NEW DELHI (CoinChapter.com) — Binance’s US branch announced that it would list Shiba Inu’s SHIB token on Feb 24. The listing announcement resulted from Binance-US delisting Kilo Shiba Inu (KSHIB), a byproduct of the SHIB ecosystem.
With the meme token listed on a US-based exchange, Shiba Inu could become a target of the US Securities and Exchange Commission.
Over the past few years, the SEC has been on the warpath to establish crypto regulations or to declare crypto tokens as security (XRP) without attempting to provide any clarity on the matter. Moreover, governments globally have started drafting regulations to adopt, shun, or tax crypto tokens.
Shiba Inu Trading Might Be Risky
Shiba Inu is a memecoin that relies on community temperament, wider crypto market trends, and Elon Musk’s tweets for its price action. As such, SHIB might become a soft target for the regulatory watchdog. The SEC might take action against SHIB to “protect” investor interests from the token’s volatility.
Conservative crypto investors warn against investing in the meme token, arguing that SHIB has no intrinsic value. Moreover, Shiba Inu has suffered from social media scams. In Nov 2021, SHIB developers had to warn traders about a social media scam.
As mentioned earlier, SHIB price action mostly depends on social media hype, making it susceptible to pump-and-dump scams. Several celebrities and social media influencers have shilled projects that later turned out to be scams.
Furthermore, influencers use their social media reach to pump the price of altcoins and memecoins to book profits. One prime example would be Elon Musk. The Tesla CEO is famous for his love of canine-themed crypto tokens.
One Dogecoin-related tweet, or a pic of Musk’s pet Shiba Inu, sends the Shiba Inu token price soaring.
In addition, Shiba Inu ecosystem products, like ShibaSwap, might have several security loopholes in their code. For example, platform reviewer DeFi Safety gave ShibaSwap a “devastating” score of 3% in 2021. In its report, the firm stated,
If you are looking for a prime example of what absolute negligence looks like in a protocol, look no further than this [ShibaSwap]. Zero Transparency. You are putting your money in a black hole
Since then, ShibaSwap underwent an audit by Certik, following which DeFi Safety upgraded its rating to 35%.
Currently, Shiba developers are about to launch Shibarium, a layer-2 blockchain solution. The Shiba Inu team plans to reduce its reliance on the Ethereum blockchain. However, the lack of security audits might make generating investor trust in the platform difficult.
SHIB Decentralization Woes
Additionally, Shiba Inu has decentralization issues. Ethereum whale wallets have been accumulating SHIB tokens in vast quantities.
The top 100 Shiba Inu whales account for more than 312 trillion SHIB tokens, which accounts for 53% of the total SHIB token supply. Such localization of more than half the supply of a crypto token goes against the principles of decentralization.
Interesting to note that these 100 whale wallets do not include exchange holdings. Taking into account exchange wallets, 97% of the memecoin’s token supply is with addresses holding 1 billion SHIB tokens or more.
Safe to say Shiba Inu remains a long distance off from being truly decentralized.
Furthermore, SHIB developers have significant control over the token, evident by the team’s donating half of its original supply to Ethereum founder Vitalik Buterin in 2021. The donation was part of a
The wallets holding the majority of the SHIB tokens can manipulate the markets or kill the token if they dump it at the same time.
Can The Shiba Inu Token Be A Security?
The SEC would likely try to paint SHIB token sales as a sale of securities. First, however, the regulatory watchdog would need to prove SHIB token qualifies for all four tenets of the Howey test.
In detail, the Howey test is a set of standards that help the SEC classify an investment as a security. The four elements of a Howey test include
An investment of money
in a common enterprise
with expectations of a profit
to be derived from the efforts of others.
SHIB tokens satisfy the first condition since the meme crypto can be bought from exchange using fiat currencies. For the second condition, the court has yet to define the term “common enterprise” explicitly.
However, users can approach the common enterprise term in three ways. First is the horizontal approach, which states that all market participants invest their money in the same enterprise. Next comes the vertical approach, where investor success is linked to the success of the entity they invest in.
Lastly, the broad vertical approach suggests a common enterprise is an investment that relies on a third party’s expertise or a promoter. The SHIB token satisfies the second condition through the horizontal approach since all Shiba Inu buyers invest money in the same token.
The third condition judges if the investors are looking to make profits. A transaction done to turn a profit down the road becomes a security. Since most Shiba Inu investors entered the market looking to score big and rake in profits, the SHIB token satisfies the third condition of the Howey test.
However, the fourth condition of the Howey test aims to separate an investor from a third party. The test states that if the investor made significant efforts to ensure the success of an investment, it is most likely not an investment.
Technically, SHIB is a decentralized token, which means no single entity is pushing the crypto asset to alter its price. However, the massive concentration of the Shiba Inu tokens in a few whale wallets makes the token effectively centralized.
The SEC might look into SHIB token distribution to decide if the Shiba Inu token meets all four conditions of the Howey test. Should the SEC decides to classify SHIB tokens as a security, Shiba Inu will fall under the purview of the SEC.
At writing, the SHIB/USD trading pair was priced at $0.0000134, up 1.9% on the day.
A Delhi-based Markets writer, I did my bachelor's in engineering with major in electronics and communications. I first heard of bitcoin while writing an article about blockchain technology a few years back, and have been following it ever since. Bitcoin may well be current big thing happening in the finance industry, and it feels like the right time to join the crypto bandwagon.