Coinbase Lists EOS Despite Possibly Being an Unregistered Security

EOS is officially going to be trading on Coinbase. Although the cryptocurrency exchange has been more aggressive in its listings, its most recent could cause some hesitation regarding EOS’s status as a possible security. Although the founders of EOS have vehemently denied this claim, there remains questions surrounding EOS and its initial coin offing (ICO) which was held outside of the U.S. One of the most important characteristics in determining if a cryptocurrency is a security is whether or not it has a ‘decentralized structure.’ By all accounts, EOS is not only massively centralized but is made up of a non-anonymous cartel of 21 block producers who run the network and issue tokens. Ask yourselves: if a non-anonymous global conglomerate were to issue their own token, would it be considered a security? In the eyes of the SEC, it most certainly would.

Other Questions to Consider

Aside from whether or not the EOS blockchain is decentralized, there are other criteria to consider as outlined by the SEC. (1) Is a there a person or group sponsoring or promoting the creation of a digital asset, and if so, do they play a significant role in its development and maintenance?  The answer to this question is obvious. There is no denying Block.one is not only directly involved in the promotion of EOS, but is actively tinkering with the software, writing the constitution, and having a heavy hand in the overall maintenance of the network. Their control is so direct that they can even freeze EOS addresses (another clear sign that it may not be decentralized). Sure, the block producers technically confirm transactions, but the real power lies in Block.one. After all, they didn’t raise over $4B during their year-long ICO for nothing. (2) Has the promoter raised an amount of funds in excess of what may be needed to establish a functional network?  By all estimates, Block.one has raised much more than it needed. Raising over $4B and lasting for a year, it was the largest ICO in history by any metric. There’s valid arguments to be made that the EOS ICO was not at all necessary to establish a functional network, given that Block.one is keeping most of that money locked up for ‘software development’ over the next ten years. To release the first installment of EOS.IO likely required only a tiny fraction of the money raised. By comparison, Ethereum (ETH) raised only $18M during its ICO. With this comparatively paltry sum, it was able to set up a functional network, market the network, and grow to be the largest community of blockchain developers in the entire cryptocurrency space.

Coinbase to Have Problems Down the Line

Although EOS fans are likely celebrating their cryptocurrency being added to Coinbase, the many questions surrounding EOS should give us pause. Although Coinbase is not averse to listing security tokens, EOS is thus far unregistered and unaccounted for. Based in the Cayman Islands to avoid authorities, any legal trouble would likely fall on Coinbase for listing them in the first place. Do you think EOS is a security? Should Coinbase have listed EOS in the first place? Let us know your thoughts below.