Source: US SEC; Translated by: Golden Finance

In order to more clearly illustrate the application of the Federal Securities Law on crypto assets, the US SEC Corporation's Finance Department is expressing its opinions on "Meme Coin".

"Meme Coin" is a crypto asset inspired by internet memes, characters, current events or trends, and its promoters try to attract enthusiastic online communities to buy meme coins and participate in their transactions. Although a single Meme currency may have unique features, Meme coins usually have certain common characteristics. Meme coins are commonly used for entertainment, social interaction and cultural purposes, and their value is mainly driven by market demand and speculation. In this regard, Meme coins are similar to collectibles. Meme coins also usually have limited uses or functions or no purpose at all.

Given the speculative nature of Meme coins, they tend to experience significant market price fluctuations and are often accompanied by statements about their risks and lack of utility, except for entertainment or other non-functional purposes.

The US SEC Corporation's Finance Department believes that the transactions of the Meme currency type described in this statement do not involve securities issuance and sales under the Federal Securities Act. Therefore, persons involved in the issuance and sale of Meme coins do not need to register their transactions with the Securities Commission under the Securities Act of 1933 (the “Securities Act”) nor comply with the registration exemption provisions of the Securities Act. Therefore, neither the buyers nor holders of Meme coins are protected by federal securities laws.

Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Securities Exchange Act 1934 define the term “securities” by listing various financial instruments, including “stocks,” “notes” and “bonds”. Meme coins do not constitute any common financial instrument specifically listed in the definition of "securities", because Meme coins will not generate income and will not transfer the rights to future income, profits or corporate assets.

In other words, Meme coins themselves are not securities.

The above statutory clauses also stipulate that the "investment contract" is a securities. Given that Meme Coin is not a securities itself, we analyze whether Meme Coin can be provided and sold as part of an investment contract based on the “Investment Contract” test specified in SEC v. WJ Howey Co.. Howey tests analyze whether it is an investment contract based on the "economic reality" of certain arrangements or tools.

When evaluating the economic reality of a transaction, the Howie Test considers whether there is an investment in a business and whether it is based on reasonable expectations of profits generated by other people's entrepreneurship or management efforts. Since the Pride case, the federal court explained that the “efforts of others” requirements of Howe Tested were met when “the efforts made by people other than investors are undoubtedly important and are the key management efforts that affect the success or failure of a business.”

The sale and sale of Meme coins do not involve investment in the enterprise, nor are they intended to reasonably expect to make profits from other people's entrepreneurship or management efforts.

First of all, Meme coin buyers are not investing in the business. That is to say, their funds will not be concentrated and will be used by the promoter or other third parties to develop the currency or related companies.

Secondly, any expectation of profit by Meme coin buyers does not come from the efforts of others. That is, the value of Meme coins comes from speculative trading and collective sentiment in the market, just like collectibles.

In addition, the promoters of Meme coins do not conduct (or express intentional) management and entrepreneurial efforts that buyers can reasonably expect to profit from.

Nevertheless, this statement does not apply to products that provide and sell Meme coins that are inconsistent with the above description, or to evade the application of the Federal Securities Law by disguising products that would otherwise constitute securities.

As mentioned above, the department will evaluate the economic reality of a particular transaction.

In addition, although the offering and sale of Meme coins may not be subject to federal securities laws, fraudulent activities related to the offering and sale of Meme coins may be subject to enforcement actions or prosecutions by other federal or state agencies in accordance with other federal and state laws.

For more information, please contact the Office of Chief Legal Counsel of the U.S. SEC Corporation Finance Department to submit a network request form.