This week, the crypto market was hit with additional uncertainty after the US Securities and Exchange Commission (SEC) hit another crypto project with another high-profile lawsuit. In the latest move, the SEC hit Paxos with a Wells Notice, informing them of an impending investigation regarding the minting of Binance USD (BUSD) stablecoin.
Since the notice, Paxos has agreed to stop issuing BUSD according to the regulation and is prepared to fight the litigation. However, with the overarching litigation in the market, investors remain confused about what the SEC deems as a security. Nevertheless, one of the most substantial opportunities remains with utility tokens, which aren’t currently considered securities according to the guidelines. As a result, investors are starting to shy away from potential securities and seem to be confident investing in upcoming utility token projects.
Paxos Hit By Regulators In Latest Lawsuit
Paxos was ordered to stop issuing the Binance USD (BUSD) stablecoin through its protocol this week. Paxos has owned and issued the Binance USD stablecoin since 2019 in a partnership to use the Binance branding alongside its token.
With the lawsuit issued by the SEC, one of the new york regulators, the New York Department of Financial Services (NYDFS), ordered Paxos to stop issuing the third-largest stablecoin, which had a market cap of over $16 billion before the accusations were filed.
The order from the NYDFS was issued after the SEC issued a Wells Notice to Paxos – one of the most feared notices that tell a company about incoming enforcement action from the regulators. The Wells Notice was issued on February 12th, and Paxos immediately stopped minting the BUSD token as a result. After a Wells Notice is received, the accused is allowed 30 days to respond through a Wells Submission, allowing them to argue against the accusations before the lawsuit commences.
The SEC is suing Paxos after alleging that BUSD is unregistered and unlicensed security. The NYDFS forced Paxos to stop creating more of the BUSD token, and they are monitoring Paxos to verify they can facilitate redemptions so that customers can reclaim their funds.
In a statement, the DFS stated that the order to stop minting was issued as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance.
Paxos Disagrees With SEC but Complys With Demands
Paxos is taking the fight head-on and has come out and stated that it categorically disagrees with the SEC’s opinion that deems BUSD as a security. They continued to state that they would engage with the SEC regarding the issue and are prepared to litigate vigorously.
The stablecoin issuer believes they have issued their stablecoin in accordance with the regulators, ensuring a 1:1 backing of BUSD in dollar-dominated reserves that are fully segregated and held in bankruptcy remote accounts. Furthermore, Paxos is actually already regulated by the NYDFS.
Despite disagreeing with the lawsuit, Paxos is complying with the orders from the regulators and will stop issuing BUSD by February 21st. However, they will continue to allow for BUSD redemptions until at least Feb 2024.
Furthermore, as a result of the litigations, Paxos has announced that it would terminate its relationship with Binance for the BUSD stablecoin brand.
To provide additional options for customers, Paxos Trust Co stated that they would redeem BUSD to US Dollars or convert them into Pax Dollars (USDP).
This is not the first time SEC has come knocking on Crypto Doors.
The regulatory clampdown is starting to be a growing concern for the entire crypto market. An iron fist from the regulators brings unprecedented amounts of uncertainty to markets, causing liquidity to dry up as traders are reluctant to start taking on additional risks.
Of course, this isn’t the first time that the SEC has come knocking on the doors of crypto projects. Although they did sue other smaller companies before, Ripple (and the native token, XRP) was one of the first high-profile targets that the SEC decided to take action against. The SEC initiated the lawsuit against Ripple in 2020, alleging that the company and some of its executives sold XRP as a security without registering beforehand.
XRP has argued, stating that the token is used in its business in cross-border transactions and is not a security. This is because it is used in the platform, making it a utility token necessary for the protocol’s functioning. Ripple as a company has been fighting the SEC lawsuit ever since. The case is still pending, but both parties have filed their final motions, and an outcome from the judges is expected at some point in 2023.
Interestingly, the SEC lost a similar case against LBRY – a blockchain-based sharing platform – in which the judge ruled that LBC tokens are only considered a security at the time of direct sale. As a result, many are expecting a similar outcome in the XRP case, with many analysts predicting a sudden surge for the XRP token if it comes out on the winning side of the judge’s ruling.
Just last week, the SEC declared that crypto staking services are in violation of securities law. Although Kraken closed its staking services, Coinbase is ready to battle the declarations as they believe staking products are not securities.
Why Buying Utility Tokens such as FGHT are Better Options.
With the SEC and regulators starting to clamp down on crypto projects, many investors are beginning to suggest that investing in utility tokens are much better options to invest in right now. In addition, although unconfirmed, many industry players believe that utility tokens are likely to pass the Howey Test, a test used by the SEC to determine whether a particular crypto asset is a security or not.
The Howey Test dictates that a token is deemed a security if there is;
- An investment of money
- In a common enterprise
- With the expectation of profit derived from the managerial effort of others.
