
The SEC Will Leave Good ICOs Alone - chollida1
https://www.bloomberg.com/view/articles/2018-06-15/the-sec-will-leave-good-icos-alone
======
thisisit
I think couple of things need to be repeated from earlier threads. This
discussion happened during a Yahoo conference. So, its more like a person's
opinion. Unless we get a press release from SEC it is a difficult statement to
make whether SEC is all good with ICOs.

Secondly, the question of Ethereum being a security is a tricky one. It is a
security by definition given in the same speech. So, it started out as a
security but then it is not a security any more? That is confusing. A good
read on this:

[https://prestonbyrne.com/2018/06/14/ether-is-not-a-
security/](https://prestonbyrne.com/2018/06/14/ether-is-not-a-security/)

~~~
davidwparker
Here's the official statement from the SEC.

"based on my understanding of the present state of Ether, the Ethereum network
and its decentralized structure, current offers and sales of Ether are not
securities transactions."

[https://www.sec.gov/news/speech/speech-
hinman-061418](https://www.sec.gov/news/speech/speech-hinman-061418)

~~~
thisisit
Please read in full before quoting an article. The very first footnote is:

> The Securities and Exchange Commission disclaims responsibility for any
> private publication or statement of any SEC employee or Commissioner. This
> speech expresses the author’s views and does not necessarily reflect those
> of the Commission, the Commissioners or other members of the staff.

~~~
charlesdm
But isn't this person the person in charge within the SEC for setting the
policy? It seems unlikely his opinion will be different from the official
stance.

~~~
nerdponx
Even if one person is in charge, policy is not set in isolation. Their opinion
will weigh on the decision but it will not be the decision.

------
pmorici
I think the headline might be glossing over some important details. There is a
subset of ICO's that consulted lawyers and structured their deals in such a
way that they don't run afoul of SEC regulations. If you ever see people
talking about a "utility token" that is a why they are calling it that. It
doesn't give the owner any stake in the company or right to a share of the
company's profits. It's more a kin to a virtual currency in a video game the
likes of which preceded crypto currencies.

What people really want or where I think the promise of Ethereum in particular
really lies is to tokenize traditional assets in the form of ERC-20 tokens in
the case of stocks or ERC-721 tokens in the case of unique property. The SEC
will need to be involved in the former to make it legal. Both Coinbase and
TZero possibly others are working on that now.

~~~
JumpCrisscross
> _if you ever see people talking about a "utility token" that is a why they
> are calling it that_

The SEC has consistently seen utility tokens as securities. The workaround, so
far unproven in court, is the SAFT (simple agreement for future tokens).

~~~
AnthonyMouse
> The SEC has consistently seen utility tokens as securities. The workaround,
> so far unproven in court, is the SAFT (simple agreement for future tokens).

The issue with all of this is that people are trying to fit a new technology
into a series of boxes when it doesn't fit into any of them.

The problem cryptocurrencies aim to solve looks like this. I have a hardcopy
of a book that I've finished reading and I'm prepared to sell it so I can use
the money to buy a copy of another book. I am not keen on the efficiency of
the barter system, so what I need is currency that allows me to sell the book
I have and then buy the book I want.

But currency isn't a security. The rules for securities are much more strict,
because you have to worry about people defrauding investors and engaging in
stock price manipulations etc. In the normal everyday currency transaction
where I exchange my book for a $20 bill and then go somewhere else and
exchange my $20 bill for a book, there is never any paperwork for me to fill
out. I don't have to give anyone my name or anything else to allow them to
compile a database of which books I read or which social clubs I patronize or
what kind of contraceptives I use.

The rules for digital credit transactions are also strict, because they were
designed for _credit_ transactions, where you have to worry about someone
buying something on credit and then not paying, or taking out credit in
someone else's name.

What's really needed is a digital version of _cash_. But there is no law
designed for digital cash, so people keep trying to squeeze things that aim to
serve that purpose into one box or another when the rules were clearly
designed for something else.

What we need is for the law to more explicitly allow the internet to work like
the real world.

~~~
cortesoft
Right, but the article is talking about ICOs, not cryptocoins in general.

~~~
AnthonyMouse
But once there is an ICO then whatever it is it continues to be, right?

It obviously impacts the initial value of a coin if it can't practically be
used as currency because future trades have to be treated as a regulated
securities instrument.

