
Analyzing Token Sale Models - petethomas
http://vitalik.ca/general/2017/06/09/sales.html
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jerguismi
How about analyzing whether the projects funded by ICOs make any sense? With
the current mania the token sales model hardly matters. Also after the mania
is over, probably no matter what the model, people won't be investing, since
the stupid money will run out at some point.

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nugget
The OTC penny stock market still seems alive and well.

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robzyb
I think that you raise some interesting considerations, but I don't think it
paints a full picture, and some of the missing parts of the picture are
important.

While there are some parallels between coins and penny stocks, there are also
some fundamental differences which means they aren't so easy comparable.

Sure, penny stocks are very highly speculative, just like coins, however
unlike coins they have very well defined "value". That is, they are fractional
ownership of a legally defined entity.

The value of a coin is much more difficult to understand and/or appreciate.

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whazor
There is a strong parallel. As most coins do provide actual value and
ownership of the platform. For example, while the gnosis coin is overhyped,
the idea is that because of fees on the platform.. Eventually you will earn
some money back. But as said before, the mania has to stop.

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RichardHeart
Security (token) sellers get lots of money up front. Security (token) sellers
then appear to work a little bit until they move on to their next security
(token) sale. Actual purchasers of "token" never exceed 10% of total
purchasers because projects use is mostly Ponzi gambling.

All fun and games till the SEC decides enough people have lost their life
savings, and calling things tokens instead of shares is comedy.

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hanniabu
But they're not shares. Owning a token dies not necessarily mean you now own a
portion of the company or profits.

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patio11
The Supreme Court has given the SEC ability to duck type the definition of
securities, which is:

> The term “security” means any note, stock, treasury stock, security future,
> security-based swap, bond, debenture, evidence of indebtedness, certificate
> of interest or participation in any profit-sharing agreement, collateral-
> trust certificate, preorganization certificate or subscription, transferable
> share, investment contract, voting-trust certificate, certificate of deposit
> for a security, fractional undivided interest in oil, gas, or other mineral
> rights, any put, call, straddle, option, or privilege on any security,
> certificate of deposit, or group or index of securities (including any
> interest therein or based on the value thereof), or any put, call, straddle,
> option, or privilege entered into on a national securities exchange relating
> to foreign currency, or, in general, any interest or instrument commonly
> known as a “security”, or any certificate of interest or participation in,
> temporary or interim certificate for, receipt for, guarantee of, or warrant
> or right to subscribe to or purchase, any of the foregoing.

Quoting Marine Bank v. Weaver:

> The definition of "security" in the Securities Exchange Act of 1934 is quite
> broad. The Act was adopted to restore investors' confidence in the financial
> markets, and the term "security" was meant to include "the many types of
> instrument that, in our commercial world, fall within the ordinary concept
> of a security." The statutory definition excludes only currency and notes
> with a maturity of less than nine months. It includes ordinary stocks and
> bonds, along with the "countless and variable schemes devised by those who
> seek the use of the money of others on the promise of profits. Thus, the
> coverage of the antifraud provisions of the securities laws is not limited
> to instruments traded at securities exchanges and over-the-counter markets,
> but extends to uncommon and irregular instruments. We have repeatedly held
> that the test "'is what character the instrument is given in commerce by the
> terms of the offer, the plan of distribution, and the economic inducements
> held out to the prospect.'"

ICOs are almost certainly selling securities. Tokens look like a duck. They
quack like a duck. They are sold by people promoting them as ducks. A ToS
which says "n.b. Our quacking avians are not ducks; they're a totally
different non-duck like thing which will supplant ducks in the future because
they're so much better than ducks and cannot be regulated as ducks" will
probably not mollify the SEC.

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erikpukinskis
Is a security the same as a share? Do you say you have a share of a bond? Do
you have a share if you buy a loan or a CDO?

Or does the word "share" imply a "stock" and therefore voting?

Is an Amazon gift card a security?

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Jabanga
A security is a standardized and tradeable asset that derives its value from a
contractual claim. From my layman's understanding of US securities law, for a
token sale to be defined as a securities offering, the token issuers have to
make representations of the token providing the holder with contractual rights
to a share of an underlying enterprise, including all profits derived from it.

In my opinion, the vast majority of token sales haven't advertised their
tokens as representing a legal claim on an enterprise and its profits.

