Drew Hinkes Profile picture
Feb 7, 2020 21 tweets 14 min read Read on X
Here's Comm'r @HesterPeirce's Safe Harbor for Fundraising by #Token Sale proposal 1/x: ImageImageImageImage
@HesterPeirce Let's dive in. The first thing that struck me was the tone/mission statement implied. This looks like "how do we make workable token sales that allow networks to develop" not "how do we apply the securities laws to issuers of instruments" Is this a policy shift? ImageImageImage
@HesterPeirce or is this a new concept- that #crypto networks that require token distribution to boostrap into some non -investment-focused purpose needs to "get through" being a security to develop into a product/system that has an ultimate non investment purpose?
@HesterPeirce Interesting choice to allow the Initial Development Team to determine if transactions involve the offer of a security after 3 yrs- like private placement self-disclosure vs some RegA type qualification. Shifts burden from SEC staff while allowing enforcement for non compliance
@HesterPeirce Network maturity, the 2nd new gloss on "Reliance on the efforts of others" of Howey is defined- no control by a single logical entity or achievment of functionality as demonstrated by the ability of holders to use tokens in a manner consistent with the utility of the network. hmm Image
@HesterPeirce measuring "centralization" of control will continue to be difficult/fact sensitive, rely on disclosure of #governance, actual compliance with disclosed governance. The #crypto world has been famously terrible with this. cc: #TheDao, #Ethereum
@HesterPeirce the "Functional" prong is keyed on the "ability" of users to use tokens for non-investment purpose.... as opposed to the actuality of how investors are using the tokens. Sure, can be used to buy smart contract execution- but mostly is used as a substitute for currency.
@HesterPeirce and a lot of is used to speculate and trade on exchanges. (and yes, i'm picking on ETH and yes, ETH is only unique from other tokens because some holders of ETH ACTUALLY USE IT- but not as many as those who use it like money or to trade)
@HesterPeirce Sussing out reliable metrics to determine use for investment purpose versus actualization of the "ability" of users to use a token for non investment/non speculative purpose is a big challenge for the industry.
@HesterPeirce Section 4, pg 2 suggests that facilitating secondary liquidity is encouraged to "distribute the tokens" &that those tokens should be traded on platforms that comply with federal and state law & regs re: money transmission, AML, & consumer protection... blue sky may still apply
@HesterPeirce Issuers would be required to disclose "Source Code," defined as "a text listing of commands to be compiled or assembled into an executable computer program used by network participants to access the network, amend
the code, and confirm transactions." Does this disclosure /1
@HesterPeirce obligation change over time? Is it static? Is there an obligation to update? Audit requirement? I can see this being abused.... & I see the SEC trying to balance between disclosing millions of lines of code vs. disclosing something useful/comprehensible to investors.
@HesterPeirce I can imagine the litigation over what a reasonable investor assumed the code disclosures meant versus what a coder understood them to mean. CC: @grimmelm
@HesterPeirce @grimmelm The "token economics" & "initial development team" defs. suggest that there may be prior distributions of tokens to founders/insiders before the safe harbor filing/issuance. Are we segregating classes of tokens btwn those restricted (i.e. RegD) & those issued via safe harbor? Image
@HesterPeirce @grimmelm Here's the provision on the notice to be filed including an obligation to update the notice when there's a "material" change in the information provided- what's a material change in source code? Imagine the litigation....experts....I'm glad I can still sorta read code! Image
@HesterPeirce @grimmelm If a narrow view of "material change" to code is taken, get ready for many, many lawsuits. If a broad view of "material change" is taken, get ready for many, many amendments to be filed.
@HesterPeirce @grimmelm It looks like sales may be made in reliance upon the safe harbor prior to the filing (this perhaps addresses my insider presale/ RegD vs. 195 classes of tokens concerns) - so if i'm reading this right, RegD's become freely tradeable upon the filing of the Notice contemplated.... Image
@HesterPeirce @grimmelm Definition time! Token def suggests that a token "has a transaction history"- does this mean some amount of trading is required to claim the safe harbor? or that an existing system that facilitates trades is a predicate? call it the ERC20 minimum standard Image
@HesterPeirce @grimmelm "Token" excludes debt & equity, &instruments that represent an “entitlement to any interest or dividend payment” in a “partnership.” How do #POS systems fare under this rule? Tees up analysis of whether a given system creates a GP among its participants. Maybe bad news for #Daos.
@HesterPeirce @grimmelm Network Maturity- def not meant to preclude "network alterations achieved through a predetermined procedure in the source code that uses a #consensus mechanism and
approval of network participants" I guess forks & on chain governance are still ok!
@HesterPeirce @grimmelm Final question- what happens when the Initial Development Team realizes they can't execute- do they get a reset 3 years when they pivot?

