask, Uniswap, Ledger, Curve and others.
Native Token
The native digital currency of the Lido DAO staking platform is LDO. It is primarily a governance token but it has various other benefits on the platform as well including ETH awards and transaction fee payment. The current price of the LDO token is $1.45 billion and is ranked #33 on the coin charts. The Total Value Locked (TVL) on the platform is currently a whopping $13.9 billion. This represents the amount of crypto staked using the Lido DAO service. There are 879 million LDO tokens currently in circulation with an eventual hard cap of 1 billion LDO. The Lido DAO platform currently supports five digital currencies including Ethereum, Solana, Polygon, Polkadot and Kusama.
Potential Risks
Digital currencies are known to be risky financial instruments and Lido DAO (LDO) is no exception. Problems can arise in both the LDO token infrastructure and its supposedly decentralized governance model.
Here are the potential risks associated with the LDO token:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
For an in-depth analysis of these individual risks, please see our detailed guide on these individual risk types.
Evaluation Process
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things. Cryptocurrencies aka digital assets aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions, and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under the Howey’s Test to be considered a security.
- It involves an investment of Money
- It must have a common enterprise
- An expectation of Profits or direct returns
- Profits to be derived from the efforts of others
Let us see how Lido DAO fares when viewed from a Howey’s Test perspective.
Lido DAO Howey’s Test
- Lido DAO fulfills the first requirement of the test as LDO tokens need to be purchased with money. These LDO tokens can then be staken for more coins but the initial involvement does require money.
- Lido DAO is a common enterprise and therefore, it fulfills the second requirement of the Howey’s Test. There is a common goal for the platform to excel in digital currency staking sector and create more wealth for everyone.
- The third condition for the Howey’s Test is also satisfied as there is an expectation of profits when one invests in the LDO token. The native digital currency has shot up in value several times in the last few years. There is always the intention that when one holds the crypto, it could shoot up considerably in value.
- The fourth condition of Howey’s Test is NOT satisfied in this case. This is because profits aren’t derived exclusively from the efforts of others. The LDO token holders are direct participants of the DAO platform and its governance structure. Anyone can come up with suggestions and these are then voted on. Users are also completely in control of the amount of ETH or other crypto they want to stake on the platform.
Conclusion
The Lido DAO token LDO is not a security as it doesn’t fulfill the fourth condition of the Howey’s Test. Yes, there are some elements of the decentralized platform that could be ideally done in a better manner but the overall system is quite decentralized. Considering the fact that it doesn’t satisfy the definition of a security and there is no judgment from the OSC against it, the platform has decided to include it.
Third Party Audit
According to Lido DAO sources, the platform has undergone rigorous, continuous third party audits of its code and system. Here are some audits that the company has undergone in recent history:
Cryptonex Digital Asset Statement, Howey’s Test and Research
This research on the digital asset named Cryptonex (Tracker: CNX) was done on August 20, 2023. To this day, no major regulatory organization in Canada, including the Ontario Securities Commission (OSC), has expressed an opinion regarding the legality of Cryptonex and its native digital currency called the CNX. There is no legal opinion that binds Cryptonex to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset.
What is Cryptonex (CNX)?
Cryptonex is a digital asset exchange that allows users to trade between different digital currencies. It was developed and deployed by Investment Financial Group and is one of the more popular digital currency platforms still offering trading pairs with the Russian fiat currency Ruble.
Background and Working
Cryptonex is a relatively new cryptocurrency exchange. Its primary target is Eastern Europe, which has witnessed a major spike in crypto trading activity in the last few years due to the failing national “fiat currencies.” The main currency trading pair here is also BTC/RUB, as opposed to global ones like BTC/USD and BTC/EUR. This shows the importance of the digital currency exchange in Russia, which is under heavy sanctions by the Western regime. The latter also accuses the country of evading the extensive sanctions regime by selling oil outside of conventional payment channels and setting up large crypto-mining farms. The Cryptonex exchange’s main focus is to offer trading pairs that are unpopular at the moment due to growing geopolitics.
