Blockchain platform LBRY shuts down operations due to debt

w – images.unsplash.com

LBRY, a blockchain file-sharing and fee platform, has terminated its operations due to debt, including obligations to the U.S. Securities and Exchange Commission, its legal team and a private creditor.

On October 20, LBRY posted its final message to the crypto community on its video-sharing platform Odysee and X (formerly Twitter), saying that this would be its last communication. The LBRY team explained that financial difficulties had made it impossible for them to continue their operations.

LBRY explained that it had no other option but to undergo liquidation, saying, “LBRY have to be liquidated, there isn’t any difference. The corporate misplaced a judgment in opposition to the federal authorities, is several million {dollars} in debt and is now decided to not do enterprise.”

“LBRY Inc. is winding down. The LBRY network is unaffected. Odysee and other assets will undergo a legal process to satisfy debts, but Odysee has a bright future ahead. Thank you to everyone who fought with us for online freedom. A final goodbye post is in the first reply,” LBRY said.

LBRY later clarified that all its executives, employees and board members had resigned and would focus on meeting their legal obligations.

SEC lawsuit’s effects on crypto industry

The SEC filed a lawsuit against LBRY in March 2021, accusing it of selling unregistered securities to institutional investors and platform users from 2016 to 2020. This lawsuit claimed that its LBRY Credit token (LBC) fell under the category of security as per the 1933 Securities Act. The SEC had been investigating LBRY for three years, starting its inquiry in May 2018.

In response, LBRY contested the SEC’s accusation, emphasizing that it could pose a significant threat to the cryptocurrency industry by potentially classifying most tokens as securities.

The SEC won the case in November 2022, with the presiding judge ruling that LBC (LBRY Credit) was a security. In July, the company was instructed to pay a fine. It also announced it would halt its operations.

“In accordance with the court docket’s order and our guarantees, we anticipate to spend the subsequent a number of months winding LBRY Inc. down totally,” the company said.

At first, the SEC asked for a $44 million penalty, split equally between a civil penalty and disgorgement. The agency also demanded a court order to stop further LBC sales. However, considering LBRY’s financial struggles, the SEC later requested the fine be reduced to $111,614.

XRP lawyer John Deaton criticized the SEC for adding to the financial difficulties of the small American company that is LBRY. He called for the inclusion of the LBRY case in law school curricula nationwide for its relevance in applying the Howey Test to modern blockchain and cryptocurrency technologies and as a case study illustrating regulatory overreach by the SEC.

In a recent post, Jeremy Kauffman, the former CEO of LBRY, looked back on LBRY’s eight-year history, saying, “It wasn’t a contented ending, nevertheless it was a contented journey.”

While LBRY Inc. is ceasing its operations, the LBRY blockchain, an open-source initiative, may persist if it gains enough user engagement.

More broadly, legal battles in the crypto industry are reshaping securities law. Ripple’s recent court success differs significantly from LBRY’s situation. Both LBRY and Ripple were accused of selling unregistered securities. However, Ripple received support from a multibillion-dollar corporation, allowing it to continue its legal battle.