Thread by @NYcryptolawyer

1/ Having so much fun with this thread - let’s add a hypothetical. Inspiration from our friends @coincenter. A developer team raises money by pre-selling a token that does not yet exist. H/t @jasonsomensatto @lex_node @propelforward @AndoniOlta @jchervinsky @LawxTechxArt

2/ During the pre-sale (which is open to the general public and not otherwise registered with the SEC), the developer team affirmatively reference the anticipated success of the platform they are building and the attendant economic benefits of owning the yet-to-be-developed token

3/ Purchasers send crypto to the developer team and, in exchange, designate a wallet address to which the tokens, once created, will be sent.

4/ At this point, is there anyone who doubts that, in the United States at least, this *arrangement* would be considered and “investment contract” and, since the offers and sales were made to the public and not registered, would violate Section 5 of the ‘33 Act?

5/ But ... there is no token yet. There may never be a token. So what exactly is the “security”? 🤔

6/ The “security” is the arrangement or “scheme” (or even “device”!) in which the developers raise money in a common enterprise with the funders who have a reasonable expectation of profit (through later disposition of the tokens, when created) from the efforts of the developers.

The absence of a token of course does not eliminate the securities sale. Note that the token is not needed for a transfer by an “initial purchaser” to occur. The initial purchaser can instead transfer control of the wallet address maintained on the ledger of the developers.

8/ So what happens if/when a token is created? Does the “security“ that already exists (see above) transmogrify into the token? How does that happen, exactly? By “operation of law”? And for what consideration?

9/ So what’s the point? US law is meant to protect those who transfer value to promoters selling often unrealistic get-rich-quick schemes by offering something supposedly of value with little or no clear disclosure of the risks of what is being sold. If you do this, watch out!

10/ However, extending this very important protection by imputing “securityness” on assets that, by their terms, are not “securities” is a whole ‘nother thing. Something that perhaps can be done, but (I would argue) is not the best way to soundly move this space forward. [end]