Here is What Soulja Boy Ought to Know Earlier than Launching SouljaCoin

On Friday, rapper Soulja Boy tweeted a query that the world didn’t realize it wanted: “Who will help me make SouljaCoin an actual factor with out stepping into any authorized bother with SEC?”

He’s not the primary musician to have contemplated stepping into crypto. In truth, fellow platinum artists Lil Yachty and Akon have already introduced out their very own cryptocurrencies, whereas late rapper MF Doom’s remaining inventive venture was a set of Ethereum-powered NFT digital masks. 

So, sensing an instructive response within the offing, Decrypt seized the chance, picked up the cellphone and posed the query to Stephen Palley, crypto professional and lawyer for Anderson Kill, who laughed and exclaimed “I don’t know!” earlier than reflecting.

“The query that the SEC shall be anticipating Soulja Boy to reply is ‘what does he need to do with it?'” Palley stated. “It’s virtually unattainable to say if he would run into authorized bother with the SEC just by saying, ‘I wanna have a Soulja Boy token.’”

So we probed additional. Soulja, contemplate this your sermon and Decrypt your Zarathustra.  

What’s a safety underneath US regulation?

Whether or not a crypto token constitutes a safety is the topic of a very grueling courtroom wrangle between XRP token makers Ripple and the US Securities and Alternate Fee, who final month filed a lawsuit alleging that Ripple offered XRP as an unregistered safety. Ripple denies the allegations.

The lawsuit is the most recent of dozens of comparable fits filed by the SEC towards crypto corporations, and Soulja Boy could be clever to keep away from being crippled by comparable potholes. 

Soulja, right here’s a fast primer: To the SEC, a safety is an “funding contract.” It’s basically a monetary instrument that provides traders an expectation of future earnings. 

To work out what counts as a safety, the SEC in 1946 developed the Howey Take a look at. The end result of the check determines whether or not “an individual invests his cash in a typical enterprise and is led to anticipate earnings solely from the efforts of the promoter or a 3rd social gathering.” 

How have crypto corporations tried to appease the SEC?

To keep away from registering as a safety, Soulja Boy would both must show to the SEC that his tokens don’t represent an funding contract or he must play ball and register it with them. 

Soulja may create his token within the type of a Safety Token Providing, the place the coin is registered as a safety. However this comes with its personal issues: registering an asset as a safety would prohibit Soulja’s buying and selling choices and topic the cryptocurrency to further crimson tape. Requesting a letter of “no motion” is also a protracted shot, because the SEC has solely issued a handful of such letters.

Nonetheless, registering with the SEC shouldn’t be unattainable. Musicians have created securities lengthy earlier than crypto. 

In 1997, when Soulja Boy was however a seven-year-old lad, Bowie Bonds have been issued by banker David Pullman on the instigation of the Skinny White Duke himself to monetize his future royalties. The bonds have been backed by Bowie’s personal money circulation potential, which by this level included royalties from a again catalog that includes such monoliths as Ziggy Stardust, Hunky Dory and Younger People.

“One thing like that would definitely be a safety,” stated Palley. “If a SouljaCoin is an funding of cash in a typical enterprise, with an expectation of earnings from the efforts of others, It could be one thing like an funding contract. That may fall into the definition of safety.”

Another paths to comply with

If Soulja Boy didn’t need to undergo the trouble of issuing a safety, he must persuade the SEC that the token is genuinely helpful and never a fast money seize. That is the illustrious “utility token”: cryptocurrencies claimed by its creators to have goal past hypothesis.

Soulja Boy ought to ask himself some questions first, stated Palley: “Will SouljaCoin be redeemable for one thing? Or will it tokenize participation in future money circulation? Maybe if in case you have sufficient of them you possibly can ask him to place your title in a tune, or write about one thing you counsel, or shoot a video in a sure place. The nearer it’s to one thing like that, the much less seemingly it’s that it’s a safety.”

That is the route that Lil Yachty opted for. YachtyCoin is a ‘social token’—a manner for a creator or influencer to get nearer to their followers by promoting them cryptocurrency. Similar to any wholesome, loving relationship, supporters can present their loyalty by shopping for an influencer’s cryptocurrency, which they’ll then redeem for items and providers (or, OR! promote on to different followers or crypto collectors). Holders of YachtyCoin can anticipate a variety of unique advantages, together with the prospect to look in a Lil Yachty video, have a digital meet-and-greet, a Tik Tok collaboration or a comply with again in your social media.

Akoin, however, will turn out to be the native foreign money of Akon Metropolis, the $6 billion sensible metropolis that Akon is constructing in his ancestral homeland of Senegal. Akon piloted the coin in Kenya, particularly in Mwale Medical and Know-how Metropolis, a $2 billion medical advanced in Kakamega county. 

Nevertheless, a lot of makes an attempt to market cryptocurrencies as “utility tokens”  have blown up of their creators’ faces. For example, when litigating towards chat app Kik for its ICO for Kin, the SEC remained unconvinced by Kik’s counsel’s arguments that the token had utility, since its CEO, Ted Livingston, went on CNBC in Might 2017 and stated that traders would “creat[e] a spot the place they’ll create worth for one another transacting in a brand new cryptocurrency. And that alone is sufficient to make a terrific monetary return.” Kik misplaced the case. 

So, Soulja Boy: nonetheless you method the matter, we’re thrilled you’d like to affix our group. In order that the SEC doesn’t choose you off, our solely piece of recommendation is that you simply rent a lawyer.