Native Token
The native token of the Cryptonex platform is CNX. Its claimed market capitalization of $2.07 billion could make it one of the most valuable digital currencies around. However, that is not the case, as this figure cannot be independently verified. The 24-hour trading volume, on the other hand, can be verified to a certain degree, and it is around $3.2 million right now. The pre-determined hard cap for the digital currency is 210 million CNX tokens overall. The native CNX token's utility is within the Cryptonex trading ecosystem. At the moment, the coin can only be traded on the Cryptonex platform and a few other obscure digital asset exchanges.
Potential Risks
Digital currencies often carry a lot of potential risks due to the nature of this sector.
The following are the potential risks associated with investment in CNX:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
There are other risks associated with a digital currency like CNX. For more information, read our in-depth guide regarding these specific risks.
Evaluation Process: Howey’s Test
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things. Cryptocurrencies, aka digital assets, aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under Howey’s Test to be considered a security.
- It involves an investment of Money
- It must have a common enterprise
- Expectation of Profits or direct returns
- Profits to be derived from the efforts of others
CNX Howey’s Test
- The CNX token fulfills the first clause of Howey’s Test, as there is definitely an investment of money involved. CNX tokens cost money to start with, even if they start increasing with time.
- Cryptonex is a common enterprise, as it is a common goal for all crypto holders. The goal here is to trade digital currencies at low or no fees. The bigger the platform gets, the higher the valuation of the CNX token will be. The combined goal is to get as many users as possible.
- The third condition of Howey’s Test also stands fulfilled. There is indeed an expectation of profits when one invests in the CNX token. The main promise here is that the holder will get monetary benefits like less transaction fees but they are also hoping that their CNX reserves will rise up in value, thus enriching them.
- The fourth condition of the Howey’s Test is also satisfied. This is because the only reason why the value of CNX increases is solely because of the efforts of others. Normal users don’t have enough say in the running of the platform for it to be considered as a decentralized platform. There is simply no transparency from the exchange to ensure that token holders are taken into confidence in governance measures and such.
Conclusion
The CNX token satisfies all four conditions of Howey’s Test. So, with the information we have right now, it is not viable to list on the exchange platform. If more data presents itself, we might open a review from our side.
3rd Party Audits
There are no reliable third party audits of the working of the Cryptonex platform and its native token. The only third-party workings have been done from Coinmarketcap which shows that the number of coins in circulation doesn’t correspond with what the company is claiming. So, in the absence of third-party audits, it is even more difficult to justify a presence on our exchange.
UNUS SED (LEO) Digital Asset Statement, Howey’s Test and Research
This research on the digital asset named UNUS SED LEO (Tracker: LEO) was done on August 11, 2023. To this day, no major regulatory organization in Canada including the Ontario Securities Commission (OSC) has expressed an opinion regarding the legality of UNUS SED and its native digital currency called the LEO. There is no legal opinion that binds UNUS SED LEO to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset.
What is UNUS SED LEO?
UNUS SED LEO is a decentralized utility token ecosystem that has benefits for the users of the IFinex ecosystem. Bitfinex, one of the world’s largest digital currency exchanges is one of the subsidiaries of the iFinex ecosystem and the LEO token populates its system. Bitfinex incentivizes users for holding on to the LEO token through token burns and its extensive staking opportunities.
Background and Working
The UNUS SED LEO was launched back in 2019 through an Initial Exchange Offering (IEO) by the Bitfinex platform. The primary purpose of the token offering was to raise money for the stricken exchange that had been hit by a massive cyber attack in the years prior.
The LEO token was offered after the exchange platform needed a boost of cash after the US government seized funds from Bitfinex’s payment processor Crypto Capital. The exchange platform had previously borrowed more than $800 million from Tether’s Treasury to survive this crash. But, the federal government deemed it illegal as Tether was a stablecoin that was supposed to have 100% backing. Eventually, the LEO token event was conducted to save Bitfinex.
So, essentially, the Bitfinex token is essentially a limited lifecycle token that helped raise money for a specific task.
Contract
The contract on the Ethereum Blockchain shows the total number of transactions to be around 40,433 at the time of writing.
Native Token
The primary use of the LEO token is within the IFinix ecosystem. It provides benefits to the users of the system including reductions in trading fees, deposits and withdrawals on the Bitfinex crypto exchange. Its use case is somewhat similar to that of the Binance Coin (BNB) and the failed FTX Token (FTT). However, it is less prone to fraud and irresponsible capabilities as that of the latter as it cannot be used to create leveraged positions.
