Thread by @lwsnbaker

:1: Yes! Great crypto-lawyer minds think a like. I was just about to tweet this.

If a security token later decentralizes, it is no longer a security because there is no common enterprise issuer.

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:2: Yesterday, I tweeted that $XRP was a security + Ripple Co was the issuer due to centralization.

It was kind of popular.

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:3: But, what if a Security Token issued by Creation Co later decentralizes?

Is it still a security?

:4: No. A security token may lose the "security" classification if its success leads to decentralization…regardless of Creation Co continued existence.

:5: Wait what? Yes, I think a security can lose is classification as of security.

:6: As @msantoriESQ just tweeted a token can theoretically be a security then later not a security.

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:7: Ignoring the SAFT investment setup for a second. Let's look at Ether at pre-sale vs. Ether and the network today.

:8: Ether was pre-sold to investors at a price of 1337-2000 ETH per BTC paid in the Fall of 2014.

Howey Test - investment of money - check

blog.ethereum.org/2014/07/22/lau…

:9: If you were around in 2014, you know people were racing to get into because the thought ETH's price would go up after issuance. Did you see BTC in 2013?

Howey Test - expectation of profit - check

:10: This was sold prior to the Ethereum network was launch so decentralization was not even possible at the time of investment.

:11: Which means investors were relying on Ethereum Co to delivery Ether and make it successful.

Howey Test - solely from reliance on others / common enterprise - check

:12: That made the investment at PRE-SALE in $ETH likely security which needed to be registered with the SEC
OR
sold to accredited investors only
not sold in the US
etc.

:13: Ethereum Co definitely thought the pre-sale was at risk of being a security offering given their disclaimers.

:14: But that was a different environment. Regulators were still trying to figure out what to call these new assets. Ethereum Co took the Kickstarter model and just said we are pre-selling widgets.

:15: This thought pattern is why @msantoriESQ and his team put together the SAFT project. Prior to launch, pre-sales are done to accredited investors under Reg D exemption to security registration. Post-launch the token is a decentralized cryptocurrency.

:16: This is great but what about Etherum post launch or today?

Is ETH decentralized enough to lose the "common enterprise" element?

:17: I think research will likely tell you yes. There are tons of people who have beat this subject up so I'll let you google the research.

:18: But, I will tell you what elements of decentralization you need to measure for a security spectrum analysis.

:19: Who owns the tokens and how much?
Ripple Co + founders - 60%
Ether Co + contributors - 20% of pre-sale (now diluted with inflation - please confirm)

:20: Who controls the development?
Etherum Co vs. Other core devs vs. ETC core vs. other contributors?

:21: Does Issue Co control the nodes?
Does Issue Co control the miners?
Does Issue Co have the ability to censor transactions?

:22: I am pretty positive the research move Ethereum to the middle left of the security spectrum as it has lost its security status.

:23: The CFTC/SEC seemed to have taken the same approach with ETH. Their stance seems to be that a decentralized cryptocurrency is not a security while giving the pre-sale a pass.

/end

Here is the link to the CFTC can transform from "securities" to "commodities."

coincenter.org/link/cftc-comm…