SEC staff granted no-action relief permitting the sale of blockchain-based gaming tokens without registration. The Quarters tokens would be accepted as a currency by multiple video games and gaming tournaments, unlike existing in-game currencies which are tied to a particular game. In okaying the tokens, CorpFin staff noted a number of specific factors, including that Quarters would be sold to gamers “solely for consumptive use” and that only authorized parties subject to know-your-customer/anti-money-laundering checks would be allowed to sell them.
The incoming letter by Pocketful of Quarters, Inc., explained that the Quarters are distinct from another token that PoQ created, Q2 Tokens, which it agrees are securities. PoQ sold Q2 Tokens to finance the development of the platform on which the Quarters will be deployed. With development now complete, the platform includes two smart contracts that will automate certain functions of the system. For example, gamers can purchase Quarters by sending Ether directly to the Quarters smart contract. This is a one-way trip; gamers cannot redeem Quarters for Ether or other currency but must use them for gaming. Game developers and influencers will be eligible for accounts that authorize them to redeem Quarters for Ether. PoQ said that these parties will be subject to initial and ongoing KYC/AML checks.
PoQ wrote that the sale of Quarters in the manner it proposed would not involve the sale of a security within the meaning of the Securities Act or Exchange Act. Due to the restrictions on the use of Quarters, no reasonable gamer would acquire them for investment purposes or with a profit expectation. Quarters will be marketed and sold only for gamers’ own consumption of games, and gamers would be technologically barred from transferring Quarters to other gamers or to any other non-authorized wallet. A similar lack of transferability was a key factor in the SEC’s recent decision to allow TurnKey Jet to sell tokens that could be exchanged for air travel services, PoQ said.
In granting the requested relief, CorpFin staff noted nine factors in particular:
- PoQ will not use funds from the sale of Quarters to build the Quarters platform, which is already developed and will be fully operational immediately upon its launch and before any Quarters are sold.
- Quarters will be immediately usable at the time they are sold.
- PoQ will implement technological and contractual restrictions on the transfer of Quarters to PoQ or to wallets on the Quarters platform.
- Gamers will only be able to transfer Quarters to developers or to PoQ for tournament play.
- Only developers and influencers with approved accounts will be able to exchange Quarters for Ether.
- Developers and influencers with approved accounts will be subject to initial and ongoing KYC/AML checks.
- Quarters will be made continuously available to gamers in unlimited quantities at a fixed price.
- There will be a correlation between the price of Quarters and the market price of interacting with the games that accept them. And,
- PoQ will market and sell Quarters to gamers solely for consumptive use to access and interact with participating games.