Buyback Scheme
Since the primary purpose of the LEO token was to facilitate the financial loss incurred by the exchange due to the infamous 2016 hack, there is a buyback scheme in place by the exchange. This is why the LEO token’s lifecycle is going to be a relatively short one if things go according to plan. The IFinex ecosystem pledges 27% of yearly revenue to buy back and burn LEO tokens based on the latest market price. Since IFinex also owns the USD Tether stablecoin, the profits should include those derived from the earnings of this enterprise as well.
In addition to this ambitious buyback plan, the whitepaper of the UNUS SED LEO token clearly states that if any Bitcoin are recovered from the 2016 hack, 80% of those will also be redirected towards this scheme. Essentially it means that if UNUS holders are lucky and recovery efforts go well, the token can theoretically jump considerably. But it is only a chance that is all. Overall, the ecosystem has done over $240 million worth of LEO token buybacks till date.
Potential Risks
Digital currencies are known to be risky financial instruments and UNUS SED LEO is no exception. Problems can arise in both the LEO token infrastructure and its ambitious buyback plan. The contract itself is quite centralized and that is not seen as favourable among crypto users. Here are the potential risks associated with the LEO token:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
For an in-depth analysis of these individual risks, please see our detailed guide on these individual risk types.
Evaluation Process
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things. Cryptocurrencies aka digital assets aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions, and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under the Howey’s Test to be considered a security.
- It involves an investment of Money
- It must have a common enterprise
- An expectation of Profits or direct returns
- Profits to be derived from the efforts of others
UNUS SED LEO Howey’s Test
- LEO fulfills the first requirement of the Howey’s Test. You need to buy LEO with money or other digital currencies that have value of their own.
- LEO fulfills the second requirement as well since it is a common enterprise and users are getting rewards as a basis of its ownership of these tokens.
- LEO fulfills the third requirement as well. There is an expectation of profits from the LEO token enterprise as profits from the IFinex platform are shared among the holders of the token. There is also the expectation of the token rising in value.
- LEO fulfills the fourth requirement as well. This is because profits are derived entirely from the working of the IFinex platform and its buyback program. Token holders have little or no say in the working of IFinex.
So, according to Howey’s Test, the LEO token is indeed a security and therefore, shouldn’t be listed on the exchange without prior approval of the Ontario Securities Commission (OSC). The platform isn’t sufficiently decentralized according to even the Hinman Documents reveal in the USA which states that a sufficiently decentralized blockchain is not a security.
3rd Party Audit
The LEO token has several third-party audits that show mixed results. Overall, the contract itself can be heavily manipulated by IFinex and therefore a very centralized one.
Here are several audits on:
Rocket Pool (RPL) Digital Asset Statement, Howey’s Test and Research
This research on the digital asset named Rocket Pool (Tracker: RPL) was done on July 18, 2023. To this day, no major regulatory organization in Canada including the Ontario Securities Commission (OSC) has expressed an opinion regarding the legality of Rocket Pool’s Ethereum Staking Service and its native digital currency called the RPL. There is no legal opinion that binds Rocket Pool to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset.
What is Rocket Pool?
Rocket Pool is essentially a decentralized Ethereum staking option available for ETH users as a StaaS (Staking as a Service). It allows full non-custodial staking service for clients who wish to be able to get their Ethereum rewards directly instead of having to delegate the process to a crypto exchange or a custodial wallet.
Background and Working
Rocket Pool was launched back in 2018 but it really took off in 2021 when the staking upgrade on the ETH blockchain was implemented. The idea was to have a functional, empowering tool for Ethereum staking and node operations. The founder’s name is David Rugendyke who is a solidity developer on Ethereum. He is working full-time on this project. Rocket Pool is primarily a decentralized Ethereum staking service. It allows users two kinds of options:
Staking plus node operation
This multi-functional option allows users to have both primary benefits from the Ethereum network i.e. node operating and staking rewards. Rocket Pool has a permissionless system in place to run a node and stake the ETH. You can also put your ETH as collateral and get native RPL tokens. Rocket Pool is offering 8.22% APR through this approach right now. RPL token awards are in addition to this ETH-based APR. However, the downside is that at least 8 ETH ($16,000 currently) needs to be staked through this system. This is a pretty substantial figure and not viable for every user out there. So, others can opt for the staking-only option instead.
