This week the U.S. Securities and Exchange Commission (SEC) filed two lawsuits, one against the Binance cryptocurrency exchange and the other against Coinbase. Filecoin supporters may have taken note of the news, especially since the SEC specifically stated in the Binance lawsuit that Filecoin is a “security” and that Binance did not properly register it with the exchange before listing it.

Filecoin is the leader in the Web3 decentralized data storage space. Filecoin has been a popular and sought-after token by investors around the world. The allegations and related reports in this indictment, apart from their news value, cannot directly determine that FIL and other protocol tokens have violated any promise.

Here, we offer eight reasons to allay your fears about an uncertain lawsuit and your skepticism about holding Filecoin.

1. The SEC can file a lawsuit, but only a U.S. judge can decide

The SEC is a market regulator, and it will ultimately be up to the judge to decide whether FIL listed on the exchange complies with SEC regulations and should be registered with the SEC. Whether FIL or any other token is an investment agreement or a security depends on the judge's ability and balance.

These two complaints present the SEC’s arguments as to why FIL and other tokens may be securities. However, before any judge makes a ruling, the opinions of dozens of professional lawyers must be carefully listened to. This is an extremely professional argumentation process, which should provide some confidence for everyone.

2. The U.S. Congress can intervene through legislative proposals to render the lawsuit meaningless

While the SEC alleges that Coinbase and Binance are still responsible for past conduct, FIL holders are primarily concerned about whether the tokens can still be listed on these exchanges. Congress can take action on this. In a recent congressional hearing, several members of Congress asked SEC Chairman Gary Gensler to explain the lack of market clarity at the SEC he manages and challenge his supervision through enforcement actions.

Many members of Congress are unhappy with the SEC, and they could respond to these lawsuits, or other subsequent enforcement actions, by eventually legislating to clarify the market position of FIL and other tokens. This would render these lawsuits moot and, at least with respect to third-party token issuance, completely remove the risk.

3. The SEC did not directly hold the issuer responsible, and neither Brian Armstrong nor Changpeng Zhao (CZ) represents all cryptocurrencies

If issuing FIL did violate the Securities Exchange Act, why did the SEC only take action against exchanges that listed it on the secondary market, rather than directly against the original issuer? In SEC v. Howey, a case that defined what investment contracts are and how they are considered "securities," the SEC directly charged the Howey companies, which "fully and exclusively owned" the land, as well as the fruits of the land. However, here, the SEC chose to sue Coinbase and Binance simply because they determined that the tokens were investment agreements and unregistered securities.

The SEC did not directly take action against the issuer of FIL or any other token, which also exposed the weakness of its possible insufficient arguments. It is clear that these tokens are not without identifiable issuers.

IV. Issue of litigation time

As stated in paragraphs 401 and 403 of the SEC's complaint against Binance, FIL offered its future token agreement to accredited investors from August to September 2017. The question that can be discussed here is why the SEC took these actions in mid-2023? If the SEC notified Coinbase or Binance of its concerns or doubts about FIL or many other tokens in a more prompt manner, perhaps Binance could have complied with the regulations earlier? Some legal theories have explored the long period of alleged violations and subsequent enforcement, protecting the person being enforced from losses caused by unreasonable delays in the enforcement work of the supervisory agency.

5. Except for ETH or BTC, all other currencies are subject to the same regulatory scrutiny as FIL

One can understand that FIL and the other 11 tokens specifically highlighted in Binance’s complaint are subject to some special regulatory scrutiny. In fact, the SEC states in paragraph 361 that almost all tokens on Binance qualify as securities. It states that as long as the crypto assets listed in the complaint are traded on the exchange, they fall under the SEC’s regulatory scope. The list of ten assets, plus BNB and BUSD, is only a “non-exhaustive list.” Therefore, the SEC is targeting almost all tokens in the entire industry, not just FIL.

6. The SEC’s legal arguments face a number of substantive obstacles

It is difficult for the SEC to deem all tokens to be within its jurisdiction because it must overcome many obstacles to get a judge to deem them securities. In the case of FIL, it will be difficult for the SEC to prove that the FIL protocol is still an investment agreement, that is, a security. In the case of SEC v. LBRY and XRP, the SEC rejected the argument that deeming the initial offering as an investment agreement means that the token will always be a security.

Indeed, in the LBRY case, the SEC appears to have accepted that tokens sold on secondary markets are likely not securities. STX tokens were registered as securities in their initial token offering, but now STX has effectively designated their active protocol as a commodity. The definition of a token can change over time, and simply issuing tokens on secondary markets, such as FIL trading on exchanges, is unlikely to be considered a violation of SEC regulation.

7. The final verdict may not come for several years

Disputes like these usually take years to resolve. Look at the XRP case. The SEC filed a lawsuit in December 2020, and the case has not yet been fully resolved. Of course, there will eventually be a judgment that becomes a precedent for future reference. In short, it is premature to abandon FIL based on just one lawsuit, especially this is a lawsuit directly against Coinbase and Binance, rather than a direct lawsuit against any specific token.

8. No changes to the Filecoin protocol

The Filecoin protocol did not change in any way this week as a result of the lawsuit. This also proves that it is immutable, uncensorable, and not subject to fluctuations in supply and demand. Many project builders and investors have long anticipated that there will be political backlash against cryptocurrency projects in the United States, and have fully considered these possible enforcement factors when purchasing FIL or any other token. Therefore, they have not been shaken or shocked by this news. If you have a firm belief that you should hold FIL for a reasonable period of time, these beliefs do not need to be shaken.