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Very good points. People often go a long way to argue against the Howey test. The best example is Howey Co case. If someone is a lawyer dealing in securities an

Very good points. People often go a long way to argue against the Howey test. The best example is Howey Co case. If someone is a lawyer dealing in securities and acting as an advisor I would have expected them to be familiar with the law. Coinbase issuing public statements to SEC “tell us what is a security” were basically a ploy or the lawyers involved were extremely inexperienced. https://en.m.wikipedia.org/wiki/SEC_v._W._J._Howey_Co https://en.m.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.

whimsicalism 3y ago
It is not obvious a priori how regulators will treat tokens or which ones will be permissible.
- qeternity 3y ago
  It was obvious to a lot of people who were wondering what was taking regulators so long.
  - whimsicalism 3y ago
    Interesting, maybe you should let Gensler know that the law is much more obvious than he appears to realize [0] [0]: https://youtu.be/VhA1dZXeao0?t=58 https://youtu.be/VhA1dZXeao0?t=58
    - mrcode007 3y ago
      Under the Howey test, the rules are clear. "The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. If that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value." I think it is plausible that all pure staking initiatives will go. I don’t think you have much of an argument here but I could be wrong. It will definitely be an interesting case to watch.
      - CuriousCosmic 3y ago
        > investment of money in a common enterprise with profits to come solely from the efforts of others This is where I see the "staking makes a cryptocurrency a security" fall apart. There are a handful of definitions for "staking" and some of them definitely meet the criteria of "a common enterprise with profits to come solely from the efforts of others" however many do not. 1. Ethereum's staking at a protocol level requires you to run a staking node and you are paid for what is basically an SLA between you and the network and you only get paid if your node maintains a certain uptime, is kept up to date, and operates correctly. That I don't believe meets the criteria as it requires direct, sustained effort from you the operator (even if it's generally low effort). 2. Cardano's (or Tezos') staking is similar. Stake pool operators are effectively the same as Ethereum's stake node operators. But even delegators (who aren't required to stay online) still provide a service in that they are picking the stake pools who then fill the SLAs. If they pick pools that can't meet the requirements then the delegators don't get paid until they can find one that does. 3. Meanwhile you have networks like Algorand where participation in consensus does not effect staking rewards and you never have to perform a service to get paid out by the network. Those would meet the criteria by my understanding. 4. And then you have all the DeFi "staking" which is better described as lending or liquidity pooling. You aren't doing anything proof of stake related but are just lending out capital as an investment. I can't speak on other networks but generally I found that networks fell into one of those 4 categories. The first two only pay people who provide a service back to the network while with those like the third, even if you can provide a service back to the network, you aren't required to to be able to get paid. And then the fourth category is just a security outright. Edit (because I forgot to mention it): With regards to Coinbase's staking program, it's in a weird spot. With those you aren't directly staking but you are outsourcing the responsibility to a 3rd part (coinbase) to stake for you. I wouldn't be opposed to considering this type of custodial staking as meeting the criteria to be a security but I don't think proof of stake at a protocol level constitutes "a common enterprise with profits to come solely from the efforts of others" as they require work on behalf of the participants to get paid out.
        qeternity 3y ago
        You’re ignoring all the ICOs which are almost certainly unregistered security offerings. Ethereum was funded as a public ICO.
    - earnesti 3y ago
      Crypto people constantly point to this video as some kind of evidence that the SEC is clueless. Maybe it just doesn't make sense for them to give clear answers in that kind of hearings,or answers related to specific crypto token. Just normal for government officials to cover their own asses primarily and giving specific guidance related to a specific issue at a hearing doesn't just serve them well.
      - whimsicalism 3y ago
        I don't own any crypto [outside of very small curiosity amounts when I was playing with it to figure out how it works years ago] nor do I consider myself a 'crypto person' (only, perhaps, compared to the backdrop of extreme HN negativity around the topic). I just think that people saying 'regulations are perfectly clear' on this issue have not spent that much time dealing with regulators in emerging technology. > Just normal for government officials to cover their own asses primarily I agree - I just disagree with people suggesting that the same logic doesn't apply to regulators and their actions. They want to keep it unclear precisely so they have the ability to maneuver in the future and regulate if they want. That is the exact opposite of the 'super clear' regulations & guidance that GP was suggesting currently exists.
        JumpCrisscross 3y ago
        > people saying 'regulations are perfectly clear' on this issue have not spent that much time dealing with regulators in emerging technology I work in a regulated industry. I have my criticisms of Gensler. And I’ve (separately) profited off crypto. The regulations for non-Bitcoin exchanges were clear from the start. Nobody liked that clarity. And the regulators spent a few years navel gazing. But the legal advice I got at the start has remained consistent: the operators are putting themselves in jeopardy.
        unyttigfjelltol 3y ago