Staking only
This is a more basic option for users and allows users to stake their ETH directly through the RockePool staking pool. Users receive rETH and that accrues staking rewards over time. This staking option is non-custodial according to the official website. Any penalty for node operators doesn’t cost anything for stakers. Users can stake as low as 0.01 ETH through this staking only feature. However, this is a basic feature only and doesn’t harness the true potential of either Ethereum or RPL networks. The returns are also lower @3.30% right now.
Native Token
The native token of the platform is called Rocket Pool token (RPL) and has a market capitalization of $674 million, which places it at #63 in the digital coin market. The 24-hour trading volume is around $5 million which places it at #251 overall. There are currently 19.5 million RPL tokens in circulation and it operates on a yearly 5% inflation rate setup. There is no designated maximum supply or hard cap for the token. RPL can be traded on centralized crypto exchanges like [Insert Exchange name], Binance and decentralized alternatives like Uniswap. It has both stablecoin pairs like RPL/USDT and crypto pairs. The most popular crypto pair is the RPL/ETH pair on Uniswap.
Potential Risks
Digital currencies often carry a lot of potential risks due to the nature of this sector. Rocket Pool is not just an ETH staking service but it also controls its own token called the RPL. Problems can arise in both ETH and RPL tokens. Risks need to be studied in depth before any potential investments. Following are the likely risks of staking ETH through Rocket Pool:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
There are other risks associated with a digital currency like RPL. For more information regarding this, read our in-depth guide regarding these specific risks.
Evaluation Process: Howey’s Test
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things. Cryptocurrencies aka digital assets aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under the Howey’s Test to be considered a security.
- It involves an investment of Money
- It must have a common enterprise
- Expectation of Profits or direct returns
- Profits to be derived from the efforts of others
RPL Howey’s Test
- RPL fulfills the first requirement of Howey’s Test. You need to buy the RPL token with money or have resources locked in place in ETH that cost money. So, getting RPL definitely involves an investment of funds.
- RPL is indeed a common enterprise. It has a considerable number of users who are pooling their ETH and setting up validator nodes. They are also collaborating heavily with each other within the Rocket Pool to be able to earn more tokens and get good staking rewards.
- The third point also holds true when it comes to the operation of Rocket Pool. Users are employing its Ethereum staking service and node operation features to be able to earn passive returns on their locked crypto. Those with RPL holdings or rewards are also in it to earn some benefits. So, the purpose of involvement in Rocket Pool is monetary gains and this is why the third situation is satisfied.
- The fourth condition for Howey’s Test for the determination of a security does not hold true here. It states that investors rely only on the efforts of others to get returns. Rocket Pool has a non-custodial staking regime, meaning it is not in control of users’ crypto and it only helps them achieve certain objectives. So, the users, more than the actual creators and managers of the platform hold the funds and thus profit from it with the help of the Ethereum network’s ecosystem. This is also propped up in the USA where it was established by the Hinman documents that once a network is sufficiently decentralized, it ceases to become a security. The Rocket Pool network, at least in de jure terms, is decentralized and the user is in broad control over their returns. This is why the fourth condition is not met here.
In conclusion, we have conducted Howey’s Test on Rocket Pool (RPL) and the platform doesn’t satisfy the fourth condition. An asset needs to satisfy all four conditions of the test to be considered a security. Therefore, it is the opinion of the platform that RPL is not a security and not liable to follow the laid down laws of a security.
3rd Party Audit
The RPL claims to have conducted 3rd party audits from audit firms. They include:
However, many of these reports are more than a year old. So, any changes in the base code, as well as the Ethereum smart contract will need further scrutiny ahead of today’s date.
OKB Token (OKB) Digital Asset Statement, Howey’s Test and Research
This research on the digital asset named OKB Token (Tracker: OKB) was done on September 19, 2023. To this day, no major regulatory organization in Canada including the Ontario Securities Commission (OSC) has expressed an opinion regarding the legality of the OKB token or ordered OKEx to cease or desist any operations in the country. However, this is subject to change as the crypto regulatory landscape is evolving with time and any future developments could alter the current legality of the digital asset. The parent exchange OKEx is planning to exit from the Canadian market and had given an ultimatum of June 22 to users to close their trading positions. However, the move according to the executives of the OKEx platform is temporary and subject to change. The native token of OKB is not the cause of contention with the authorities.