Of course, we could put every crypto token under this category. However, if the token is being used in the functioning of the protocol, it should pass this test. Although it would provide profits for token holders if the project in question is a success, utility tokens are also required to run the protocol and provide it with a use case.
As a result, many presale projects selling utility tokens for their platforms have seen significant bumps in fundraising over the recent weeks. One prime example of this is FightOut, which is currently selling its native token, FGHT.
Why FightOut is Safe From SEC Regulation
https://twitter.com/FightOut_/status/1623324489214730240
Although we don’t actually know what the SEC is thinking (they’re very private with their opinions), we can assume that the FGHT token is safe from SEC regulation because it is a utility token behind the FightOut ecosystem.
Users are required to purchase FightOut to gain access to the move-to-earn fitness app that is revolutionizing the sector. As a result of FGHT being a utility token, it should pass the Howey Test and be exempt from being considered a security.
FightOut is a move-to-earn platform that rewards users for completing workouts in the gym or their own homes. It is a move-to-earn lifestyle app that is designed to totally change the sector by providing rewards for users for staying healthy through a wide range of exercises.
FGHT Required for Subscription-Based Membership
The central focus point of FightOut is the FightOut companion app, which is designed to provide everything that a user would need to get into fighting shape. The app provides a curated exercise schedule for users after they input their personal details. Users are then required to follow the exercise routing to start earning rewards in the ecosystem.
The interesting thing about FightOut, which makes FGHT a utility token, is that it’s required to purchase a subscription-based membership to access the ecosystem. Users that pay for the membership in FGHT tokens receive a 25% discount, providing significant utility for the token.
The subscription-based membership is bringing a new approach to the entire move-to-earn space, totally revolutionizing the sector. You see, previous move-to-earn heavyweights didn’t operate with a subscription, but they required users to make expensive NFT purchases before they could start earning rewards in the ecosystem. For example, Stepn – which is often considered the number one ranked move-to-earn fitness app – requires users to purchase expensive NFT Sneakers before they can start making steps to earn rewards.
FightOut is changing this entire dynamic as they believe requiring their users to pay hundreds of dollars for an NFT before they can start earning is a flawed mechanic. So instead, they’re offering users a subscription service that instantly allows them to start earning rewards.
FightOut Rewarding Users for More Than Just Steps
Another reason why FightOut is revolutionizing the move-to-earn sector is that they’re rewarding users for living a truly active lifestyle. Currently, all of the move-to-earn fitness Web3 platforms can only reward users for taking steps through walking, jogging, or running. Although this was a major breakthrough in the space, it leaves out millions of users that prefer other types of cardio or resistance training.
As a result, FightOut is planning on rewarding users for a wide range of exercises. When a user signs up to the platform, they are required to input personal details, such as;
- Fitness goals
- Fitness background
- Available equipment
- Location
- Desired workout types
- Time availability
The FightOut Companion App will then take this information and curate a personalized workout schedule for the users. Users are then rewarded for completing workouts and challenges, earning badges, and growing the overall community. In addition, the app will track activities and measure the user’s progress and achievements.
Some of the exercises that FightOut will include from the launch are the following;
- Strength and conditioning training
- High-intensity interval training
- Mobility
- Boxing
Furthermore, as mental fortitude is a big part of being in fight shape, they will also reward users for meditation and yoga sessions.
Soulbound Avatar Displaying Progress
Although FightOut doesn’t require users to purchase expensive NFTs to get started, they require users to mint a Soulbound Avatar when they sign up. This NFT is an avatar used in the FightOut metaverse, and users can use it to enter into competitive leagues, tournaments, and different fight modes to earn prizes.
The name is Soulbound because the NFT is totally attached to the user and cannot be sold or transferred. The best thing about the NFT is that it develops directly with the owner’s effort and progress in the FightOut ecosystem. Data collected from the workouts go directly into the stats points of the avatar. As a result, users will see their Soulbound NFT getting fitter and bigger as they continue to remain consistent with their workout schedules.
FightOut Presale Sees Rising Prices Until Completion
The presale for the FGHT token is currently flying after the project managed to cross the $4 million fundraising milestone in February 2023. The presale started in December 2022, and investors have been rushing to the revolutionary move-to-earn project ever since.
FGHT will be the primary transaction and utility token on the platform. The presale is currently selling the token at a price of 0.02195 USDT per FGHT. However, the presale is using an increasing pricing mechanism, which means that the price for the token will continuously increase every 12 hours until the presale ends, which is scheduled for March 31st.
Once the presale ends, investors will be able to claim their tokens from the claims portal before FGHT is listed on a range of tier-1 centralized and decentralized exchanges. The team has stated that they will be listing the token at a price of $0.0333 USDT, meaning early presale stage buyers are likely to already come out of the fundraising with profit.
Overall, with the impending regulation from financial regulators, it seems that investing in utility tokens is the right way to go. In addition, utility tokens such as FGHT are likely to pass the Howey Test, meaning they won’t be deemed as securities – making them safe from litigation.