Litecoin as a Digital Commodity: 10 Reasons It Won't Face Unregistered Security Delisting Challenges

In the past week, the SEC filed two lawsuits, one against Binance the largest international exchange, and also against Coinbase the largest US crypto exchange. In these lawsuits, both exchanges are accused of selling, listing, and trading unregistered securities among others. Even Robinhood, without being sued, removed Cardano (ADA), Polygon (MATIC) and Solana (SOL) this week which were listed in the two lawsuits as unregistered crypto securities. Several of the top 20 crypto assets are now classified as unregulated securities by the SEC.

As more and more US exchanges are likely to delist these unregulated crypto securities in the next month, this will leave digital assets that are commodities as the likely only assets available to buy and trade in the United States. Even 10 States including Alabama filed stop orders against Coinbase for being an unregistered broker and selling unregistered securities.

Ethereum has been deemed a digital commodity by the CFTC, but after switching to proof of stake this remains questionable. Therefore, the two remaining digital commodities that have been named by CFTC are Bitcoin and Litecoin.

Here are ten compelling reasons why Litecoin maintains its status as a digital commodity and avoids being categorized as an unregulated security.

1. Fairest Launch: Litecoin's launch is arguably the fairest launch, as it had no pre-mine or ninja mining. In fact, its launch was even fairer than that of Bitcoin. Miners were prepared, and polling was conducted to determine when they should start mining Litecoin. With Bitcoin, there was little to no one mining besides Satoshi at the beginning. Here is Twitter thread from Charlie Lee, the founder of Litecoin, discussing how Litecoin was fairly launched.

2. Proof of Work Consensus Model: Unlike Polygon, Solana, and Cardano which use proof of stake, Litecoin utilizes a proof of work consensus model. The PoW approach ensures that the coins are distributed fairly to participants who invest in hardware, infrastructure, power, and human capital. Wheres as proof of stake, the distribution of the network's assets are rewarded to the users who control the most percentage of the network. In addition, with proof of stake, it is much easier to do a "pre-mine", creating and distributing the assets to founders, VCs, developers, and can be used for ICOs.

3. No Pre-mine or ICO: Litecoin distinguishes itself from nearly all other crypto networks and assets as it did not have any pre-mine (besides the genesis block and 2 blocks needed to ensure a smooth and fair launch), initial coin offering (ICO), dedicated development fund, or founder's reward. These factors solidified Litecoin's position as a digital commodity at the beginning.

4. Recognition by Experts: Gary Gensler, the SEC Chairman, has acknowledged Litecoin as a potential digital commodity in the past, stating that it came into existence with mining as an incentive in a distributed token platform. Other popular people in the crypto space, like Michael Saylor, have also identified Litecoin as a digital commodity.

4. Decentralized Nature: Litecoin's decentralized nature is a crucial factor in classifying it as a commodity. Its trustless, peer-to-peer network operates without a central authority governing transactions or distribution. This decentralized structure differentiates commodities like Litecoin from securities backed by centralized organizations.

5. Official Recognition: In a lawsuit filed by the CFTC against Binance on March 27th, 2023, Litecoin was officially recognized as a digital commodity, similar to Bitcoin, which has held this status since 2015. The CFTC's inclusion of the Litecoin logo on its Virtual Currencies are Commodities PDF further solidifies its recognition.

6. Regulatory Framework: The SEC's jurisdiction is primarily focused on securities, while digital commodities like Litecoin fall under the regulation of the Commodity Futures Trading Commission (CFTC). As a result, Litecoin's status as a digital commodity protects it from potential delisting orders due to SEC actions.

7. Exclusion from Recent SEC Lawsuits: Litecoin, along with Bitcoin, was not included in the recent SEC lawsuits against Binance and Coinbase. The absence of these digital commodities highlights the SEC's acknowledgment that they fall outside their regulatory purview.

8. The Howey Test: Litecoin does not pass the Howey Test, as it was initially created as a fork of Bitcoin, an open-source protocol. There was no investment of money, expectation of profits, or common enterprise. Charlie Lee independently created Litecoin in 2011 without third-party investments or profit incentives.

9. Distinction as a Digital Commodity: As a digital commodity, Litecoin operates under a different regulatory framework than securities. Its classification aligns it with traditional commodities like gold, silver, oil, and bitcoin, deriving value from utility and market demand.

10. Litecoin's digital commodity status and its adherence to fairness, decentralized nature, and lack of pre-mine or ICO have positioned it favorably. Recognized by industry experts and protected by the CFTC's jurisdiction, Litecoin's compliance with regulatory standards makes it unlikely to face delisting challenges.

Sources:

1. https://storage.courtlistener.com/recap/gov.uscourts.ilnd.431767/gov.uscourts.ilnd.431767.1.0_1.pdf

2. https://storage.courtlistener.com/recap/gov.uscourts.nysd.599908/gov.uscourts.nysd.599908.1.0.pdf

3. https://robinhood.com/us/en/support/articles/cardano-polygon-solana-update/

4. https://storage.courtlistener.com/recap/gov.uscourts.ilnd.431767/gov.uscourts.ilnd.431767.1.0_1.pdf

5. https://asc.alabama.gov/News/2023%20News/6-6-2023_Coinbase.pdf

6. https://www.cftc.gov/sites/default/files/idc/groups/public/%40customerprotection/documents/file/oceo_aivc0218.pdf