Privacy token company Enigma has filed with the US Securities and Exchange Commission (SEC). According to the registration document, the ENG token is used as a payment system for the aptly named “Secret Network,” a major part of the Enigma Network. But ENG will not be around for long.
In February, Enigma settled a lawsuit alleging it performed a securities sale during its IPO. This document, along with a $500,000 fine, are part of that settlement. Investors who lost money on the IPO may apply to claim compensation.
Though the filing does admit that ENG will be regulated, the tone of the document seems resistant to the idea:
“The smart contract governing the ENG Tokens, or the ENG Smart Contract, does not provide holders with any additional rights. Moreover, ENG Tokens should not be viewed as analogous to more traditional securities (i.e. capital stock, debt securities, warrants to purchase capital stock, etc.), as the ENG Tokens lack features of such securities, including the right to receive a dividend or distribution.”
Meanwhile, Enigma has changed the direction of its project, including the phasing out of the ENG.
Secret Smart Contracts
The Enigma Protocol does have an unusual use: Secret Smart contracts. The technology, first presented in 2018, appears to be a cross between smart contract platforms like Ethereum and privacy platforms like Monero.
What are secret contracts? Why are they essential to building truly useful decentralized applications? Read more on the Enigma blog. https://t.co/pC4XILD9rN
— 𝕊ecret Network (@SecretNetwork) May 15, 2018
On the other hand, the next step for Enigma, the launch of a “Secret Network,” seems transparent enough.
The SEC document describes a new version of the “Secret Network” in some detail. This related project is a proof-of-stake blockchain built on the Cosmos network. The system will use the new SCRT and not ENG tokens.
While admitting the network could be used for crime, the firm believes that secret smart contracts will allow for good in the public sphere. They allege that their system maintains privacy of transactions while allowing for transparency where necessary.
Useful to Useless
As with many blockchain companies, Enigma has seen major changes to its roadmap. The ENG tokens raised in the IPO were meant to be payment tokens on the Enigma Protocol’s network. However, this “Secret Network” took a left turn. Enigma admits:
“ENG tokens were meant to be used by their holders to participate in the protocol by paying transaction fees…In the beginning of 2020, the company decided to divert its business focus and join the Secret Network Community in supporting the development of the Secret Network.”
The secret is out! Privacy-preserving "secret" smart contracts are now LIVE on Secret Network.
— 𝕊ecret Network (@SecretNetwork) September 15, 2020
While blockchain companies do not all flock to the SEC for approval, Enigma appears to have done so because of the settlement. Nonetheless, the filing makes it clear that the SEC found ENG to be a security. Still, taxation of the tokens remains murky:
“The tax characterization of the ENG Tokens is uncertain, and each purchaser must seek its own independent legal and tax advice with respect to the United States and non-U.S. tax treatment of an investment in the ENG Tokens.”
The matter of the ICO funds, a substantial $48.7 million, also appears relevant. The document listed the salaries of executives. According to the payment table, the CEO, CTO, president, and director of Enigma, Guy Zyskind, received a grand total $105 in 2020 for compensation. Though his compensation was $541 the document clarifies, he also received part of a $600,000 bonus in 2017.
Once the registration comes into effect, Enigma will be subject to the stipulation of section 13(a) of the Exchange Act. It must file fiscal statements with the SEC at least until all claimants have been compensated (or missed the deadline).
This is not the only crypto asset under fire for ICO sales. In August, Tezos agreed to pay investors who lost money in their ICO. Tezos, too, was charged with conducting a securities sale.