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Investor Bulletin, July 25: Initial Coin Offerings (sec.gov)
160 points by AdamFernandez on Aug 17, 2017 | hide | past | web | favorite | 48 comments

I don't have anything to add to this discussion, but I just wanna say that I'm impressed by the bulletin's clarity. I'm used to reading government information that's difficult to parse and dive into. It's easy to fall into a belief that government agencies don't really know what they're doing, and it's just a bunch of monkeys banging at typewriters, but seeing clearly written posts discussing current and relevant events helps to silence those beliefs.

I'm seriously wondering, though... Have there really been that many ICOs? As an outsider the general impression I get (which I recognize might be completely inaccurate) from most coins is that they're "get rich quick" schemes.

A while back I was trying to read up on Ethereum, and despite their nice landing page and superficial info.... Once I tried digging in further into the actual code and actually running any stuff, it was a horribly confusing mess that made me hesitant to put my trust in them. All their docs and wikis seemed full of outdated links and information.

I agree, the clarity of this piece speaks volumes to how serious the government is taking ICO's and crypto.

$1.7B has been raised so far this year... it's a big deal.

There are single Silicon Valley startups that have raised that much though.

In 7 months?

Also with pretty much no due diligence, rarely any prototypes and a majority of infeasible promises.

It's a big deal because it seems like the only way startups can raise capital these days.

That's inane. PE and VC have raised more funds last year than since the GFC. There's plenty of cash, more than enough, cash to go around without these illegal securities ICOs getting in the mix.

And when I say plenty of cash, I am talking in the aggregate. I don't make any statements about whether or not it's being correctly distributed.

Does anybody know a nice ICO timeline coupled with line charts that would help to grasp the (up to date) bigger picture of this phenomenon ? So far the best i've stumble upon is : https://www.tokendata.io/ but the time dimension is not linear nor clear

> Ask whether the blockchain is open and public, whether the code has been published, and whether there has been an independent cybersecurity audit.

That's an entirely prescient statement that suggests the SEC has done a serious bit of homework and has put careful thought into the subject.

Not prescient, real. There have been ICOs where the blockchain wasn't running yet. That's just a "send us your money" scam.

The vast majority are garbage regardless, and are nothing other than bad microtransaction mechanisms (even if you accept that cryptocurrency has fundamental merit, most of it is garbage). I just think it's good that they highlighted open/secure here for future contexts.

Annoyingly enough, that's not sufficient to make those ICOs scam.

The easiest counterexample would be Ethereum itself, who had a teenager as its public face, and raised large amounts of funds on top of mostly just a whitepaper, yet turned out to actually deliver all the crazy stuff they promised.

> deliver all the crazy stuff they promised.

I dunno; I'm still trying to figure out whether it's a great idea or the worst idea. I don't want to have to do a code review on my investments; at large enough scale, lawyers are way cheaper than losing money.

Lawyers perform code review on contracts. Sadly, they don't have debuggers or reference compilers, just written language definitions and consultable output collections.

> Sadly, they don't have debuggers or reference compilers, just written language definitions and consultable output collections.

Why on earth would you want this? That's tantamount to replacing the court system itself, and I definitely prefer juries and judges to compilers and debuggers.


... This is exactly what you are supposed to do. In the ICO world, this is part of your due diligence if you're thinking of investing / speculating.

> Ethereum .. turned out to actually deliver all the crazy stuff they promised

I'm just a bystander in all this but I distinctly remember the phrase the code is law bandied about, followed by a hard fork.

The exception proves the rule here. The only way to override the "code is law" model was to create a new coin, using the fact that a majority of miners voting for a particular new model means that becomes the new model - the creators just used their community weight to keep the old name. They most explicitly were not able to change the values in the old blockchain without the fork.

The exception shows there was no rule. The "rule" was "code is law, up until 51% of the network decides it isn't". If your transactions can be wiped out by a fork leaving you on a dwindling/minority version of the transaction history, you fundamentally cannot trust the system. "We only did it once" doesn't work, either, because if they'll do it once they'll do it again, and no amount of bombast will convince me (since, after all, they made bombastic assurances before they decided to make the first exception).

Also, "the exception proves the rule" is a misinterpretation of the phrase. "Proves" here means "puts to the test", and the saying means that you can tell whether a rule holds up by seeing what happens when it is tested. Ethereum demonstrated that the rule does not hold up.

An interesting side note of that is if the majority of miners voting decided to zap the wallets of all known nazis and white supremacists, they could do that too.

It's interesting to note that existing financial institutions can do this too. And in fact they do, if they suspect you are involved in a variety of criminal activity they can freeze your accounts and alert law enforcement.

However, those institutions are subject to the rule of law, and if you are wrongly treated you can expect restitution.

From my perspective, cryptocurrencies are a sort of wild wild west at the moment where the standard appears to be: if you are wrongly treated good luck!.

Have there been serious contracts without major flaws? Not just basic token contracts, which would be better served with something other than a Turing-complete half-broken language.

