May 29, 2019

Kik goes to court over crypto debate

Chat app Kik yesterday helped launch a legal battle that could result in greater clarity around whether digital tokens are currencies or securities.

Backstory: Kik in 2017 raised nearly $100 million in an initial coin offering for a token called Kin that would be used to buy and sell digital services. The SEC later reached out for more info and eventually sent Kik a Wells notice that indicates some sort of enforcement action will be forthcoming.

  • In short, Kik wants Kin to be viewed as a currency rather than a security. But, as Kik investor Fred Wilson notes, "the SEC is regulating by enforcement, not new rulemaking."
  • SEC officials previously declared both Bitcoin and Ether to be currencies, although its corp finance director did hint that the initial sale of Ether tokens should likely have been considered securities.

Kik's top argument is that Kin doesn't meet the Howey Test, which was created by the Supreme Court in 1946 to determine if certain transactions (like an ICO) are investment contracts (and, thus securities).

  • It's no slam dunk. Kik argues in its Wells notice response that Kin buyers had no expectations of profits from buying tokens, thus not meeting the Howey Test, but 2017 comments by Kik CEO Ted Livingston tell a different story.

Yesterday Kik launched a crowdfunding effort to take its fight to court, contributing an initial $5 million worth of digital tokens.

  • The crypto industry hope is that judges will decide this currency vs. security questions once and for all, effectively creating an updated Howey Test.
  • And it should be the SEC's hope as well, to both save it headaches and to establish common rules of the digital road.

The bottom line: Kik and other crypto-related startups aren't trying to operate outside of regulatory regimes, despite their industry's lawless reputation. They want specific rules. But, so far, the U.S. government hasn't complied.

Go deeper: The promise of Facebook's GlobalCoin

Go deeper

China approves Hong Kong national security law

Hong Kong riot police round up a group of protesters during a demonstration on Wednesday. Photo: Willie Siau/SOPA Images/LightRocket via Getty Images

Chinese lawmakers approved a plan on Thursday for a sweeping national security law for Hong Kong that would criminalize sedition, foreign influence and secession in the Asian financial hub.

Why it matters: China bypassed Hong Kong's legislature and chief executive to introduce the law, prompting Secretary of State Mike Pompeo to announce Wednesday that the city is no longer autonomous from the Chinese mainland and does not warrant special treatment under U.S. law. President Trump indicated Tuesday that he planned to announced further sanctions against China over the move.

Go deeper: Hong Kong's economic future hangs in the balance

Editor's note: This is a developing news story. Please check back for updates.

19 mins ago - World

Minneapolis unrest as hundreds protest death of George Floyd

Protesters and police clash during demonstration on Wednesday over the death of George Floyd in custody outside the Third Police Precinct. Photo: Kerem Yucel/AFP via Getty Images

A man died in a Minneapolis shooting during a second night of clashes between police and protesters in the city over the death of George Floyd, an African American man who died in police custody, per AP.

The latest: Police said officers were responding to reports of a stabbing just before 9:30 p.m. and found a man lying in "grave condition on the sidewalk" with a gunshot wound, CBS Minnesota reports. On man is in custody over the incident.

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 3 a.m. ET: 5,695,968 — Total deaths: 355,701 — Total recoveries — 2,351,638Map.
  2. U.S.: Total confirmed cases as of 3 a.m. ET: 1,699,933 — Total deaths: 100,442 — Total recoveries: 391,508 — Total tested: 15,192,481Map.
  3. Public health: CDC issues guidelines for reopening officesFauci says data is "really quite evident" against hydroxychloroquine.
  4. States: California hospitals strained by patients in MexicoTexas Supreme Court blocks mail-in expansion to state voters.
  5. Business: MGM plans to reopen major Las Vegas resorts in June — African American business owners have seen less relief from PPP, Goldman Sachs says.
  6. Tech: AI will help in the pandemic — but it might not be in time for this one.
  7. World: EU proposes a massive pandemic rescue package.
  8. 1 🎶 thing: Local music venues get rocked by coronavirus.
  9. 🎧 Podcast: Trump vs. Twitter ... vs. Trump.
  10. What should I do? When you can be around others after contracting the coronavirus — Traveling, asthma, dishes, disinfectants and being contagiousMasks, lending books and self-isolatingExercise, laundry, what counts as soap — Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingHow to minimize your risk.
  11. Other resources: CDC on how to avoid the virus, what to do if you get it, the right mask to wear.

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Updated 1 hour ago - Politics & Policy