4 ms·

Is it a "promise" if it's a guaranteed algorithmic result?

by beaned 4y ago

altairprime 4y ago
Yes. “Lend us your money and we’ll invest in a guaranteed return from an algorithm” has been said many times, long before cryptocoins.
saurik 4y ago
It is still a promise if you can't be sure they actually did the staking correctly or even at all.
- beaned 4y ago
  That seems like a traditional contract between provider and consumer more than a security. If I own a dividend-bearing stock on Charles Schwab and they don't pay me the dividend, it's not because Charles Schwab offered a security, they're just being fraudulent. ChatGPT (for what it's worth): When people talk about "securities," they usually mean financial instruments such as stocks, bonds, and derivatives, rather than specific types of payments made to shareholders. In this broader sense, dividends are not considered securities themselves, but they are closely related to the securities that represent ownership in a company.
  - JumpCrisscross 4y ago
    > own a dividend-bearing stock on Charles Schwab and they don't pay me the dividend, it's not because Charles Schwab offered a security, they're just being fraudulent When you buy a dividend-bearing stock on Charles Schwab, you're given access to shareholder documents describing what you are owed under what conditions. There is no analog for crypto. The investor's interface is with Kraken, not with the chain. This isn't an insurmountable problem! But every staking product I've seen mimics a high-yield savings account more than the FX-linked security that it is.
    - beaned 4y ago
      I don't understand how they're different. Charles Schwab is a middleman to the company (say Exxon). Kraken is a middleman to the Blockchain. That seems like a clear analog, and not only that, but the code, the law of the Blockchain, is certainly more publicly available and less prone to change or failure than shareholder documents, which represent legal contracts, but are still susceptible to human error.
      - JumpCrisscross 4y ago
        > Charles Schwab is a middleman to the company (say Exxon) Charles Schwab is a middleman to the market. Exxon separately puts out disclosures. Charles Schwab and Exxon never need interact for this to work. > Kraken is a middleman to the Blockchain Agreed. Which is why it should be regulated like Charles Schwab. The SEC isn't going that far. It's just saying if you want to take peoples' money and pay a return on it, you need to do the things others who do the same must. > the code, the law of the Blockchain, is certainly more publicly available and less prone to change or failure than shareholder documents This is a valid hypothesis. To the extent it's been tested, the opposite has been (inconclusively) true.
        beaned 4y ago
        > The SEC isn't going that far. It's just saying if you want to take peoples' money and pay a return on it, you need to do the things others who do the same must. Like what? I'm not sure I understand. They're both approved to hold things for consumers, which is already a promise to redeem upon request. Staking feels like the same thing. Is the confusion because ETH itself has not yet been explicitly ruled to be a security? > This is a valid hypothesis. To the extent it's been tested, the opposite has been (inconclusively) true Would be an interesting debate but maybe let's not go down that rabbit hole :D
        JumpCrisscross 4y ago
        > like what? Broker-dealer regulations. Related-party transaction disclosures, audits, et cetera. > both approved to hold things for consumers, which is already a promise to redeem upon request What Kraken is and isn't approved to do is uncertain. They have a Wyoming banking license, but it's unclear what that permits with respect to staking and custody.
  - freejazz 4y ago
    What does there being a contract have to do with a security. Bonds are contracts that pay at at fixed points and rates, they are fixed-income securities...
    - beaned 4y ago
      Bonds are a "promise" because they can fail - the issuer can fail and the bonds can become worthless. So there may be a reasonable expectation of return, but still risk. Staking is not the same, because it is the algorithmic inflation of the currency itself, and can't "fail" the same way.
      - freejazz 4y ago
        Bonds are a promise, because they are a contractual obligation to satisfy "the promise". That's what a promise is. That the fulfillment of the promise is predicated upon the efforts of another, is what makes a promise a security.
        beaned 4y ago
        Thanks, this phrasing makes more sense to me than the other explanations I've read. But if kraken already is approved to hold crypto for users, what makes staking it different? Aren't they already promising just to hold it and return it? It feels like the same promise.
        freejazz 4y ago
        Well in this case it depends on their conduct and ability to do so which isn't solely algorithmically determined as is evidenced by the numerous other centralized stakers that have collapsed, taking the money with them. I'm under the impression Kraken can take the crypto and do what they want with it, so long as they keep their promise to you. That's exactly what a security is. I think the distinction is that with a bank's savings account, you are guaranteed your money back, they have all sorts of rules that apply to banks to make that true. Obviously crypto folks don't want it characterized as such an account as that would result in even more onerous limitations. In a decentralized system, there is no person in the way, whose conduct can change whether or not you get the money.
- zoklet-enjoyer 4y ago
  Look on chain. Kraken is one of the largest ATOM validators.
JumpCrisscross 4y ago
> a "promise" if it's a guaranteed algorithmic result? Staking isn't banned. Intermediaries offering staking-based-products is being questioned. There is no algorithmic guarantee Kraken is doing anything.
- beaned 4y ago
  That still doesn't make it a security.
  - JumpCrisscross 4y ago
    > doesn't make it a security The alternative is a bank account. That's not a conversation anyone in crypto wants to have. Longer: yes, it does. You're investing money with the expectation of profit. For on-chain staking, the common enterprise and effort of others tests are ambiguous. But here, you're not staking on chain. You're giving money to Kraken to stake for you. Security. (Again, it looks more like a savings account, but nobody wants that.)
    - beaned 4y ago
      It seems to me that by this description, whether or not it's a security is basically how it's marketed? You could also explain such a product as simply a custodianship that is able to hold your eth in a staked state for you, with no promise of return at all, only a claim to whatever the staked eth amounts to in its own domination at the time you'd like to withdraw. Also these returns are denominated in the staked currency, there is no - and had never been - a promise of returns in USD. I don't actually know: does that make a difference, technically speaking? It would seem that it should.
      - JumpCrisscross 4y ago
        > whether or not it's a security of basically marketing? Not basically, but substantially. > could also explain such a product as simply a custodianship that is able to hold your eth in a staked state for you, with no promise of return at all, only a claim to whatever the staked eth amounts to in its own domination at the time you'd like to withdraw Custodianship is a big word in finance [1]. There are crypto custodians, and I'm guessing they let coins be staked. But that isn't something you can easily scale to retail. > there is no - and had never been - a promise of returns in USD Not relevant. You can issue stock that pays dividends in piñatas. If it's sold to Americans, the SEC has jurisdiction. [1] https://www.investopedia.com/terms/c/custodian.asp https://www.investopedia.com/terms/c/custodian.asp
timcavel 4y ago
[dead]
MacsHeadroom 4y ago
>Is it a "promise" if it's a guaranteed algorithmic result? No, and that's what decentralized staking is. That's fine and the SEC is explicitly not taking issue with it. Centralized 'promising to engage in decentralized staking on a customer's behalf' is not guaranteed or algorithmic-- which is why it necessarily causes said customers to "take on risks associated with those [centralized] platforms," to quote the SEC, and thus becomes a security.