We were considering implementing some of our blockchain IPO and corporate governance via a smart contract, but decided to punt on it. It's flashy, it'd help us raise more money, but it just does not seem like a smart idea at the moment. We'll use a basic ERC20 contract to account for who owns shares (and pay dividends) but nothing more involved than that for now.

i agree with you but in ethereum's case they had several beta versions before the raise

...followed by a few alpha versions after the raise.

The fact that they've grammatically classified the noun "blockchain" correctly makes me agree. There is more than one blockchain! I don't know why the copy editors as news orgs believe otherwise. Someone smarter than, please let me know if I'm wrong!

Both the SEC and DoJ have done really remarkable jobs of keeping up with and publishing documentation related to cryptocurrencies and blockchains in general IMO. I remember thinking the same around the time the DoJ was auctioning off bitcoins seized from Silk Road - their site explaining what the auction was, what bitoins where, and why / how the auction would work suggested they really did understand what they were dealing with and was extremely clear technical writing.

The IRS has kept up on it too. My mother (a CPA) is aware of bitcoin through that.

The SEC uses quite a mild language here. Issuers often avoid mentioning even what they sell: revenue flow, profit, or just hashes. White papers has no traces of legal entities involved, dispute resolution jurisdiction, financial statements.

A proper prospectus:

- https://www.sec.gov/Archives/edgar/data/1447599/000119312515...

And how ICO white papers look like:

- https://detectortoken.com/docs/DetectorToken_White_Paper.pdf

- https://magos.io/bluepaper.pdf

The cryptocurrency community is hilariously bad (well, it would be funny if people weren't getting fleeced) about putting blog posts through Latex and acting like they've written a "paper".

The people who have written dozens of real papers that end up in a dustbin somewhere are jealous. The funny thing is most of these docs would be more accessible as blog posts, but those don't provide the same faux-academic thing con men need.

Not sure if they're actually that amateur or it's more cynical and they know it's the way you do business - probably both.

The reason some ICOs release a white paper in LaTeX is that there is often a lot of math to be written out. Take for example IOTA's white paper: https://iota.org/IOTA_Whitepaper.pdf

Often, it's easy to spot the ones that are doing the faux-academic thing.

IOTA's paper was what I was thinking about while reading OPs remark about blogpost to LaTeX conversion.

I'm not sure if I'm dumb, or its dumb (trinary, whaa?) but I had a really hard time getting through it without rolling my eyes a whole bunch. I still have 77 MegaIOTA, just in case someone ever figures out a use for it.

Could be a new idoimatic phrase:

"And if you believe that then have I got a paper for you..."

For the time being its going to be more of a "I'll know it when I see it and so will you" type of situation. Preventing scams and things advertised as investment opportunities appear to be the focus without trying to pin down an exact framework for detecting it, but I wouldn't say they are being vague about what it is they're are going to limit. If they tried creating an exact framework with the information available today it would likely miss the mark in terms of a balance between restrictiveness and protection to investors/purchasers.

This seems pretty reasonable and is the same conclusion which the DAO investigation came to. I think both ICO creators and participants will benefit from this new information now that we have a clear line in the sand as to how these things can operate. The risk won't decrease substantially in buying these tokens, these projects can go bust just like a kickstarter project can fail but at the very least people in the US will think twice about running outright scams.

It has been recently suggested that the SEC may go after exchanges which hold any ICO token regardless of how it was sold and advertised, I'm pretty sure they don't want to go that far, this will only push exchanges into decentralized systems which are difficult to shutdown. There has to be some give and take on both sides here really.

I wrote an in-depth analysis of this bulletin and its associated report on The DAO:


In the post, I explore what constitutes a security by examining case law and draw comparisons to other means of raising money for companies that are typically outside the purview of securities (gift cards, Kickstarter). Hopefully this helps provide perspective.

Not written by a lawyer. This really needs an analysis from a securities lawyer.

The SEC concluded that the DAO was a security, but that they were not going to take action on it. That's within their discretionary authority. They may simply decided that they weren't going to go after this issue retroactively. They've now published some guidance on the subject, so future issuers can't claim there were no rules in that area.

Expect the SEC to go after somebody who does an initial coin offering and converts the money to their own use, without generating any benefit for the investors.

Correct, the analysis comes with the disclaimer that I am not a lawyer, and it is not legal advice. I am active in the space and have consulted leading lawyers for my own activities, so I come with some knowledge, but obviously this is a quickly evolving space.

For anyone buying tokens and considering SAFT offerings, this is a good read from a securities lawyer, albeit an English one (not US):


This is also a great post in terms of highlighting pitfalls and challenges:


It seems like Golem compute tokens would not be considered securities, but what about obvious joke coins that are only a value store, like the FUCK token?

Reminds me of Dogecoin.

Hey now, I own millions of dogecoin still from mining them in my college dorm when the electricity was flat rate. :P

Has anybody actually gotten paid dividends on any icos yet?

TAAS and ICN both have paid dividends via burning or depositing holderd

Can a mod add "July 25, 2017" to the title? It's not that long ago, but I thought this might be new.

OK, we've updated the headline to clarify.

Sincerely hope that people are paying attention. The SEC is as omnipotent as the IRS, in so much as they can make your life a living hell... in very short order. Recommend that people register their securities or currencies with them... besides, registration gives your product the scent of legitimacy, right?

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