------
c3534l
This is how the internet and the tech industry in general have worked.
Legislators and regulators are reluctant to clamp down on an emerging industry
before it's clear how it's going to work. At one point the legality of Napster
was legitimately up for debate. As time went on, however, those regulations
have come. I think this is actually the right approach. Be conservative in
regulating a new industry and wait until it's mature and understood, while
allowing it to grow and work out as many kinks in the free market before the
government steps in.

~~~
sonnyblarney
"This is how the internet and the tech industry in general have worked."

Well I don't think that IBM, Sun, Nvidia, Oracle, Apple, Google, Microsoft,
Sandisk, Cisco, Ebay, Craigslist, Wikipedia, Facebook, Snapchat, Wechat,
Instagram, Pinterest, fall into that category.

AirBnB, Uber, some weed companies ... DraftKings, Kik, Telegram ... I suppose
fall into that.

But 'hotel permits' and 'cab permits' are in another league altogether from
'selling drugs / gambling' or 'unregulated securities', so I think ABnB and
Uber really are in a middle category.

Selling 'classically licentious stuff' like porn, drugs, gambling - and also
selling financial scams - these things are as old as time ... and there's good
reason we regulate it, even if we don't always agree on the thin red line
(i.e. should weed or prostitution be illegal?).

That doesn't leave to many real companies skirting regular law and waiting for
regulation to catch up.

ICO's I think are a special case.

The one's the SEC has said are 'cool' are basically the token-only one's and I
think they are all de-facto scams, to the extent I highly doubt any of those
tokens will be viable.

The SEC is missing one thing - and that is the speculative nature of the coins
and that they are not bought up front as 'currencies to do stuff'. No - they
are bought with the hope of massive increase in valuation of the currency,
thereby making them more like securities than currencies. Or rather, they are
'financial options on some future currency'. In which case, I think they need
to be regulated, at least lightly, or at least in some basic way, i.e.
requiring minimum amounts of transparency, at very least the executives have
to register with the CEO and can go to jail if they just run off with the
money willy nilly, which it seems they can do today ...

~~~
c3534l
> Well I don't think that IBM, Sun, Nvidia, Oracle, Apple, Google, Microsoft,
> Sandisk, Cisco, Ebay, Craigslist, Wikipedia, Facebook, Snapchat, Wechat,
> Instagram, Pinterest, fall into that category.

I don't think you're right about that. Congress waited to pass laws about
software patentability. They waited to hold Craigslist accountable for
potentially illegal ads on their site. They took a conservative approach in
applying things like libel laws to the likes of spam filters, to Wikipedia and
social networking. Instagram and Pinterest definitely skirt the law when it
comes to copyright violations and they could have easily ruled early on that
if you publish something on your website, you're responsible for the legality
of that content. YouTube (not that you mentioned it) grew out of illegally
hosting copyrighted material before they learned to play nice with the big
corporations by implementing contentID and the like. The government could well
have regulated these websites like they did with television: banning the use
of profane language or sexual content. You severely underestimate the wild
west that a lot of these companies were operating under. Hardware, fine, but I
don't know of what regulations a person might want to place on them to begin
with.

~~~
sonnyblarney
Except that none of those situations you suggest indicate 'laws catching up to
the internet' \- except in the case of Craiglist prostitution ads which is
within the special case group I noted.

None of those companies were broadly breaking any rules to the point of
fundamental ambiguity wherein 'we all waited to see what was going to happen'.
I see your point about Pinterest but it wasn't really an existential issue,
really.

And none of said companies faced existential issues or angst awaiting legal
clarity on anything really.

~~~
lmm
> None of those companies were broadly breaking any rules to the point of
> fundamental ambiguity wherein 'we all waited to see what was going to
> happen'. I see your point about Pinterest but it wasn't really an
> existential issue, really.

Huh? It's absolutely an existential issue. Pinterest's entire business is
built on unauthorised use of content from other websites.

~~~
erikpukinskis
> Pinterest's entire business is built on unauthorised use of content from
> other websites.

That’s 100% true of Google too, and actually Facebook as well to a large
extent. And certainly Reddit.

------
dgreensp
So basically, if you want to raise money by selling gift cards for a product
that doesn’t exist to speculators who will trade them, make sure you describe
it in terms of some inscrutable crypto protocol network thing that doesn’t map
neatly to stock or gift cards.

~~~
erikpukinskis
I don’t disagree with your characterization of many ICOs.