        One way to look at it is a generation of boiler room operators moved their pump'n-dump schemes from central securities clearinghouse to crypto ledgers, because they realized what a loophole the Bitcoin exception was. And they brought in enough politicians and celebrities to slow walk promises of updated regulations, and regulators cautiously warned and waited, and here we are, with some bowtied man criticizing the SEC for doing its job precisely in the manner politicians demanded.
    - sealeck 3y ago
      Is it really surprising that the chair of the SEC cannot just dispense SEC positions without consulting with lawyers?
      - whimsicalism 3y ago
        Has Gensler never consulted lawyers on the status of ethereum prior to this hearing? It should be easy yes or no from the lawyers, I'm hearing that the law is incredibly clear and not really prone to misinterpretation so it shouldn't be an issue. Or maybe Gensler's lawyers are "extremely inexperienced" if they couldn't figure out such an obvious issue?
        arcticbull 3y ago
        You're not answering the question. Why do you think Gensler in official capacity should just dispense one-off soundbite determinations at the request of some clown grilling him? > It should be easy yes or no from the lawyers... When has that ever been the case, and why should it be the case now? [edit] The law is not just what's written but the entirely of case law. The SEC has provided a framework for analysis of securities in the context of crypto. It's here. [1] And it builds on the DAO report, here. [2] [1] https://www.sec.gov/files/dlt-framework.pdf https://www.sec.gov/files/dlt-framework.pdf [2] https://www.sec.gov/litigation/investreport/34-81207.pdf https://www.sec.gov/litigation/investreport/34-81207.pdf
        whimsicalism 3y ago
        It is not at all surprising to me that he would refuse to answer the question, but the precise reason he is doing that is so that the SEC has freedom of movement to regulate without being pinned down by public statements he has made in front of congress. But that entire notion belies the idea that the regulations are super clear or predictable. The whole reason for this kind of maneuver is because the regulations are not clear or predictable. I have no doubt he has discussed the status of ethereum with SEC lawyers before.
        3y ago
    - deleted 3y ago
      [deleted]
- nradov 3y ago
  In general if you're thinking of doing something in a gray area of federal law or regulations then you can write a formal letter to the competent regulatory agency and request an opinion. But you have to be extremely specific and pose your questions in ways that can be answered with a clear yes or no; you can't expect a useful response to a vague request for clarifications or definitions. If the agency does give you a letter containing a positive opinion then it serves as a nearly ironclad defense against any civil enforcement actions or criminal prosecution. Those opinions can change later for political reasons, but you won't be punished retroactively for actions prior to the change.
  - whimsicalism 3y ago
    Yes, see for instance prediction markets in the US.
  - sroussey 3y ago
    FundersClub did this for creating a portal to invest in startups.
    - nradov 3y ago
      Right, good example. You can read the SEC letter here. As long as you ask the right questions you can get useful answers and protect your business. https://www.sec.gov/divisions/marketreg/mr-noaction/2013/funders-club-032613-15a1.pdf https://www.sec.gov/divisions/marketreg/mr-noaction/2013/fun...
- choppaface 3y ago
  It’s not a matter of what tokens are “permissible” but rather what protections market participants get against fraud and instability. There was plenty of opportunity for crypto to actually raise the bar in protecting the consumer and it just never happened.
George83728 3y ago
> Coinbase issuing public statements to SEC “tell us what is a security” were basically a ploy or the lawyers involved were extremely inexperienced. I take it as a stunt intended shift the layman's perception of Coinbase's legal responsibilities onto the SEC. They're counting on cryptobros using this "SEC won't tell us what's legal" talking point to affect favorable political / legislative change. But newsflash: government regulators aren't obliged to act as your legal council.
yieldcrv 3y ago
The stance isn’t about whether Howey can be applied literally everywhere The stance is that applying it to digital tokens as unregistered securities means applying it to other places, like Nike shoes and baseball cards, just because any random individual expected to profit when they bought one that this framework is not applied everywhere, specifically how congress exempted spot commodities and commodities derivatives from the SEC framework specifically because it was untenable That there is a difference between a digital commodity and a digital security that is mutually exclusive, but the SEC has provided no way of understanding that distinction, and now has resorted to just arbitrarily claiming random assets are securities in cases against the people that trade those assets, instead of taking up cases against the issuers of those assets and letting those issuers defend themselves or reach a definitive conclusion That it is impossible to comply if it was applied everywhere, as registered security status inherits tons of unrelated regulations to protect incumbent intermediaries That the SEC will never achieve congress’ delegated mission of investor protection and only hurt investors And that actually inconveniencing everyone will put this framework under a constitutional test that the SEC probably needs to avoid, but I’m all the SEC going after the entire sneaker trading ecosystem as unregistered broker dealers as fallout to their crusade just to prove they aren’t just trying to debilitate crypto (The staking program has a separate evaluation)
- esotericimpl 3y ago
  Nike shoes and baseball cards are clearly commodities. If you were to stake your Air Jordan's with coinbase and Coinbase told you in a years time you'd have 2 pairs, it would become a security.
  - yieldcrv 3y ago
    like I wrote, the staking program has a different evaluation and my post was not about that. we agree that any asset can be transferred in a way that is a securities transaction.
- majormajor 3y ago
  Why would a sneaker fall under the terms they're using to define a security if not every digital token does?

