SEC blocks the Telegram ICO – what this means, and what happens now
davidgerard.co.uk
davidgerard.co.uk
PoW is an ecologically irresponsible algorithm.[1]
Altogether cryptocurrency is such a terrifyingly irresponsible ecosystem, I'm surprised anyone wants to be involved in it.
[1] https://www.sciencedirect.com/science/article/pii/S221462961...
Absent that emotional fulfilment its just boring old money.
Native peoples were slaughtered and forced off their land. Natural resources were mined and hunted with no regard for long-term sustainability. There was slave labor, sex trafficking, and endless profiteering based on speculation or downright lies. The rich got richer and maybe some poor people got a leg up? A whole lot of people ended up poorer, sicker, or dead.
So yeah, maybe cryptocurrencies are a bit like the wild west.
There are ways of taking risks, exploring, and pushing boundaries that don't put vulnerable people at greater risk. As far as I can tell the wild west and cryptocurrencies aren't it.
Fair points about the American Wild West and lawlessness, genocide, etc. But I think a better analogy would be the medieval era. The economic similarities between cryptocurrencies and feudalism have been fairly well discussed already, e.g. the privatisation of money creation, proliferation of decentralised currency fiefdoms, the crypto-VCs and crypto-oligarchs the new feudal lords and the "hodlers" the new vassals, etc. But the potential social impact hasn't really been discussed much. If the crypto-lords, supported by their crypto-serfs, do succeed in breaking down the social contract, we do risk returning to an era when life was "nasty, brutish and short". Life in the medieval era, before the Age of Enlightenment, when magic and superstition ruled everyday life, when there was the ever-present threat of plague, pestilence and famine, makes the Wild West sound not so bad after all, and is not something I would have thought many would consider aspirational.
Did it? The internet I see is largely overrun by bandits and shysters looking to make a quick buck at the expense of every sucker they can find.
Here are some reasons why people might be interested in the cryptocurrencies ecosystem:
- Paying 3% per credit card transactions isn't efficient
- Decentralized Finance matters. The DeFi movement is actually really interesting. You should look into decentralized lending protocols with stablecoins.
- Decentralized Governance is exciting and can facilitate new experiments like Quadratic voting
Even if it is functional PoS (which sounds like a codified plutocracy, but I could be wrong), they still managed to botch securities regulations. Even if they sneak past that somehow, it seems likely they'll also fall afoul of AML/KYC regulations.
Maybe not! Maybe they're finally the ones who will do it all! Legal and ecologically responsible! If so they're off to a very bad start.
https://blog.dshr.org/2018/03/proofs-of-space.html
https://blog.dshr.org/2018/09/chia-network.html
> Note also that it is possible at low cost to rent very large amounts of storage and computation for short periods of time in order to mount a 51% attack on a PoSp/VDP network in the same way that "mining as a service" enables 51% attacks on alt-coins.
> For example, a back-of-the-envelope computation of a hour-long Petabyte attack at Amazon would start by using about 7 days of AWS Free Tier to write the data to the sc1 version of Elastic Block Storage. The EBS would cost $35/PB/hr, so the setup would cost $2940. Then the actual hour-long attack would cost $35, for a total of just under $3000.
> I'm skeptical that the low-reward approach to maintaining decentralization is viable.
Maybe this? https://github.com/filecoin-project/research/blob/master/ope...
I don't have the time/desire right now to figure out how the project is doing and the soundness of the approach.
Within the sea of stupid that was this endeavour—single-issuer token pretending not to be a security, the wholesale scam that are SAFTs—this really takes the cake.
Subpoenas are court-ordered requests for documents. If you disagree with them, you fight them in court.
This is not an unusual state of affairs; something like ~300 federal enforcement missions can independently issue subpeonas.
Plea deals are the overwhelming number of convictions in the US, something like 90%. Most people do not have access to legal recourse and trusting any US court to operate sanely is a bad idea. Best to avoid it if you can.
This is a red herring. Telegram have access to lawyers.
It's all about how much money you can spend on lawyers and experts, not whether you're right or not.
Hell, the government doesn't even know what the laws they write say, and they rarely agree on what they mean.
It's almost always about money. On the defensive side, there are enough ways to stall that you can almost always outspend someone to win. On the offensive side, you can spend more time investigating and almost assuredly turn something indictable up. Have you really never heard of this?
As someone who as gone through a fair deal of litigation and arbitration, this is wrong (or at the very least, inapplicable). It’s a common armchair lawyer’s myth.
If your opponent has more than $100,000 the tables are fairly even; more than $1 million, totally even. There is a ceiling to court costs, and a finite amount of time before judges issue rulings. (Spending to try and get an outcome predictably pisses off judges.) Getting to a judge costs money; once you’re there, American courts are robust.
At an individual level, these thresholds are prohibitive. At a corporate level, they’re not. Exhibit A for you should be the SEC’s win-loss record, even against individuals. (It’s mixed.)