But... is there anything wrong with that? It’s a junk investment, but aren’t
junk investments just as valid as strong investments? If my gift card for an
unreleased product trades for pennies on the dollar... isn’t that still a
valid investment?

~~~
dgreensp
Anything can be an investment. There are laws about gift cards and equity.
Cryptocurrency systems are so technically complex and overloaded with ideals,
uses, and philosophies that they can be simultaneously nothing like and
everything like these things, IMO. It’s not about what’s right and wrong, it’s
just amusing to me that if you want to exploit this particular opinion, as a
loophole, the way you’d do it is to make your cryptocurrency sufficiently
abstruse.

Edit: To be really clear, I’m talking about the opinion that basically says,
if your coin functions as equity then it’s equity; if it functions as a gift
card, it’s a gift card; but if it functions as a protocol, it’s a protocol,
even if it has speculators bidding it up and benefits going to coin-holders —
basically a lot of the properties of equities and gift cards that cause them
to be regulated.

------
wtvanhest
If anyone at bloomberg reads this comment, please stop the bar at the top from
periodically coming down. It makes the article impossible to read for those
that use the top of their smart phone as a place holder.

------
pwaai
Why are there so many ex-convicts in this ICO/crypto space? Like literally, a
huge chunk of these so called ICO investors and founders have very shady
pasts. Why isn't anybody calling people out on this? Why do we have criminals
being entrusted with people's livelihood?

~~~
whatshisface
> _Why are there so many ex-convicts in this ICO /crypto space?_ > _Why do we
> have criminals being entrusted with people 's livelihood?_

The second sentence answers the first: we do not want to trust criminals with
people's livelihoods, so we leave lots of brainpower lying around outside of
"normal society" because we don't want to let an embezzler write accounting
software. Is it any wonder, then, that we would see an abnormal number of
criminals end up working in a field where there was money but nobody to keep
them out? You and I can choose between academia, industry and weird self-owned
schemes, but there is a certain group of smart people that have only one
option...

~~~
swampthinker
That's an incredibly interesting way of looking at it. At first blush I was
thinking more of a "Wild West attracts Wild West criminals", but it definitely
is more nuanced than that.

------
everdev
This seems to be a trend in the US with crypto and marijuana as examples. If
you move faster than the government, the letter of the law no longer seems to
apply once you have established a substantial market.

I like that both are gaining acceptance, but to the early entrepreurs willing
to sell a clear security without filing or the growers willing to sell a
controlled substance underground, go the spoiles when the states and federal
government bend to the will of the market.

Unfortunately, it creates an unfair playing field for those willing to take a
criminal risk and puts those that try to do things legally from day 1 at a
disadvantage.

~~~
Trundle
How is that an unfair playing field? People being rewarded for productive risk
taking is one of the fairest things I can think of.

~~~
everdev
Well, I called the SEC and they said they can't think of a way how these ICOs
are not violating the Howey Test. Basically that in time, they be prosecuted.

So, those of us that decide that the potential for financial or criminal
consequences is not with it miss out when it turns out all but the most
egregious scams will get a pass.

~~~
Trundle
Sure, I understand where the risk is coming from. I don't understand where the
unfairness is coming from.

~~~
s73v3r_
Because what you classify as "taking a risk" most of us classify as
"potentially breaking the law."

------
davidgerard
I did a panel on ICOs last Thursday. Me as crypto skeptic, two crypto guys as
well.

Video here: [https://davidgerard.co.uk/blockchain/2018/06/14/topline-
comm...](https://davidgerard.co.uk/blockchain/2018/06/14/topline-comms-how-to-
launch-a-successful-ico-with-me-on-the-panel/) (no transcript, sorry)

We all concurred: assume your ICO is a security, _talk to your regulators_.

And, ah, don't do fraud - "fake it till you make it" needs to not become "make
material misstatements when making an offering". Doing your best to do things
properly will definitely make regulators much more helpful.

Remember that financial regulators actually want you to do well in business,
and make a great big pile of money! The SEC's mission statement is: "protect
investors, maintain fair, orderly, and efficient markets, and facilitate
capital formation." They'll be delighted to help with that third part as long
as you're not messing with the first two parts.

Note also that the regulators are all going "what on earth", and they all talk
to each other. FINMA in Switzerland has some surprisingly clear guidance on
ICO tokens. Basically: it's a security unless it's pure utility, and if your
"utility" token is exchange-tradeable it probably becomes a security. We
expected this would be a good rule to work to.

Let me stress again: _talk to your regulators first_. One of the guys on the
panel (Davide Vicini from Maveric SA) spends way too much of his time helping
ICOs who launched and _then_ tried to square things with the regulators.

------
fake-name
Let me know as soon as they find this elusive "good ICO".

I hear they're generally found in the same habitat as unicorns.