whimsicalism 3y ago

It is not obvious a priori how regulators will treat tokens or which ones will be permissible.

qeternity 3y ago
It was obvious to a lot of people who were wondering what was taking regulators so long.
- whimsicalism 3y ago
  Interesting, maybe you should let Gensler know that the law is much more obvious than he appears to realize [0] [0]: https://youtu.be/VhA1dZXeao0?t=58 https://youtu.be/VhA1dZXeao0?t=58
  - mrcode007 3y ago
    Under the Howey test, the rules are clear. "The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. If that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value." I think it is plausible that all pure staking initiatives will go. I don’t think you have much of an argument here but I could be wrong. It will definitely be an interesting case to watch.
    - CuriousCosmic 3y ago
      > investment of money in a common enterprise with profits to come solely from the efforts of others This is where I see the "staking makes a cryptocurrency a security" fall apart. There are a handful of definitions for "staking" and some of them definitely meet the criteria of "a common enterprise with profits to come solely from the efforts of others" however many do not. 1. Ethereum's staking at a protocol level requires you to run a staking node and you are paid for what is basically an SLA between you and the network and you only get paid if your node maintains a certain uptime, is kept up to date, and operates correctly. That I don't believe meets the criteria as it requires direct, sustained effort from you the operator (even if it's generally low effort). 2. Cardano's (or Tezos') staking is similar. Stake pool operators are effectively the same as Ethereum's stake node operators. But even delegators (who aren't required to stay online) still provide a service in that they are picking the stake pools who then fill the SLAs. If they pick pools that can't meet the requirements then the delegators don't get paid until they can find one that does. 3. Meanwhile you have networks like Algorand where participation in consensus does not effect staking rewards and you never have to perform a service to get paid out by the network. Those would meet the criteria by my understanding. 4. And then you have all the DeFi "staking" which is better described as lending or liquidity pooling. You aren't doing anything proof of stake related but are just lending out capital as an investment. I can't speak on other networks but generally I found that networks fell into one of those 4 categories. The first two only pay people who provide a service back to the network while with those like the third, even if you can provide a service back to the network, you aren't required to to be able to get paid. And then the fourth category is just a security outright. Edit (because I forgot to mention it): With regards to Coinbase's staking program, it's in a weird spot. With those you aren't directly staking but you are outsourcing the responsibility to a 3rd part (coinbase) to stake for you. I wouldn't be opposed to considering this type of custodial staking as meeting the criteria to be a security but I don't think proof of stake at a protocol level constitutes "a common enterprise with profits to come solely from the efforts of others" as they require work on behalf of the participants to get paid out.
      - qeternity 3y ago
        You’re ignoring all the ICOs which are almost certainly unregistered security offerings. Ethereum was funded as a public ICO.
  - earnesti 3y ago
    Crypto people constantly point to this video as some kind of evidence that the SEC is clueless. Maybe it just doesn't make sense for them to give clear answers in that kind of hearings,or answers related to specific crypto token. Just normal for government officials to cover their own asses primarily and giving specific guidance related to a specific issue at a hearing doesn't just serve them well.
    - whimsicalism 3y ago
      I don't own any crypto [outside of very small curiosity amounts when I was playing with it to figure out how it works years ago] nor do I consider myself a 'crypto person' (only, perhaps, compared to the backdrop of extreme HN negativity around the topic). I just think that people saying 'regulations are perfectly clear' on this issue have not spent that much time dealing with regulators in emerging technology. > Just normal for government officials to cover their own asses primarily I agree - I just disagree with people suggesting that the same logic doesn't apply to regulators and their actions. They want to keep it unclear precisely so they have the ability to maneuver in the future and regulate if they want. That is the exact opposite of the 'super clear' regulations & guidance that GP was suggesting currently exists.