It should be obvious that time/money spent and outcome correlate by looking at the reverse. Spending no time would assuredly prepare an inadequate case. What is unusual is the almost unbounded positive direction correlation.
You need to divorce "following the law" and "following the law that was intended or that may result in the most freedom for the most people." Many high level cases are the former, not the latter.
I have a friend who went to prison for a crime someone else committed, almost solely because the defense did not have the financial resources to fight the charges effectively.
The Telegram token may increase in price but there's no profit sharing directly from Telegram. It's as if you funded a kickstarter for a limited edition trading card and the company was going to soon start printing more.
Nobody is actually commenting on this argument. It just seems like there's a team of people following me around downvoting me.
But the SEC does, so tough luck?
>The Telegram token may increase in price but there's no profit sharing directly from Telegram
Sounds like a weasely attempt to skirt the rules. Look up the Howey test
>The leading case on the definition of an investment contract is the U.S. Supreme Court case, SEC v. W.J. Howey Co. Under the Howey test, an investment contract is “a contract, transaction or scheme whereby a person invests his money in a common enterprise[1] and is led to expect profits solely from the efforts of the promoter or a third party.”
https://www.sec.gov/Archives/edgar/data/1729650/000095017218...
On their own discounts are not illegal.
I think what’s obvious is that the network is not truly decentralized and depends on telegram and investors expect to profit from telegrams work on the network. So they should probably file an s-1 and follow the blockstack route.
What would have been ironic, is if TON was truly decentralized and independent of telegram than the network would have been launched anyways.
This matches exactly the concept of collectible items. In fact, there's a blockchain based TCG: https://godsunchained.com/.
Is the point of the card packs not in large part speculation? One card apparently went for ~$60k, and there is a discount being offered for early buy-in.
If you want a decentralized TON, get all the investors together and launch a genesis block with the open source code. That’s basically what EOS did.
From the SEC Complaint:
The Whitepaper spoke of potential future products and services that investors could use in connection with Grams, but also made clear that these products were not available at the time the Offering began and would not be available by the time Defendants delivered Grams to Initial Purchasers.
Telegram, however, does seem to be in a pickle regarding the PoS consensus model. The SEC seems to be alleging that in order for the network to be sufficiently decentralized, having only qualified investors staking is not enough.
Also from the SEC complaint:
Defendants knew, however, that to actually implement the TON Blockchain in the real world, the project would require “numerosity”: a widespread distribution and use of Grams across the globe. Indeed, by definition, the TON Blockchain can only become truly decentralized (as contemplated and promoted in the Offering Documents) if Grams holders other than the original Grams purchasers actually stake Grams and, thereby, act as “validators” of transactions on the TON Blockchain. Stated differently, if the original Grams purchasers alone all immediately staked their holdings, the TON Blockchain would be centralized rather than decentralized and, therefore, subject to misuse and majority attacks. This fundamental need for additional Grams holders demonstrates that the TON Blockchain was designed from inception to require the Initial Purchasers to immediately distribute their holdings to the public.
This complaint demonstrates what the SEC think of the idea, i.e. they don't care and will look at how your token actually works and whether this is an investment contract under the Howey test.
But as I said - maybe Telegram will prevail in court! Do you feel lucky?
A SAFT allows a party to offer the delivery of tokens at some point in the future. This offering is a securities offering under US law, and therefore has to comply with the relevant regulations. In practical terms, that means filing some forms with the SEC, ranging from fairly lightweight forms if you're offering the SAFT privately without marketing, to increasingly heavy burdens if you want to market it, and the "mini-IPO" leavels of bureaucracy that would attach to a Reg A+ offering. So, it's perfectly possible to offer a compliant SAFT if you do it right.
The problem comes when the tokens are to be delivered (which was imminent, in Telegram's case). The SEC argues that not only was the SAFT contract a security, but the rights offered to Gram holders are themselves constitutive of a security, despite not being registered as such.
The SAFT is a security, but one for which Telegram appears to have been mostly compliant. The tokens themselves, which are set to be delivered to those original investors, are not registered as securities, and this is the problem, because the plan is to distribute those widely to the public, or "retail investors" as they would be regarded in the context of a securities offering.
If the Gram token were not a security, designed in such a way as to avoid triggering the Howey test, then there would be no problem (aside from Telegram's other problems, but I'm keeping the scope narrow here).
So the "SAFT is dead" argument isn't that the SAFT is automatically non-compliant, or that nobody can do a compliant SAFT offering, but instead is this: that some people in the blockchain community erroneously encouraged the belief that whilst a SAFT offering is a securities offering, the tokens that result from the investment are somehow prevented from becoming securities because the "security-ness" stuck to the SAFT itself, and that this view was wrong.
