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I agree that the dissenters bring up a lot of good questions that need answering. However, if you believe their fundamental argument that NFTs aren't really se

by lukev 3y ago

I agree that the dissenters bring up a lot of good questions that need answering. However, if you believe their fundamental argument that NFTs aren't really securities... what regulatory body should prevent this kind of behavior? Or should rug-pulls effectively be legal, and buyer beware?

bonestamp2 3y ago
If NFTs are not securities, then I believe it would fall on the FTC, like most other consumer protections.
- lukev 3y ago
  But what law is being broken, if NFTs aren't securities?
  - yieldcrv 3y ago
    crypto consumers should be far more discerning than they are even the term “rug-pull” is not discerning enough, it refers to a dozen distinct behaviors, of which a few would still be illegal while the other many behaviors are just a misalignment of expectations removing liquidity? thats not illegal under either consumer or securities framework and most commonly called a “rug pull”. communities can provide their own liquidity as a feature of the crypto space, and in no space do purchasers have an expectation for liquidity ceasing to continue making press releases or taking down a website and community channels? also not illegal under the consumer or securities framework. taking other people’s provided liquidity out of a staking contract without saying thats whats going to happen would be illegal under both frameworks. that kind of rug pull is theft. collecting funds and promising to do X and then not even attempting it, thats prosecutable under both the consumer and securities frameworks, in more ways under a securities framework
    - lukev 3y ago
      The only way to be discerning with respect to most* crypto is not to participate. Even "succeeding" at crypto just means you sold early enough to a greater fool. * jury still out on the couple major cryptocurrencies, though I hope they follow the same path.
      - yieldcrv 3y ago
        The SEC is not the arm of the government to help you feel validated, and I think thats the crux of your dissonance
  - bonestamp2 3y ago
    I don't think NFTs as a whole are breaking any FTC related laws. However, the way that they are marketed or sold could break some laws if the communications are deceptive. For example, a rug pull might be considered illegal under US Law Title 16, Chapter 1, Subchapter B, Part 238.4 "Switch after Sale": https://www.ecfr.gov/current/title-16/chapter-I/subchapter-B/part-238 https://www.ecfr.gov/current/title-16/chapter-I/subchapter-B...
- ok123456 3y ago
  How do NFTs fail to meet the Howey Test?
  - IanCal 3y ago
    Easy. Let's start by looking at what typical tokens are. A fungible token is simply a store of the following records: (public key, amount) There is a stored procedure that lets anyone with the private key to lower the "amount" value on their row and increase the "amount" value on another row by the same amount. There's no tracking of which part of the amount came from where, the "tokens" are fungible. Now let's look at what a non-fungible token is. It's a store of the following records: (public key, id) Whoever has the private key can change the public key field in the record. That's... it. You can add a table that has (id, metadata, url), that's common and what you see with most shown NFTs. There's some helper functions but really that's the essence of it. None of that necessitates it being sold as an investment in a common enterprise any more than selling bits of paper with a number and a signature on them does. Signed prints by an artist aren't securities, your place in the line in a queue isn't a security, a concert ticket isn't a security. You can obviously however treat the above data structure as representing some kind of security. This is true with fungible tokens too, a list of shareholders is essentially the same structure. So it comes down to how it's sold.
    - IanCal 3y ago
      Since this was downvoted, a simpler explanation. Not all ownership denotes a security. If you own (and own can often be interpreted simply around having control over) a thing, you can sell it without that necessarily being a security. That's why the test is not "can it be sold".
  - deleted 3y ago
    [deleted]
yieldcrv 3y ago
The Federal Trade Commission is fully equipped to handle consumer fraud.
- lukev 3y ago
  But if it's not a security, is it fraud? If I sell you a hand drawn stick figure for $100, and you buy it because it's "art", then there's no rug to pull. You bought it, and it doesn't matter to the artist whether the resale value goes up or down. If it goes down, it's still not fraud. But if I sell you a hand drawn stick figure for $100, and you buy it with the mutual expectation that it will eventually be worth more because of the value of the brand/project, and the effort I put in to grow that value... isn't that a security, by definition?
  - yieldcrv 3y ago
    that's where we are: its either go after all collections with this outstanding low hanging and untenable application of Howey, or show the exact distinction that asset creators can follow to act solely as a consumer product like the fine artists and watch collections it is also accurate that if following a consumer protection framework, most activities and behaviors would not be fraud. so for a creator or secondary market operator or promoter, not knowing which branch of theory to follow makes all of their behavior bifurcated and prosecutable under one framework, a securities framework, but not a consumer protection framework. and vice versa.
  - alasdair_ 3y ago
    >But if I sell you a hand drawn stick figure for $100, and you buy it with the mutual expectation that it will eventually be worth more because of the value of the brand/project, and the effort I put in to grow that value... isn't that a security, by definition? This seems equivalent to buying a baseball card of a specific player with the expectation that the player will put in effort into the game and thus increase the value of the card. People buy cards of specific players on the assumption that they can buy in cheap and sell when the value of the player's brand increases.
    - 3y ago

by lukev 3y ago

bonestamp2 3y ago

If NFTs are not securities, then I believe it would fall on the FTC, like most other consumer protections.

