4 ms·

This appears to only applies to ICOs that offer something that is like a security, such as the DAO, not voucher based ICOs like Primalbase or Storj EDIT: Added

This appears to only applies to ICOs that offer something that is like a security, such as the DAO, not voucher based ICOs like Primalbase or Storj EDIT: Added appears to since IANAL

Kiro 9y ago
Care to elaborate? What's the difference?
- laser 9y ago
  IANAL, but a security is profit-sharing/right to $-related things, like stocks and bonds. Tokens that are used to make purchases within applications/networks are not securities, for example in the Storj example above, tokens are bought to purchase storage, and there's no implication of organization profit-sharing or appreciation of value, etc. While some people may speculate on the growth of the network and purchase such tokens, their purpose is to purchase storage capacity from the network.
  - brucephillips 9y ago
    > and there's no implication of organization profit-sharing or appreciation of value, etc. There is. These tokens are explicitly marketed on that basis.
Animats 9y ago
Assuming that would be unwise. In general, US securities laws cover anything that looks or works something like a security. There have been clever attempts to get around this before. They didn't work.[1] [1] https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.
- darawk 9y ago
  You're right, but in the case of things like Storj and Sia, for instance, the ICO token is used to pay for the services offered by the network. What it really is, is a tradable pre-sale. It's as if you could trade the perks offered by a Kickstarter. I'm not sure if that would make it exempt or not, but it is an interesting legal question.
  - jameskegel 9y ago
    Sia is NOT ethereum. Don't call it a token
    - darawk 9y ago
      True, but that hardly seems material. I'm an investor in Sia, I like the project. Whether or not it's implemented as an Ethereum token is nearly meaningless. To be quite honest, it'd probably be better if it was, that way it could focus more on its core competencies.
    - ChrisClark 9y ago
      The term token is a generalized term to talk about the tradable asset on a blockchain. Bitcoin is the token on the Bitcoin blockchain. Ether is a token on the Ethereum blockchain, currently at a lower level than any of the ERC20 smart contract based tokens, but it's still referred to as a token.
  - xorcist 9y ago
    How much paid use does Storj or Sia have? Very few, if any, have bought into these tokens to use the underlying service. It's mostly "expectations of future profit", especially considering many of these tokens is described as having no use. The idea seems to be that useless tokens can not be considered securities, which seems as likely as a cop must answer truthfully if he is a cop.
    - mahyarm 9y ago
      Tickets to concerts, airpods, condos in london and tulips are subject to scalping and trading over MSRP. So even though people are trading service vouchers or physical objects, they are not a security just because a market has developed over their trade, speculative or not.
    - darawk 9y ago
      Ya, I would expect the SEC to take that position. But it seems like a subtle legal question, that has the potential to turn all kinds of clearly non-security products into 'securities' in the eyes of the law. Does standing in line to buy iphones on the day of release so you can sell them on eBay constitute buying a security? What about Air Jordans? Etc...At some point, the definition broadens to any purchase with the expectation of profitable resale, which is quite broad indeed. I don't think any court would allow such a broad interpretation of the SEC's power.
brucephillips 9y ago
It does seem to be ambiguous. If you read the qualifications in section III: https://www.sec.gov/litigation/investreport/34-81207.pdf https://www.sec.gov/litigation/investreport/34-81207.pdf, they seem to apply to voucher tokens as well. Especially "A reasonable expectation of profit".
- josaka 9y ago
  This seems like an important distinction, i.e., between an ownership token and a "voucher token," assuming the latter is a token that gives the holder the right to some service. Curious how a groupon isn't a security if a voucher token is.
  - brucephillips 9y ago
    A groupon doesn't appreciate when the company succeeds.
    - josaka 9y ago
      Maybe a better example would be a concert ticket, beanie babies, or baseball cards.
  - Animats 9y ago
    The Howey test for "is it a security?" * an investment of money has been made, * in a common enterprise and * the investor has the expectation of profits, which profits are expected to arise solely, or substantially, from the efforts of the promoter or third party.[1] That pretty much covers all "make money fast" schemes. [1] https://www.americanbar.org/content/dam/aba/publications/blt/2005/05/but-is-it-a-security-200505.authcheckdam.pdf https://www.americanbar.org/content/dam/aba/publications/blt...
- ThrustVectoring 9y ago
  If Valve decided to fund the creation of Team Fortress 3 in part with exclusive pre-order hats, would that now violate securities law?