Orocrypt is one that has gone the route of issuing an equity-token, and if
offered to US residents, would fall under US securities laws:

[https://orocrypt.com](https://orocrypt.com)

Again, none of this is legal advice. Consult with a lawyer if you're going to
do or participate in a token sale.

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solotronics
a fool and his Bitcoin are easily separated.

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emagdnim2100
Notwithstanding all the problems with token sales: I don't really understand
Vitalik's objection to the "partial refund model." He dismisses it out of hand
as creating deadweight loss because the coins have to be locked up for a
period of time.

First, it's not clear to me that the coins need to be locked up at all - why
can't participants deposit or withdraw their funds as they please, with the
funding contract relying on the current state at the end of the funding
period?

Second, even if they do have to be locked up, I'm not at all sure that it
results in deadweight loss. Certainly not appreciable amounts compared to
traditional methods of funding.

To me, this is pretty clearly the best system currently available. It avoids
problems like scammy, uncapped sales (Bancor) and sales that instantly sell
out to a few buyers (BAT).

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sputknick
Is anyone here educated enough to explain the implications of ICOs as it
relates to national boundaries? If I'm outside the US but sell to an American,
am I responsible to the SEC? What if I'm an American, but I register my
organization in another company (like Augur in Estonia) am I immune from the
SEC then?

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afeezaziz
As long as ICO is not a 'security' then you can sell it to Americans.

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csomar
I'm not certain (and not a lawyer either) but I think if you sell to an
American you are bound to US laws.

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lossolo
No, US law only work in USA. If you buy any virtual item/service from me in EU
via internet, I don't care about US law, I only care about EU law and
international treaties.

~~~
csomar
I'm not sure why I was downvoted but I clearly stated that "I'm not certain".

The reason I had this idea is: If you are in finance and accepting US
customers you'll need to oblige to US laws. It'd be better if an experienced
person clear this more.

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lossolo
If you are unsure it's always better to ask a question instead of stating
something, probably people will not downvote you then.

European commission directive from around 2013 states that place of sale is in
the origin country of the seller which means it's bound to origin country law
which means it's bound to EU law.

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hudon
"Token Sales" are unlicensed security sales[1], please be very wary of sending
them money if you live in the United States.

[1] [https://hackernoon.com/dear-sec-icos-tokens-are-killing-
inno...](https://hackernoon.com/dear-sec-icos-tokens-are-killing-
innovation-2f8d287f88c3)

~~~
drcode
That post was written by a person who also writes stuff like this, just so you
know who you're putting up as an authority on security sales:
[https://twitter.com/derosetech/status/866740735558680579](https://twitter.com/derosetech/status/866740735558680579)

~~~
to3m
Another criticism: [https://prestonbyrne.com/2016/08/12/against-
crowdsales/](https://prestonbyrne.com/2016/08/12/against-crowdsales/)

As for DeRose, if he isn't actually an asshat, he's certainly doing a flawless
impersonation of one. But many of his points are correct nonetheless. Though
do note that as a Bitcoin maximalist he would be making very similar arguments
even if he were wrong ;)

~~~
Jabanga
A much more comprehensive analysis by experts in US securities law:

[https://www.coinbase.com/legal/securities-law-
framework.pdf](https://www.coinbase.com/legal/securities-law-framework.pdf)

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bhouston
Most cryptocurrencies but the very largest seem to behave like penny stocks
being manipulated with pump and dump schemes. There seem to be a lot of clear
pump and dump talk about cryptocurrencies on sub-Reddits.

In some ways cryptocurrencies that are tied to specific companies/business
endeavors become unregulated stocks in those companies. Thus it much of market
the of cryptocurrencies is some sort of an unregulated stock market.

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slewis
Not a single comment here actually addresses the content of the article. Just
pointing that out.

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RichardHeart
If ICO's are scams, then optimizing their profit (theft) is bad. Do you like
seeing companies get $35 million on a dream with no share of ownership, and
likely SEC violation? I don't like people throwing their life savings away on
things that will not, and should not work (as nearly all crypto projects have
been deeply cash negative if not for investor funds.) Disclaimer: I like
bitcoin.

Thus, I'm not happy to see, or help others see ways to further screw the
people getting crypto gift certificates instead of shares for their hard
earned money, or I'd make more comments on the article.

