1/ Today, the SEC published an order in an administrative proceeding against the owner of a decentralized exchange, EthereDelta. It's important for what it says but, maybe moreso for what it doesn't say. bit.ly/2DsSud5
2/ First, the order was not against EtherDelta. It was against the owner/operator of EtherDelta. According to the Order, the owner sold it to non-US purchasers. EtherDelta seems to be up and running, humming along just fine.
3/ The penalty ordered is over $300,000. That's pretty significant for an individual. It's...enormous actually. SEC supports it by arguing that EtherDelta did over 3.6 million (!) trades, and according to the order, EtherDelta was just him.
4/ The interesting question (and naturally what I want to talk about) is... how many of those trades were trades of securities?
5/ Presumably, just one trade would be sufficient for liability (ok maybe not $300k of liability), but the Order doesn't actually cite one.
6/ The order says that 92% of the trades took place subsequent to the DAO report. That's a lot of trades. Presumably one of them was a security, but we don't see any cited.
7/ We could have seen the SEC say that the DAO token was traded, or some tokenized equity, or something else we know SEC thinks is a security.
8/ An interesting element of this case is that EtherDelta had an "open listing" system, which is to say that anyone could trade any token. That's a high risk situation.
9/ Big picture? It supports common wisdom among attorneys today: DEX is not a good way to escape securities laws. They are very, very broad. Much broader than the money services laws in the US.
10/ Your DEX might not be money transmission if it is D enough. But, as I type here today, I can't think of a commercial DEX that falls outside of the broker dealer/securities exchange rules.
11/ OK a couple more and then I'll do work that @blockchain actually pays me for. Another interesting issue at play here (and mb why we don't see any specific token named) is...
12/ It's not clear at all whether a token that comes out of an ICO is itself a security. Sure, prevailing wisdom is that the contract between a seller and buyer of a prefunctional token is usually a security. But what about the token itself?
13/ BuT mArCo YoU MeAn ThErrES A dISTincTiOn? Of course. Arguing (let alone proving with evidence) that a token is a security is often a far cry from arguing the contract selling the token is a security.
14/ To be sure, plaintiffs have lots of tools at their disposal to do this, but it's not always easy, and could undermine the very application of the securities laws if you lose the argument. So...
15/ So, I guess, why push it? Especially if you've got plain english guidance on the issue coming down the pipe anyway... coindesk.com/sec-official-s…