      - JumpCrisscross 3y ago
        > people saying 'regulations are perfectly clear' on this issue have not spent that much time dealing with regulators in emerging technology I work in a regulated industry. I have my criticisms of Gensler. And I’ve (separately) profited off crypto. The regulations for non-Bitcoin exchanges were clear from the start. Nobody liked that clarity. And the regulators spent a few years navel gazing. But the legal advice I got at the start has remained consistent: the operators are putting themselves in jeopardy.
        unyttigfjelltol 3y ago
        One way to look at it is a generation of boiler room operators moved their pump'n-dump schemes from central securities clearinghouse to crypto ledgers, because they realized what a loophole the Bitcoin exception was. And they brought in enough politicians and celebrities to slow walk promises of updated regulations, and regulators cautiously warned and waited, and here we are, with some bowtied man criticizing the SEC for doing its job precisely in the manner politicians demanded.
  - sealeck 3y ago
    Is it really surprising that the chair of the SEC cannot just dispense SEC positions without consulting with lawyers?
    - whimsicalism 3y ago
      Has Gensler never consulted lawyers on the status of ethereum prior to this hearing? It should be easy yes or no from the lawyers, I'm hearing that the law is incredibly clear and not really prone to misinterpretation so it shouldn't be an issue. Or maybe Gensler's lawyers are "extremely inexperienced" if they couldn't figure out such an obvious issue?
      - arcticbull 3y ago
        You're not answering the question. Why do you think Gensler in official capacity should just dispense one-off soundbite determinations at the request of some clown grilling him? > It should be easy yes or no from the lawyers... When has that ever been the case, and why should it be the case now? [edit] The law is not just what's written but the entirely of case law. The SEC has provided a framework for analysis of securities in the context of crypto. It's here. [1] And it builds on the DAO report, here. [2] [1] https://www.sec.gov/files/dlt-framework.pdf https://www.sec.gov/files/dlt-framework.pdf [2] https://www.sec.gov/litigation/investreport/34-81207.pdf https://www.sec.gov/litigation/investreport/34-81207.pdf
        whimsicalism 3y ago
        It is not at all surprising to me that he would refuse to answer the question, but the precise reason he is doing that is so that the SEC has freedom of movement to regulate without being pinned down by public statements he has made in front of congress. But that entire notion belies the idea that the regulations are super clear or predictable. The whole reason for this kind of maneuver is because the regulations are not clear or predictable. I have no doubt he has discussed the status of ethereum with SEC lawyers before.
        3y ago
  - deleted 3y ago
    [deleted]
nradov 3y ago
In general if you're thinking of doing something in a gray area of federal law or regulations then you can write a formal letter to the competent regulatory agency and request an opinion. But you have to be extremely specific and pose your questions in ways that can be answered with a clear yes or no; you can't expect a useful response to a vague request for clarifications or definitions. If the agency does give you a letter containing a positive opinion then it serves as a nearly ironclad defense against any civil enforcement actions or criminal prosecution. Those opinions can change later for political reasons, but you won't be punished retroactively for actions prior to the change.
- whimsicalism 3y ago
  Yes, see for instance prediction markets in the US.
- sroussey 3y ago
  FundersClub did this for creating a portal to invest in startups.
  - nradov 3y ago
    Right, good example. You can read the SEC letter here. As long as you ask the right questions you can get useful answers and protect your business. https://www.sec.gov/divisions/marketreg/mr-noaction/2013/funders-club-032613-15a1.pdf https://www.sec.gov/divisions/marketreg/mr-noaction/2013/fun...
choppaface 3y ago
It’s not a matter of what tokens are “permissible” but rather what protections market participants get against fraud and instability. There was plenty of opportunity for crypto to actually raise the bar in protecting the consumer and it just never happened.

