As Cointelegraph reported two weeks ago, the Securities and Substitution Committee put out a rare no-action alphabetic character in defence of IMVU's new blockchain-based VCOIN.

VCOIN is merely the third digital token to get such legal protection from the U.S. securities regulator, which makes it an exciting development. The SEC has been extremely agile in punishing initial coin offerings that it views equally unregistered securities offerings, just information technology has been more reluctant to define what does non count equally a security — a trouble that Commissioner Hester Peirce noted just final night. A no-activity alphabetic character is, however, not the same as a rule from the SEC or a statute from Congress.

The protection a no-action letter provides applies simply to that particular case. They could too go away equally before long equally, say, VCOIN deviates from the standards set up out in the letter. And, information technology is definitely a narrow lane that VCOIN has in front of it.

Michelle Gitlitz, who leads Crowell & Moring's blockchain and digital asset practice, explained to Cointelegraph:

"I recollect VCOIN is a footling flake different than your normal token offer, because VCOIN's proceeds weren't going to be used to finance any upgrades to the network and the network was fully developed. I recall that'south a central stardom with VCOIN compared to some of the other products."

The upshot of using funds from token sales to build a network that was non nonetheless complete was central to the SEC'south shutdown of Telegram's planned network.

While a no-action letter of the alphabet does not formally protect other projects following the same guidelines, information technology does provide a template for what the SEC is looking for in the future. Gitlitz explained primal factors:

"The money was immediately usable at the time that it was sold. In that location were AML/KYC checks. There were limits on the purchases, conversions and transfers. That's an easier no-activity letter than some of the more difficult proposals: I'thou selling a coin to use the proceeds to develop my network, which is not fully adult. That'due south totally unlike."

All that said, VCOIN is certainly the most ambitious projection that'due south gotten the SEC's blessing. Information technology'south a token freely convertible to and from U.S. dollars for IMVU's user base of operations of 7 1000000.

Information technology is also notable that VCOIN is designed to function every bit a sort of stablecoin, though without a formal peg to reserve assets. IMVU has promised to buy and sell VCOINs for a fixed price of $0.004. Philip Moustakis, sometime counsel for the SEC and current attorney at Seward & Kissel,  noted this as a development: "The fact that the SEC issued a No-Activity Letter for a token that can be exchanged for fiat is encouraging."

Especially significant is that VCOIN tokens will be able to leave the platform. Earlier no-action letters for utility tokens had more tightly closed silos. The understanding with the SEC maintains that the stability of VCOIN's price will forbid those platforms from becoming opportunities to profit. Co-ordinate to the no-activity letter:

"While IMVU volition not promote or support the trading of VCOIN on third-political party trading platforms, the transferable nature of VCOIN means that information technology can be transacted off the Platform, whether bilaterally or on a third-party trading platform. Nonetheless, it would still be irrational for VCOIN purchasers to expect that they could sell VCOIN at a higher cost to an off-Platform counterparty."

Moustakis explained how VCOIN's cost stability is a means of avoiding nomenclature as a security:

"The fact that the supply of VCOIN would not be limited in whatsoever style and IMVU would continuously sell and repurchase VCOIN at a fixed price, taken together, pretty much settled the securities law question. The measures IMVU set forth in its alphabetic character apropos limitations on purchase or transfer may have given the SEC staff boosted comfort, but the heart of the thing, in my view, was the unlimited supply and fixed price."

While VCOIN is an interesting legal consideration for crypto, the token itself is not quite archetype crypto because its functionality is and so compressed and plain centralized to the max. Many in the industry every bit well every bit within the SEC are looking to put together more than assertive guidelines that new projects can build within.