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Drew Hinkes

Drew Hinkes Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @propelforward

Jun 19
On the #ETH declination letter () received by @Consensys. Declination letters are rare & to be savored. Congrats to the team behind this! But what does this mean for staking? For other POS systems and their assets? Time for some educated speculation /1
The letter indicates 2 things. 1. that the investigation captioned "In the Matter of Ethereum 2.0 (C-08950)" is "concluded," and that 2. the SEC "do[es] not intend to recommend an enforcement action [against Consensys] with respect to this investigation" These are both great /2
However (that's the fancy version of "but"), this does not mean that all questions as to staking are resolved, that all questions that may apply to other POS tokens are likewise off the table, that other investigations are not ongoing, /3
Read 4 tweets
Feb 19, 2023
#Illinois Senate Bill SB1887 would drive out #blockchain #node operators, #miners, and #validators, waste judicial resources, and confuse existing law in a quixotic attempt to protect Illinois consumers. Let's examine the mess in a #thread:
as a preface, This is a stunning reverse course for a state that was previously pro -innovation. Instead we now get possibly the most unworkable state law related to #crypto and #blockchain I’ve ever seen. A shocking turn of events for the #tech community in #illinois /2
SB1887 focuses on consumer protection (this is GOOD). But, the manner in which it seeks to protect consumers is to require #node operators ##miners & #validators to do impossible things, or things that create for themselves new criminal & civil liability at pain of fines/ fees /3
Read 22 tweets
Sep 22, 2022
CFTC brings first regulatory action against an alegal #DAO, charging #OokiDao with operating an unlicensed FCM; seeking disgorgement, restitution, civil moneyary penalties, trading and registration bans and injunctive relief. Lots to talk about here: /1 cftc.gov/PressRoom/Pres…
allegations in claim against Ooki #Dao characertize it as an "unincorporated association comprised of holder of Ooki Tokens" and legacy BZRX Tokens who have voted those tokens to govern (e.g. to modify, operate market and take other actions w/r/t the Oooki Protocol." /2
This a huge distinction. While the #DAO is itself a named party, it is unincorporated which leads to all sorts of material questions about who can be sued for what. In this case the complaint makes clear that the Dao is those who (a) have tokens and (b) have voted to govern. /3
Read 17 tweets
Aug 17, 2022
Important questions for those who may have received blocked property in a #grief #spray #spam attack from blocked #tornadocash #ETH addrsses remain unanswered. #OFAC may give clarity in an FAQ; are a few questions that would be helpful for OFAC to address.1st some background/1
By now all of #crypto knows that #OFAC sanctioned #ETH & #USDC addresses related to #Tornadocash and service providers and many #crypto users are struggling to adapt. Why? /2
We’re dealing with a law designed to regulate legal people & entities, &their property, not quasi-autonomous code used by third parties to transact third party assets to others. Arguably the designation exceeds #OFAC’s statutory authority. That’s an argument for another day. /3
Read 23 tweets
Jun 26, 2022
#Dao is another word the #crypto industry uses for ...well... anything. Here's a proposed taxonomy to clarify what we mean when we say #Dao: (a quickie sunday am #thread): /1
@VitalikButerin's seminal work discussing the types of human/tech hybrid ventures that may/will be created using censorship resistant technology tools remains the first stop for this discussion: (blog.ethereum.org/2014/05/06/dao…) /2
@vitalik observes that a #DAO "has the murkiest definition of all... it is an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do." /3
Read 28 tweets
Jun 8, 2022
#NYDFS issues USD backed #stablecoin guidance; must be fully backed by an asset reserve; issuer must adopt a clear redemption policy, approved by DFS in writing (!!!) redemption at par in fiat; reserve must be held in custody with /1
dfs.ny.gov/reports_and_pu…
US state/federally chartered depository institutions and/or asset custodians. Reserve must be held in govt treasuries "subject to DFS- approved reqs re: overcollaterialiation." Reserve must be subject to independent audit 1x month by independent CPA under AICPA attestation /2
standards. DFS may also impose obligations regarding cybersecurity and IT standards and evaluate issuer BSA/AML & Sanctions compliance, safety and soundness of the issuing entity; and the stability/integrity of the payment system, as applicable on Issuers. /3
Read 10 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us!

:(