Kin -- a cryptocurrency started by the Canadian mobile messaging service, Kik -- is at the center of a legal battle that could shape not only its future, but the future of the legality of Initial Coin Offerings. ICOs are similar to the initial public offerings used when private companies go public.
The Kik team held a $98 million ICO for the asset in 2017, and launched its mainnet -- a copy of Stellar, XLM -- about two years later. The asset was originally introduced to users of the Kik Messenger as part of a beta program in June 2018 and was targeted to be integrated with other mobile offerings -- such as the community-centric social media application, Tapatalk -- this year.
But Kik -- and its digital asset Kin -- have more recently been on the frontlines of Securities and Exchange Commission regulatory oversight of the digital assets industry, as the battle over the legal status of KIN rages on. News this week that Kik's CEO is gearing up for an all out fight with the SEC have upped the stakes in the dispute.
Rating Gets 'Kik' in the Pants
KIN's Fundamental Crypto Asset Score (FCAS) declined -0.47% over the last seven days, impacted by a five point (-0.57%) drop in Developer Behavior. User Activity held steady while Market Maturity descended 12-points (-1.83%). Price is down 30.20% over the same time period.
Gloves Come Off
Kik CEO Ted Livingston announced earlier this week that his company would be shutting down the Kik core messaging service to focus on the KIN cryptocurrency, as the team prepares for a high stakes legal battle with the SEC. The move will displace more than 100 employees, as operations are reduced to 19 core developers supporting the Kin blockchain.
These developments emerged following an intense legal dance between KIN and the SEC initiated when the regulator began questioning the legal status of the asset earlier this year. Kik spent $5 million in negotiations with the SEC before launching a very public "Defend Crypto" crowdfunding campaign on May 28 via the popular crypto podcast, Unchained, seeking to raise another $5 million in funds for their legal engagement.
Officials at the SEC were unmoved, suing Kik shortly after on June 4 for violating Section 5 of the Securities Act of 1933 that requires security offerings to be registered. Ultimately, the Kik/Kin legal battle will focus on the SEC's Howey Test used to identify whether an asset should be characterized as an investment contract.
Our Hot Take
Kik is at the bleeding edge of the crypto community's efforts to forge clarity around the treatment of digital assets under U.S. securities laws. The case has been viewed across the industry as a litmus test for the SEC's views on the legal status of ICO offerings, particularly given their relative ambiguity thus far around U.S. regulation of the digital asset industry.
Details from the SEC filings are quite critical of Kik actions and potential missteps leading to the ICO launch, and the regulator has a pretty solid foundation for its case. Nevertheless, Kik and its legal team have also raised a number of valid counterarguments, particularly around KIN being a digital currency, implying the Howey Test in its current state is ill-equipped to act as a barometer in determining the asset's status as a security. Livingston and crew recognize the potential consequences of this case for their company and the industry as a whole and have transitioned to a battle-ready posture to carry the fight forward.