What is OK Blockchain?
OK Blockchain is the native blockchain network developed and deployed by the OKEx cryptocurrency exchange. OKEx is one of the largest digital asset exchanges anywhere and it is one of the most recognizable names in the digital currency scene. The move was widely seen as a domino effect as other cryptocurrency exchanges were coming up with their own native blockchain networks. Some of these platforms became successful with their crypto projects while others not so much. OKB was a moderate success for OKEx.
Background and Working
The OKEx was launched back in 2017 by Star Xu during a time when crypto exchanges were mushrooming all around the globe. Most of these platforms couldn’t deliver or were hacked and eventually shut down. However, several big names like OKEx, Binance (2018) were able to leave a mark and infuse the digital currency exchange situation with much-needed innovation and improvements. The OK Blockchain was created in parallel with the OKEx exchange ecosystem. Its primary purpose was to help develop and deploy the OKB token.
Native Token
The native token of OKEx is called OKB token and it currently ranks #26 on the list of all cryptocurrencies on coinmarketcap.com. There are around 60 million OKB tokens in circulation while the eventual hard cap is set at 300 million OKB. Its current price is around $43.22 but it is not having a great time out there in the last year or so due to the ongoing bear market cycle.
Risks
Digital currencies are known to be risky financial instruments and OKB (OKB) is no exception. Problems can arise in both the OKB token infrastructure and its supposedly decentralized governance model.
Here are the potential risks associated with the OKB token:
- Manipulative Risk
- Volatility Risk
- Liquidity Risk
- Shorting Risk
- Demand Risk
- Forking Risk
- Cyber Risk
For an in-depth analysis of these individual risks, please see our detailed guide on these individual risk types.
Evaluation Process
The Howey’s Test is a 4-point test that proves whether an investment instrument is a security or not. If it falls under the definition of a security, it will be directly under the jurisdiction of the respective Securities commissions of the country and that can complicate a lot of things.
Cryptocurrencies aka digital assets aka digital currencies need to avoid being classified as a security. Otherwise, their movement, transactions, and exchange activities could be restricted. A digital asset will need to fulfill all four obligations under the Howey’s Test to be considered a security.
- It involves an investment of Money
- It must have a common enterprise
- An expectation of Profits or direct returns
- Profits to be derived from the efforts of others
Let us see how OKB (OKB) fares when viewed from a Howey’s Test perspective:
OKB Howey’s Test
- The first condition of the Howey’s Test is satisfied as the owning the OKB token involves an investment of money or coins that have value of their own. OKB tokens have a value of around $42 at the moment and if you want to own them,
- The second condition of the Howey’s Test is also satisfied. OKB is a common enterprise as users are hoping that the exchange does well. If the exchange gives meaningful results and profits, they too will be enriched by that wealth. There is a clear common goal here.
- There is certainly an expectation of profits or direct returns from investing in OKB. OKB holders also have certain monetary benefits on the parent OKEx. They include discounts in trading fees and such.
- The fourth condition of the Howey’s Test is in the gray area. Profits are to be derived solely from the efforts of others but not exactly. Users can stake their OKB tokens on the OKEx and earn rewards. So, profits are dependent on their own actions as well to a certain degree. But, the coin system is certainly quite centralized and token holders don’t have a lot of say on the matter and needs further improvement on this front to be truly considered not a security.
Conclusion
OKB is a mixed bag at the moment. While the token itself can theoretically be listed on the exchange, it doesn’t present any significant benefits outside the OKEx platform. Add it to the fact that the OKEx has exited the Canadian market amid regulatory issues with the Canadian Securities Administrators (CSA) then it becomes an even bigger problem. The exchange has also had trouble with the Ontario Securities Commission (OSC) back in 2021 regarding unregistered securities offerings. It survived that episode but now it is feeling a lot of trouble once again and has chosen to exit the scene for the time being. For these multitude of reasons, it is advised that the OKB token not be listed on exchange platforms in Canada till there is further clarity on the matter.