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Ethereum gaming startup Immutable has received a Wells notice from the US Securities and Exchange Commission (SEC). Immutable complained the SEC was deliberately rough to crypto startups, despite little evidence of harm.
Immutable (IMX) was one of the top gaming-oriented projects during the 2021 play-to-earn boom. The project combined an NFT marketplace and an L2 scaling solution for third-party game developers.
The launch of Immutable happened during an optimistic period in the crypto market. The project managed to raise $320M in a presale, of which more than 14% of IMX tokens went to the public. This was the point of contention that the SEC targeted, accusing Immutable of placing an unregistered security.
The US SEC contacted Immutable for a conversation and immediately issued the Wells notice. Immutable now faces action after getting a chance for a public response. The notice may precede a lawsuit but does not guarantee the next actions of the SEC.
Immutable has received a Wells notice from the SEC, the latest in their de facto policy of regulation by enforcement. We received this within hours of our first ever conversation, on a timeline clearly accelerated to land before an election.
Sadly, stories like this are becoming…
— Immutable (@Immutable) October 31, 2024
Following the news of the Wells notice, IMX tokens slid from $1.37 to $1.22, falling to a one-month low. However, the SEC investigation also triggered a renewal in open interest. For IMX, open interest rallied from lows of $22M up to $27M within a few hours. IMX is seen as a risky proposition, though also as an opportunity to quickly recover from its lows.
IMX is represented on most major exchanges, including Binance and Coinbase. So far, Wells notices have not led to delistings for other projects, with the exception of XRP, which was delisted from Binance for a year.
Immutable claims the SEC is using aggressive enforcement
Immutable has encountered the SEC’s approach of targeting high-profile on-chain projects with a direct attempt to levy fines or cause protracted, expensive lawsuits. The SEC has targeted industry leaders like Coinbase, Crypto.com, and Uniswap.
Other projects affected by SEC’s approach of direct action include Consensys, Ripple, and OpenSea.
The Wells notices suggest the SEC has discovered infarctions in the project’s activities, with the possibility of launching a lawsuit. Immutable noted that the SEC did not give material explanations on its findings or which aspect of the project’s business triggered the investigation. The team suggested the SEC may be on a general war against crypto projects, even without specific regulatory findings.
Immutable targeted based on securities law
The SEC has targeted Immutable based on securities law, most probably because of its private and public placement in 2022, followed by exchange listings. According to Immutable, the SEC’s allegations of selling unregistered securities are vague.
Despite this, the case of Ripple has shown that the SEC can keep up the fight for years, preventing projects from innovating and tapping liquidity.
Immutable stated it is ready to be compliant, but is against aggressive enforcement with no clear means to amend the business model. Instead, the SEC has launched expensive and protracted lawsuits against multiple projects. The SEC has even lost some of the lawsuits, though not without causing delays for the projects.
Immutable became a staple in the gaming space, drawing in games like Gods Unchained, Etherbots, and Guild of Guardians. The platform itself worked as an L2, aiming for wide adoption. The project is well-funded and can continue to innovate as interest in Web3 projects returns.
IMX tokens can also be staked, in exchange for rewards coming from the ecosystem development fund. IMX tokens are 78% unlocked, getting closer to their fair value. The platform does not carry a DeFi space and only locks around $24.51M in liquidity.
The L2 solution does not behave like other chains aiming to tap Ethereum liquidity. Instead, Immutable aims to give a fast, scalable network for gaming. Immutable is also working on a zero-knowledge solution and has achieved partial decentralization. According to L2Beat, Immutable has achieved three of the five milestones for zero-knowledge chains.
Immutable carries dozens of games and apps, though some of them have limited on-chain activity. Gods Unchained remains the top app, mixing NFT and competition. Immutable also carries Illuvium (ILV), one of the high-profile 3D games. The notice arrives at a time when on-chain gaming attempts to make a return, this time in a more sustainable way compared to 2021.