~~~
omarchowdhury
Plenty of unicorns out there.

------
pontifier
I had a bad experience with a coin, and I'm hoping the SEC gets involved with
investigating it.

They claim it was not an ICO, but I never got the coins I expected. They were
doing quite well, and are in the top 20 on coinmarketcap. I feel cheated, and
have received a lot of flak since becoming more vocal about the issue... there
were even some half-joking death threats and websites created to discredit me.

They claim there was a deadline I missed. I maintain there was insufficient
notice of the deadline, and that they just wanted to keep the coins
themselves. Also, I'm not sure it's legal for them to keep something like that
once it's paid for...

It's a big question, worth a lot of money, and I'm glad the SEC is finally
getting involved in this area.

------
sonnyblarney
"But if there is a company, and it raises money by issuing a token to the
public, it has the same securities-law obligations it would if it raised money
by issuing stock or bonds."

And there's the rub. Sometimes, it's hard to tell.

------
matt_the_bass
Check out the rest of the writing by this author. Matt Levine is great. He has
an impressive background which gives him great (and usually cynical) opinions
about various financial topics.

------
paulie_a
Hopefully the SEC actually finds a good one to leave alone. but I am guessing
that will be a challenge for them. The entire landscape of ico could be
decimated and nothing of value would be lost.

~~~
sjg007
You could probably do the next gen stock market as ICOs

~~~
paulie_a
But why? It has zero benefits.

~~~
sjg007
Lower transaction costs, more control, easier to trade for small cap
companies?

------
logicallee
Do you think I should consider an ICO for a company which has been unable to
close its seed round (except under ridiculously bad terms)?

I have an extremely strong association between the words ICO and "scam", but I
also recently found out that seed rounds are basically non-existent [1]

If the SEC tacitly allows for "good-faith" ICO's, I would consider it. I don't
want to shutter the work of my cofounders and contributors just because the
seed-stage startup ecosystem is this broken.

However, I have gone down extremely long rabbit holes and I am very wary.

I would like to raise approximately 300k for a play that is built for an
acquisition for a major player (within a small number of years). We got one
term sheet for effectively 51% of the company for $17k or so. (That was from a
real VC.) There were no other serious offers.

Another (more promising?) alternative would be to bootstrap doing something
unrelated. For example we have some expertise on our team in machine learning
and perhaps could use it in an unrelated market where the size of the
opportunity is pretty small (and it's pretty competitive).

Is ICO worth exploring at this stage? (Bearing in mind that we are built for
acquisition.)

We are a "real" startup and don't have anything to do with cryptocurrencies or
tokens. I also personally think the SEC does fantastic work that makes the
whole startup ecosystem, and indeed investment at all, possible.

There is a reason the United States investment climate is one of the best in
the world, if not _the_ best, and I think the SEC and general legal framework
is one of these. So I am strongly biased against unregulated ICO's and would
be very happy to submit to any oversight that would increase transparency and
investor protections.

[1]
[https://news.ycombinator.com/item?id=17284796](https://news.ycombinator.com/item?id=17284796)

~~~
JumpCrisscross
> _I also recently found out that seed rounds are basically non-existent_

$8.5 billion were invested across close to 14,000 seed and angel-stage rounds
in 2017 [1]. On both deal frequency and gross volume, seed and angel financing
grew from 2016.

