Polygon, a Cryptocurrency Promoting Ethereum Scalability... Direct Hit from SEC's Securities Claims

Among all virtual assets, ranked 11th in market capitalization... 30% plunge since early this month
Recovery slow despite Polygon 2.0 upgrade

The price of the virtual asset Polygon plummeted recently after the U.S. Securities and Exchange Commission (SEC) determined it to have securities characteristics. Ranked 11th in total virtual asset market capitalization and attracting market attention with its goal to improve the limitations of the Ethereum blockchain, Polygon has taken a direct hit from this incident.

Image source=Reuters·Yonhap News

According to the global virtual asset market status relay site CoinMarketCap as of 1:14 PM on the 15th, Polygon's price was $0.62 (approximately 796 KRW), down 4.40% from the previous day. Compared to a week ago, it dropped 18.26%, and compared to the beginning of this month, it plunged 30.34%.

Polygon is a project developed to improve the drawbacks of the Ethereum blockchain, such as slow transaction processing speed and scalability limitations. To increase processing speed and expand scalability, it builds sidechains, which are sub-chains that operate alongside the Ethereum blockchain. Transaction processing, verification, and recording are conducted on the Polygon sidechain. The final results are recorded on the Ethereum blockchain, thereby increasing speed and improving scalability. When participating in staking by entrusting virtual assets to the project for verification, participants receive Polygon tokens as rewards. These tokens are also used as a means of paying transaction fees. The project and its virtual asset were originally called Matic but were renamed Polygon in February 2021.

Additionally, Polygon announced upgrade plans. Polygon Labs, the developer of Polygon, has announced the Polygon 2.0 upgrade, which fundamentally changes all aspects of the project, including token economics and policies. Through this, they aim to enable anyone in the virtual asset market to easily create and exchange information while improving security and scalability.

Despite this news, the price of the virtual asset Polygon remains below the level before the SEC's securities controversy. Until the 5th of this month, it was around $0.90. However, after the SEC filed charges against global virtual asset exchanges Binance and Coinbase for securities law violations and claimed that Polygon has securities characteristics, the price has shown weakness.

In the indictment, the SEC stated, "Polygon explained in its initial whitepaper that the Matic (Polygon’s former name) token was expected to provide economic incentives." It further noted that buyers and holders of the Matic virtual asset were led to expect profits as a result of their efforts to grow the protocol, which would ultimately increase demand and value for Matic.

The SEC also disclosed that the Polygon project raised funds from well-known investors and publicly shared updates about the network, as well as financial statements including daily revenue and total revenue. The SEC claimed that Polygon developers continuously promoted the platform through various social networking services (SNS) and marketed that tokens received as fees since January 2022 were burned, reducing the total supply. Considering these characteristics collectively, the SEC emphasized that the virtual asset Polygon has securities characteristics.

In the U.S., securities status is determined through the Howey Test, which includes criteria such as: ▲whether money was invested ▲whether there was an expectation of profits from the investment ▲whether the invested money was part of a common enterprise ▲whether the profits resulted from the efforts of others rather than the investor’s own efforts.

Polygon Labs immediately refuted the SEC’s claim that the virtual asset Polygon is an unregistered security. In a statement, Polygon Labs said, "(Polygon) was developed and distributed outside the United States and currently focuses on a global community supporting the network," adding, "It is not targeted at the U.S. market."

This content was produced with the assistance of AI translation services.