Is it a "promise" if it's a guaranteed algorithmic result?

by beaned 4y ago

Is it a "promise" if it's a guaranteed algorithmic result?

Yes. “Lend us your money and we’ll invest in a guaranteed return from an algorithm” has been said many times, long before cryptocoins.

saurik 4y ago

It is still a promise if you can't be sure they actually did the staking correctly or even at all.

beaned 4y ago
That seems like a traditional contract between provider and consumer more than a security. If I own a dividend-bearing stock on Charles Schwab and they don't pay me the dividend, it's not because Charles Schwab offered a security, they're just being fraudulent. ChatGPT (for what it's worth): When people talk about "securities," they usually mean financial instruments such as stocks, bonds, and derivatives, rather than specific types of payments made to shareholders. In this broader sense, dividends are not considered securities themselves, but they are closely related to the securities that represent ownership in a company.
- JumpCrisscross 4y ago
  > own a dividend-bearing stock on Charles Schwab and they don't pay me the dividend, it's not because Charles Schwab offered a security, they're just being fraudulent When you buy a dividend-bearing stock on Charles Schwab, you're given access to shareholder documents describing what you are owed under what conditions. There is no analog for crypto. The investor's interface is with Kraken, not with the chain. This isn't an insurmountable problem! But every staking product I've seen mimics a high-yield savings account more than the FX-linked security that it is.
  - beaned 4y ago
    I don't understand how they're different. Charles Schwab is a middleman to the company (say Exxon). Kraken is a middleman to the Blockchain. That seems like a clear analog, and not only that, but the code, the law of the Blockchain, is certainly more publicly available and less prone to change or failure than shareholder documents, which represent legal contracts, but are still susceptible to human error.
    - JumpCrisscross 4y ago
      > Charles Schwab is a middleman to the company (say Exxon) Charles Schwab is a middleman to the market. Exxon separately puts out disclosures. Charles Schwab and Exxon never need interact for this to work. > Kraken is a middleman to the Blockchain Agreed. Which is why it should be regulated like Charles Schwab. The SEC isn't going that far. It's just saying if you want to take peoples' money and pay a return on it, you need to do the things others who do the same must. > the code, the law of the Blockchain, is certainly more publicly available and less prone to change or failure than shareholder documents This is a valid hypothesis. To the extent it's been tested, the opposite has been (inconclusively) true.
      - beaned 4y ago
        > The SEC isn't going that far. It's just saying if you want to take peoples' money and pay a return on it, you need to do the things others who do the same must. Like what? I'm not sure I understand. They're both approved to hold things for consumers, which is already a promise to redeem upon request. Staking feels like the same thing. Is the confusion because ETH itself has not yet been explicitly ruled to be a security? > This is a valid hypothesis. To the extent it's been tested, the opposite has been (inconclusively) true Would be an interesting debate but maybe let's not go down that rabbit hole :D
        JumpCrisscross 4y ago
        > like what? Broker-dealer regulations. Related-party transaction disclosures, audits, et cetera. > both approved to hold things for consumers, which is already a promise to redeem upon request What Kraken is and isn't approved to do is uncertain. They have a Wyoming banking license, but it's unclear what that permits with respect to staking and custody.
- freejazz 4y ago
  What does there being a contract have to do with a security. Bonds are contracts that pay at at fixed points and rates, they are fixed-income securities...
  - beaned 4y ago
    Bonds are a "promise" because they can fail - the issuer can fail and the bonds can become worthless. So there may be a reasonable expectation of return, but still risk. Staking is not the same, because it is the algorithmic inflation of the currency itself, and can't "fail" the same way.