lukev 3y ago
But what law is being broken, if NFTs aren't securities?
- yieldcrv 3y ago
  crypto consumers should be far more discerning than they are even the term “rug-pull” is not discerning enough, it refers to a dozen distinct behaviors, of which a few would still be illegal while the other many behaviors are just a misalignment of expectations removing liquidity? thats not illegal under either consumer or securities framework and most commonly called a “rug pull”. communities can provide their own liquidity as a feature of the crypto space, and in no space do purchasers have an expectation for liquidity ceasing to continue making press releases or taking down a website and community channels? also not illegal under the consumer or securities framework. taking other people’s provided liquidity out of a staking contract without saying thats whats going to happen would be illegal under both frameworks. that kind of rug pull is theft. collecting funds and promising to do X and then not even attempting it, thats prosecutable under both the consumer and securities frameworks, in more ways under a securities framework
  - lukev 3y ago
    The only way to be discerning with respect to most* crypto is not to participate. Even "succeeding" at crypto just means you sold early enough to a greater fool. * jury still out on the couple major cryptocurrencies, though I hope they follow the same path.
    - yieldcrv 3y ago
      The SEC is not the arm of the government to help you feel validated, and I think thats the crux of your dissonance
- bonestamp2 3y ago
  I don't think NFTs as a whole are breaking any FTC related laws. However, the way that they are marketed or sold could break some laws if the communications are deceptive. For example, a rug pull might be considered illegal under US Law Title 16, Chapter 1, Subchapter B, Part 238.4 "Switch after Sale": https://www.ecfr.gov/current/title-16/chapter-I/subchapter-B/part-238 https://www.ecfr.gov/current/title-16/chapter-I/subchapter-B...
ok123456 3y ago
How do NFTs fail to meet the Howey Test?
- IanCal 3y ago
  Easy. Let's start by looking at what typical tokens are. A fungible token is simply a store of the following records: (public key, amount) There is a stored procedure that lets anyone with the private key to lower the "amount" value on their row and increase the "amount" value on another row by the same amount. There's no tracking of which part of the amount came from where, the "tokens" are fungible. Now let's look at what a non-fungible token is. It's a store of the following records: (public key, id) Whoever has the private key can change the public key field in the record. That's... it. You can add a table that has (id, metadata, url), that's common and what you see with most shown NFTs. There's some helper functions but really that's the essence of it. None of that necessitates it being sold as an investment in a common enterprise any more than selling bits of paper with a number and a signature on them does. Signed prints by an artist aren't securities, your place in the line in a queue isn't a security, a concert ticket isn't a security. You can obviously however treat the above data structure as representing some kind of security. This is true with fungible tokens too, a list of shareholders is essentially the same structure. So it comes down to how it's sold.
  - IanCal 3y ago
    Since this was downvoted, a simpler explanation. Not all ownership denotes a security. If you own (and own can often be interpreted simply around having control over) a thing, you can sell it without that necessarily being a security. That's why the test is not "can it be sold".
- deleted 3y ago
  [deleted]

yieldcrv 3y ago

The Federal Trade Commission is fully equipped to handle consumer fraud.

lukev 3y ago
But if it's not a security, is it fraud? If I sell you a hand drawn stick figure for $100, and you buy it because it's "art", then there's no rug to pull. You bought it, and it doesn't matter to the artist whether the resale value goes up or down. If it goes down, it's still not fraud. But if I sell you a hand drawn stick figure for $100, and you buy it with the mutual expectation that it will eventually be worth more because of the value of the brand/project, and the effort I put in to grow that value... isn't that a security, by definition?
- yieldcrv 3y ago
  that's where we are: its either go after all collections with this outstanding low hanging and untenable application of Howey, or show the exact distinction that asset creators can follow to act solely as a consumer product like the fine artists and watch collections it is also accurate that if following a consumer protection framework, most activities and behaviors would not be fraud. so for a creator or secondary market operator or promoter, not knowing which branch of theory to follow makes all of their behavior bifurcated and prosecutable under one framework, a securities framework, but not a consumer protection framework. and vice versa.
- alasdair_ 3y ago
  >But if I sell you a hand drawn stick figure for $100, and you buy it with the mutual expectation that it will eventually be worth more because of the value of the brand/project, and the effort I put in to grow that value... isn't that a security, by definition? This seems equivalent to buying a baseball card of a specific player with the expectation that the player will put in effort into the game and thus increase the value of the card. People buy cards of specific players on the assumption that they can buy in cheap and sell when the value of the player's brand increases.
  - 3y ago