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Comment by Alex3917 | Hacker News Reader

> When do tokens that are securities stop being securities? This is a central question in the token community right now. Our current view is that once the value of the tokens is primarily driven by their commercial usage, rather than by the efforts of the token sponsor or other developers, the tokens should no longer be deemed to be securities. The SEC has not yet addressed this question.

This has been settled law for 70+ years.

When one of the biggest law firms feels the need to preemptively issue a public statement pretending they don't understand how the law works, you know shit is about to get crazy.

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"Primarily driven by commercial usage". Can anyone name an ICO token for which that is really the case?

Filecoin is supposed to have "commercial usage". But the insiders extracted 2/3 of the cash already.[1] As far as I can tell, the "Filecoin Storage Network" doesn't exist. There's no software you can download. You can't actually store data yet. If ever. A key point from WSGR is that if the ICO precedes the service becoming active, it's a security.

[1] https://tokeneconomy.co/the-analysis-filecoin-doesnt-want-yo...

> "Primarily driven by commercial usage". Can anyone name an ICO token for which that is really the case?

The value of the token can't come primarily from the person or entity promoting the token sale, but whether there is commercial usage or not is largely orthogonal to whether or not something is a security.

WSGR disagrees. And where are you finding 70 years of settled law on securities that later become primarily valued via use in commercial transactions?

> Our current view is that once the value of the tokens is primarily driven by their commercial usage, rather than by the efforts of the token sponsor or other developers, the tokens should no longer be deemed to be securities. The SEC has not yet addressed this question.

The Howey Test, from 1946, is about whether assets that are classified as real estate, currencies, 'utility tokens', etc., can also be classified as securities.

http://consumer.findlaw.com/securities-law/what-is-the-howey...

The entire point is that you can't get out of going to prison by saying "Our thing is X, therefore it can't also be Y."

Yes and where's an example of a onetime security which was later considered not-a-security?

From your own link:

> The final factor of the Howey Test concerns whether any profit that comes from the investment is largely or wholly outside of the investor's control. If so, then the investment might be a security. If, however, the investor's own actions largely dictate whether an investment will be profitable, then that investment is probably not a security.

WSGR's position: once tokens are used primarily for commerce, the value will be determined by commercial usage and not by the offerors, so that:

> Tokens that are solely utility tokens should not be securities. If a token-based platform is fully developed and the tokens are widely used commercially on that platform, the tokens generally should not be securities.

> WSGR is claiming that once tokens are used primarily for commerce, the value will be determined by commercial usage

And they're wrong. If a token is primarily used for commerce then it's value might come primarily from that usage, or it might not. But it certainly isn't some sort of get-out-of-jail-free card.

I don't see how you're disagreeing with WSGR here. You seem to be saying that even after a token becomes broadly useful in its intended setting (say, storing files), it might still get most of its economic value from speculation. WSGR agrees, and seems to go out of its way to say that coins would likely remain securities under those conditions.

I was saying the same thing when Uber launched- "An Uber is just a Taxi and if they don't follow taxi regulations they will be shut down quickly."

I'm still not sure exactly why this didn't happen, but if people can agree that Uber isn't a Taxi, then I think they can also come to the conclusion that an ICO token isn't a traditional security... the world just isn't as black-and-white as we often like to think, and legislators are human beings that have a lot more flexibility around enforcement than people imagine.

Funnily enough UberX wasn't the first. Uber was only using licensed Taxi drives for UberBlack, and wanted to do UberX, but knew they'd be shut down immediately. Then Lyft did it....normal people accepting rides. Uber waited for the Lyft shutdown. Didn't happen. Then the city of SF proposed giving Lyft a licence.

At that point, Uber pulled out the brakes and that changed their view on regulations permanently.

Source---straight from Travis (TK) himself.

The difference is that Uber wasn't a taxi because they didn't (and still don't) accept street hails.

The question around Uber was whether the laws would be changed to make them a taxi, which after much lobbying they weren't, but they were already fine under the existing laws. As kenbaylor says below, Uber themselves thought the laws would quickly be changed to make their business illegal, so they didn't even get into that market until Lyft forced them to do so.

> I was saying the same thing when Uber launched- "An Uber is just a Taxi and if they don't follow taxi regulations they will be shut down quickly."

The difference is that Uber was not created to fleece the masses via investment pump and dump scheme.

As of now, ICOs are purely pump and dump. They are modern day unregistered securities, promoted via modern day version of faxes

Tell that to the taxi drivers who are now selling their once coveted medallions at a loss.

Thank you for proving my point:

taxi drivers are selling their medallions that they used to offer service. They are selling these medallions at a loss because a competitor is eating their lunch.

the two are completely different things. Uber is/was committing an administrative violation. When you violate securities laws, that's actually a crime.

It seems pretty simple:

"Is this token being marketed as an investment opportunity?"

> "Is this token being marketed as an investment opportunity?"

Wrong. What matters is whether the person buying the token is doing so because they think it's going to go up in price. The person selling it could explicitly say that it will never be listed on an exchange or go up in value, but if the person buying it thinks it will go up in value, then the person selling it has committed securities fraud. (That's slightly simplified, but that's the general idea.)

More or less, everyone participating in an ICO expects gains. It's not for philanthropic reasons.

Sure, which is why basically all of the people running ICOs are now risking prison time.

Anyone who's ever touched bitcoin or run a node is risking prison time. It's luck that running a node didn't get your door kicked in by the feds for being an unlicensed money transmitter. At a certain point you just stop caring and hope they can't lock up everyone. Seems to be working so far.

That 70 year old law is based on financial models that have been settled for far longer though. I hate to use the overhawked term 'disruption' but ICO's appear to be causing major issues amongst the status quo.

The only innovation that tokens bring to securities is reducing the cost of recording who owns what shares. Which is certainly important, in fact one of the most important innovations since the 1400s, but the idea that this new feature would have any impact whatsoever on the interpretation of our existing securities laws is insane.

No it is not. I ran an OTC co and saw the manipulation first hand. You are incorrect. https://news.ycombinator.com/threads?id=KasianFranks&next=14...

I didn't say it eliminates the need for third-party auditing, which it doesn't, only that it reduces the cost.

It not only reduces the cost, it keeps people honest, which is what humans like Jamie Dimon and some investors do not like.

> which is what humans like Jamie Dimon and some investors do not like

There are plenty of people on this thread (myself included) who believe regulators are overdue in cracking down on this space. No need to invoke a bogeyman.

They should have cracked down on banks (too big to fail, if you remember) before ICOs and crypto. Lesson learned.

> That 70 year old law is based on financial models that have been settled for far longer though

No, it's based on the language of a statute that's about a decade older.

Now, the statute may be based on older financial models, but that doesn't control the case law, and disrupting the financial model doesn't, in and of itself, amend the statute underlying the case law.

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