[1] [https://news.crunchbase.com/news/q4-2017-global-report-vc-
se...](https://news.crunchbase.com/news/q4-2017-global-report-vc-sets-annual-
records-back-strong-late-stage-results/)

~~~
logicallee
> close to 14,000 seed and angel-stage rounds in 2017

worldwide. :) That's "basically non-existent".

Maybe you can flip it around like this: the number of people worth at least
$30 million worldwide is 226,450.

[https://en.wikipedia.org/wiki/Ultra_high-net-
worth_individua...](https://en.wikipedia.org/wiki/Ultra_high-net-
worth_individual)

------
sriram_sun
Laughable! What's a "Good" ICO?

FTA: "Loosely speaking, then, ICOs that seek to fund the construction of
decentralized open protocols should still work under the SEC’s rules."

Also "ICOs that are just fundraising schemes for companies will be treated
like securities.."

I'm looking at this distinction with both eyebrows raised. I'm highly
skeptical that an ICO will be treated differently under different use cases.
This would only lead to confusion. Further down, in the article, the author
brings up a third category - Ripple. What's to prevent a fourth and a fifth
category? The law when it comes down is going to be uniformly applicable to
ALL ICOs not just "Good" and "Bad" ones.

------
pwaai
Good luck because you won't find an ico that is not a security aimed at
swindling teachers, baristas and other innocent people.

The % of 'Good ICO' is very very small, if non existant. It turns out nobody
wants to do an ICO unless they get money. Fuck you. If you've been involved in
an ICO or blockchain charlatanism, you are well deserving of scrutiny.

In a few years after the crypto craze is over, everybody will be busy sending
out DMCA notices to Google to hide their involvement in the 99% of ICO that
will never deliver, get 'hacked', or just take off with the money.

Fuck ICOs

------
kruhft
What's a 'good ICO'? I did 2 and didn't get shit for it.

~~~
kruhft
Here's an 'offical one' that worked (airdropped):

[https://etherscan.io/token/0x6a95771d66731e1f59681b9f71f45dc...](https://etherscan.io/token/0x6a95771d66731e1f59681b9f71f45dc2d248790c)

------
throwaway66666
We are now somewhen in the 90s, somewhere in the US. Welcome.

People are getting scammed when buying things online. The elderly are sending
money to Nigerian princes. There are rapists and murderers on chatrooms
preying for victims. Kids addicted to online games drop out of school. There
is deviant pornography turning young men and girls into perverts or enticing
them to post nudity online.

I strongly believe we must protect the public, and we must put severe
regulations on the internet. Noone should be able to just set up a website or
online business. It is far too dangerous. Aspiring e-entrepreneurs must be
required to file a goverment-reviewed application, and be represented by an
attorney throughout the whole process, as well as undergo background checks
and pay various fees to state and federal agencies.

If all goes well, within 1-2 years (depending on backlog) they can have
permission to put up a website. Every year they must renew their website
license, and according to what kind of content they wish to host they will
need different licenses (eg different if you want to serve video, different if
you want to have chat) /s

Makes sense right? The internet seemed like a weird crazy unregulated space
back then. Except that.... that would have killed all of the amazing
innovation that happened in the past 25 years in the US.

My point is. We must protect the public, of course. But it is never as simple
as pulling out the torches and pitchforks screaming "BAN BITCOIN. BAN THE
DARKWEB. STOP ICOs". We cannot risk stifling innovation. Because if we do -
innovation will still happen just... somewhere else in the world. And no
government wants that.

-

EDIT: FYI - in case you think I am exaggerating, the scenario I described
above is similar to today's internet situation in mainland China. You need an
ICP license (granted by the government and renewed yearly) in order to be able
to have a publicly accessible domain name. If you want to serve back visual
content (images/video) and user-to-user communication (chat or public text
posts) you need to undergo extra delays and checks to prove that you are
trustworthy and can censor content. Certain websites from outside of China (eg
google, fb) are just banned.

~~~
JumpCrisscross
> _it is never as simple as pulling out the torches and pitchforks screaming
> "BAN BITCOIN. BAN THE DARKWEB. STOP ICOs"_

Straw man [1]. Nobody serious suggests banning any of these.

[1]
[https://en.wikipedia.org/wiki/Straw_man](https://en.wikipedia.org/wiki/Straw_man)

~~~
throwaway66666
please check the comments at this very page. Some people claim that everyone
involved is a charlatan, one specifically says "F... ICOs" and someone else
that all ICOs could disappear and no value would be lost.

EDIT: I agree with you that they are not serious opinions worthy of
consideration, so your point might stand.

~~~
comex
Saying "Fuck ICOs" or "ICOs have no value" is not the same as saying the
government should ban them. And even if you do think the government should ban
them, that's very different from wanting to ban Bitcoin or the dark web;
although there are certainly people out there with various reasons they think
both of those should be banned, the chief argument against _ICOs_ (that most
of them are scams) doesn't really translate to either.