George83728 3y ago

> Coinbase issuing public statements to SEC “tell us what is a security” were basically a ploy or the lawyers involved were extremely inexperienced. I take it as a stunt intended shift the layman's perception of Coinbase's legal responsibilities onto the SEC. They're counting on cryptobros using this "SEC won't tell us what's legal" talking point to affect favorable political / legislative change. But newsflash: government regulators aren't obliged to act as your legal council.

yieldcrv 3y ago

The stance isn’t about whether Howey can be applied literally everywhere The stance is that applying it to digital tokens as unregistered securities means applying it to other places, like Nike shoes and baseball cards, just because any random individual expected to profit when they bought one that this framework is not applied everywhere, specifically how congress exempted spot commodities and commodities derivatives from the SEC framework specifically because it was untenable That there is a difference between a digital commodity and a digital security that is mutually exclusive, but the SEC has provided no way of understanding that distinction, and now has resorted to just arbitrarily claiming random assets are securities in cases against the people that trade those assets, instead of taking up cases against the issuers of those assets and letting those issuers defend themselves or reach a definitive conclusion That it is impossible to comply if it was applied everywhere, as registered security status inherits tons of unrelated regulations to protect incumbent intermediaries That the SEC will never achieve congress’ delegated mission of investor protection and only hurt investors And that actually inconveniencing everyone will put this framework under a constitutional test that the SEC probably needs to avoid, but I’m all the SEC going after the entire sneaker trading ecosystem as unregistered broker dealers as fallout to their crusade just to prove they aren’t just trying to debilitate crypto (The staking program has a separate evaluation)

esotericimpl 3y ago
Nike shoes and baseball cards are clearly commodities. If you were to stake your Air Jordan's with coinbase and Coinbase told you in a years time you'd have 2 pairs, it would become a security.
- yieldcrv 3y ago
  like I wrote, the staking program has a different evaluation and my post was not about that. we agree that any asset can be transferred in a way that is a securities transaction.
majormajor 3y ago
Why would a sneaker fall under the terms they're using to define a security if not every digital token does?