    - freejazz 4y ago
      Bonds are a promise, because they are a contractual obligation to satisfy "the promise". That's what a promise is. That the fulfillment of the promise is predicated upon the efforts of another, is what makes a promise a security.
      - beaned 4y ago
        Thanks, this phrasing makes more sense to me than the other explanations I've read. But if kraken already is approved to hold crypto for users, what makes staking it different? Aren't they already promising just to hold it and return it? It feels like the same promise.
        freejazz 4y ago
        Well in this case it depends on their conduct and ability to do so which isn't solely algorithmically determined as is evidenced by the numerous other centralized stakers that have collapsed, taking the money with them. I'm under the impression Kraken can take the crypto and do what they want with it, so long as they keep their promise to you. That's exactly what a security is. I think the distinction is that with a bank's savings account, you are guaranteed your money back, they have all sorts of rules that apply to banks to make that true. Obviously crypto folks don't want it characterized as such an account as that would result in even more onerous limitations. In a decentralized system, there is no person in the way, whose conduct can change whether or not you get the money.
zoklet-enjoyer 4y ago
Look on chain. Kraken is one of the largest ATOM validators.

JumpCrisscross 4y ago

> a "promise" if it's a guaranteed algorithmic result? Staking isn't banned. Intermediaries offering staking-based-products is being questioned. There is no algorithmic guarantee Kraken is doing anything.

beaned 4y ago
That still doesn't make it a security.
- JumpCrisscross 4y ago
  > doesn't make it a security The alternative is a bank account. That's not a conversation anyone in crypto wants to have. Longer: yes, it does. You're investing money with the expectation of profit. For on-chain staking, the common enterprise and effort of others tests are ambiguous. But here, you're not staking on chain. You're giving money to Kraken to stake for you. Security. (Again, it looks more like a savings account, but nobody wants that.)
  - beaned 4y ago
    It seems to me that by this description, whether or not it's a security is basically how it's marketed? You could also explain such a product as simply a custodianship that is able to hold your eth in a staked state for you, with no promise of return at all, only a claim to whatever the staked eth amounts to in its own domination at the time you'd like to withdraw. Also these returns are denominated in the staked currency, there is no - and had never been - a promise of returns in USD. I don't actually know: does that make a difference, technically speaking? It would seem that it should.
    - JumpCrisscross 4y ago
      > whether or not it's a security of basically marketing? Not basically, but substantially. > could also explain such a product as simply a custodianship that is able to hold your eth in a staked state for you, with no promise of return at all, only a claim to whatever the staked eth amounts to in its own domination at the time you'd like to withdraw Custodianship is a big word in finance [1]. There are crypto custodians, and I'm guessing they let coins be staked. But that isn't something you can easily scale to retail. > there is no - and had never been - a promise of returns in USD Not relevant. You can issue stock that pays dividends in piñatas. If it's sold to Americans, the SEC has jurisdiction. [1] https://www.investopedia.com/terms/c/custodian.asp https://www.investopedia.com/terms/c/custodian.asp

timcavel 4y ago

[dead]

MacsHeadroom 4y ago

>Is it a "promise" if it's a guaranteed algorithmic result? No, and that's what decentralized staking is. That's fine and the SEC is explicitly not taking issue with it. Centralized 'promising to engage in decentralized staking on a customer's behalf' is not guaranteed or algorithmic-- which is why it necessarily causes said customers to "take on risks associated with those [centralized] platforms," to quote the SEC, and thus becomes a security.