This gets tricky to discuss because the SAFT contract is basically fine, but the mistaken understanding of what a SAFT can do in practice is what allowed people to believe that selling Grams to the general public was likely to be a non-regulated activity. So, that interpretation of what SAFTs can do is dead, yes. For my part, it's not something that I ever believed, so it doesn't register as being the real news here.
Sure you can try to construct exceptions to this - but dodging the Howey test was what SAFTs were invented for, and I feel reasonably confident in stating that this complaint against Telegram makes it very clear that this just isn't going to fly.
This is 100% correct, but you're making the wrong conclusion. You're concluding the SEC considers the legal framework bogus, when the SEC is arguing they have not met the legal framework.
In a SAFT you sell securities for future non-securities. What Telegram did was sell securities for future securities. There's a couple of facts they use in this assertion:
1. Telegram said they would leverage their existing user base to promote the token (i.e. the success of Grams is based on Telegram's efforts as a promoter) 2. TON is PoS, and that its not possible to deliver a PoS network when the original stakers are all qualified investors
Refers Telegram to the DoJ for criminal prosecution, which results in bank accounts being frozen, any SAFT holders (or anyone else) who sold their Grams being on the hook to the buyers, and the seizure of Telegram’s assets in America and anywhere else with a mutual prosecution treaty, which covers much of the EU.
At the point of wilfully defying a court order to sell securities, it becomes fraud and potentially money laundering.
Also, a big part of their target audience of Gram early holders is in USA, so they also obviously care about the legality of these transactions. For them it's not sufficient to have some technical workaround that enables them to sell the tokens they have, they need a solution that allows them to do so legally.
Why are you spreading this lie? It’s very well known by now that Telegram was primarily developed in St. Petersburg, in a building shared with VKontakte.
https://twitter.com/bershidsky/status/910169626989953024
https://twitter.com/ChristopherJM/status/910186197598838784
https://theoutline.com/post/2348/what-isn-t-telegram-saying-...
>While Durov comes from Russia, he is in exile
Durovs exile is very fleeting, normally you wouldn't visit the country you're in exile from... https://tjournal.ru/tech/52954-durov-back-in-ussr https://lenta.ru/news/2017/03/20/durov/
I should also add the obligatory note that Telegram has shipped obvious backdoors in the past allowing them to selectively decrypt secret chats https://habr.com/en/post/206900/
lol @ the downvoting TON bagholders
They can sanction individual directors (ban them from holding office in any US corporation)
They can freeze any US assets
They can ban any US companies transacting with them
I feel sure that the US would finds ways of shutting it down, but the idea of just going ahead with their plans and maybe block the US from their network would be legally and politically interesting to watch.
Isn't it true that the whole crypto world dreams of mass adoption? Well guess what - institutional money would greatly appreciate a valid S-1/F-1 filing in EDGAR.
That’s very naive approach. Just because technology is solid, doesn’t mean that government is going to give up. Remember, governments are only entities in the world that are allowed to seize all your assets, throw you in jail and sometime kill you.
People in tech tend to overestimate value of technology and underestimate power of regulations and governments (I only realized it myself few years ago). I feel that we need to update this xkcd, to talk about regulations - https://xkcd.com/538/
It seems impossible when you think about it for a little while, but when someone thinks long and hard about it because it's their full-time government job, maybe someone finds a way.
No. The tokens are securities. They are issued by a single issuer to fund development of a product which doesn’t presently exist, with early investors in SAFTs buying them on expectation of profit.
In any case, how would you value the discount? You don’t know the price until a market exists. And by that point, the 171 early investors have already dumped their pump on retail investors.
This is why said VCs were suggesting to Coinbase last month that they list all these shitcoins that nobody even trades now, but which the VCs just happen to be holding massive bags of: https://blog.coinbase.com/coinbase-continues-to-explore-supp...
Because Telegram “committed to flood the U.S. capital markets with billions of Grams by October 31, 2019” and “sold more than 1 billion Grams to 39 U.S. Purchasers, raising $424.5 million from the U.S. market” [1].
[1] https://www.sec.gov/litigation/complaints/2019/comp-pr2019-2...
This completely blows my mind. How does the SEC have any power in telling a hypothetical European situated in Europe if they can or can't buy Gram from European sellers..?
Edit: to clear up the analogy - UK courts don't have a say over what Unilever can and can't sell in USA jurisdiction. Likewise, the SEC can (should?) only regulate trade within USA jurisdiction or by USA entities. If Telegram wants to sell Grams on the UK market, Telegram should be able to tell the SEC to go pound sand, as any USA court orders don't mean jack outside that jurisdiction
And the SEC is dealing with what is being sold in the US.
> committed to flood the U.S. capital markets with billions of Grams by October 31, 2019
> sold more than 1 billion Grams to 39 U.S. Purchasers, raising $424.5 million from the U.S. market
> This is worldwide — not just for the US
I even quoted that in my parent comment.