This appears to only applies to ICOs that offer something that is like a security, such as the DAO, not voucher based ICOs like Primalbase or Storj EDIT: Added appears to since IANAL

Kiro 9y ago

Care to elaborate? What's the difference?

laser 9y ago
IANAL, but a security is profit-sharing/right to $-related things, like stocks and bonds. Tokens that are used to make purchases within applications/networks are not securities, for example in the Storj example above, tokens are bought to purchase storage, and there's no implication of organization profit-sharing or appreciation of value, etc. While some people may speculate on the growth of the network and purchase such tokens, their purpose is to purchase storage capacity from the network.
- brucephillips 9y ago
  > and there's no implication of organization profit-sharing or appreciation of value, etc. There is. These tokens are explicitly marketed on that basis.

Animats 9y ago

Assuming that would be unwise. In general, US securities laws cover anything that looks or works something like a security. There have been clever attempts to get around this before. They didn't work.[1] [1] https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.

darawk 9y ago
You're right, but in the case of things like Storj and Sia, for instance, the ICO token is used to pay for the services offered by the network. What it really is, is a tradable pre-sale. It's as if you could trade the perks offered by a Kickstarter. I'm not sure if that would make it exempt or not, but it is an interesting legal question.
- jameskegel 9y ago
  Sia is NOT ethereum. Don't call it a token
  - darawk 9y ago
    True, but that hardly seems material. I'm an investor in Sia, I like the project. Whether or not it's implemented as an Ethereum token is nearly meaningless. To be quite honest, it'd probably be better if it was, that way it could focus more on its core competencies.
  - ChrisClark 9y ago
    The term token is a generalized term to talk about the tradable asset on a blockchain. Bitcoin is the token on the Bitcoin blockchain. Ether is a token on the Ethereum blockchain, currently at a lower level than any of the ERC20 smart contract based tokens, but it's still referred to as a token.
- xorcist 9y ago
  How much paid use does Storj or Sia have? Very few, if any, have bought into these tokens to use the underlying service. It's mostly "expectations of future profit", especially considering many of these tokens is described as having no use. The idea seems to be that useless tokens can not be considered securities, which seems as likely as a cop must answer truthfully if he is a cop.
  - mahyarm 9y ago
    Tickets to concerts, airpods, condos in london and tulips are subject to scalping and trading over MSRP. So even though people are trading service vouchers or physical objects, they are not a security just because a market has developed over their trade, speculative or not.
  - darawk 9y ago
    Ya, I would expect the SEC to take that position. But it seems like a subtle legal question, that has the potential to turn all kinds of clearly non-security products into 'securities' in the eyes of the law. Does standing in line to buy iphones on the day of release so you can sell them on eBay constitute buying a security? What about Air Jordans? Etc...At some point, the definition broadens to any purchase with the expectation of profitable resale, which is quite broad indeed. I don't think any court would allow such a broad interpretation of the SEC's power.

brucephillips 9y ago

It does seem to be ambiguous. If you read the qualifications in section III: https://www.sec.gov/litigation/investreport/34-81207.pdf https://www.sec.gov/litigation/investreport/34-81207.pdf, they seem to apply to voucher tokens as well. Especially "A reasonable expectation of profit".

josaka 9y ago
This seems like an important distinction, i.e., between an ownership token and a "voucher token," assuming the latter is a token that gives the holder the right to some service. Curious how a groupon isn't a security if a voucher token is.
- brucephillips 9y ago
  A groupon doesn't appreciate when the company succeeds.
  - josaka 9y ago
    Maybe a better example would be a concert ticket, beanie babies, or baseball cards.
- Animats 9y ago
  The Howey test for "is it a security?" * an investment of money has been made, * in a common enterprise and * the investor has the expectation of profits, which profits are expected to arise solely, or substantially, from the efforts of the promoter or third party.[1] That pretty much covers all "make money fast" schemes. [1] https://www.americanbar.org/content/dam/aba/publications/blt/2005/05/but-is-it-a-security-200505.authcheckdam.pdf https://www.americanbar.org/content/dam/aba/publications/blt...
ThrustVectoring 9y ago
If Valve decided to fund the creation of Team Fortress 3 in part with exclusive pre-order hats, would that now violate securities law?