In 1933 in the USA W. J. Howey Co lawyers sued the United States Securities and Exchange Commission in order to figure out which of the financial transactions should be considered as an investment contract. None of the participants in the trial could expect that the outcome of the case would have an impact on the blockchain-community supporters in the 21st century.
The “Howey test”, according to which a decision is made whether to accept an agreement as a security or not, gave great importance to the trial. The test determines whether the transaction is related to the investment contract. And the investment contract is a type of security.
In 1994 Nick Szabo proposed the idea of smart contracts based on cryptography that could replace traditional contracts based on law. Equitable and accurate smart contracts will be protected from unfair judgments of courts and ambiguous interpretations of conditions, will also provide better security and reduce transaction costs.
Practically, the implementation of the idea became possible in 2008 thanks to the blockchain technology, and when the Ethereum platform appeared, smart contracts were put into practice. Today governments of states still weakly regulate the cryptocurrency and token market.
However, more and more countries start paying attention to the explosive growth of the popularity of blockchain and smart contracts because in fact, all the larger financial flows pass by the state treasury. Therefore, the USA, Singapore and Canada have already recognized digital tokens as a security. This definition imposes a number of responsibilities in the conduct of the ICO, which intend to attract citizens of these countries.
This situation scarcely can satisfy the “blockchain-evangelists” and blockchain-enthusiasts who see smart contracts as a possibility of creating an international economic system that will allow a citizen of any country to implement his opportunities and use the currency protected from the control of not always fair state bodies.
Besides, the Howey test, for obvious reasons, does not correspond to the interests of the teams that are planning an ICO.
As a response to the reaction of the state different ways of geting round the Howey test began to appear which allow not equating the token of the company to securities. We would like to share one of the ways.Our token and the Howey test
Using the example of the USA and Rocket ICO tokens let’s consider the possibility of joining the existing set of regulations and at the same time to avoid high legal fees and responsibilities. Within the framework of consideration of the token the Howey test can be can be represented as three separate characteristics. A token is considered a security if it fits all three criteria:
1. There is a fact of investment 2. The investment in a common enterprise 3. At the same time, profits are expected to come mainly as a result of the activities of others And now let’s have a look at the model of the Rocket ICO token.
RocketCoin (ROCK) is a utility token that is actively used by investors, experts and teams for interaction within the Rocket ICO platform.
With each ICO campaign conducted, the RocketICO platform receives a commission of 5% of all ETH attracted. The commission is transferred to the RocketICO account after successful completion of the fees. In addition, RocketICO also receives 5% of the total number of company tokens issued during the ICO. As a result, the platform forms a crypto-currency basket, in which, in course of time, there will be hundreds of different crypto-currencies.
Encouraging RocketCoin tokens holders: All tokens holders get access to the platform, which allows to work on it, interact with the rest of the participants and vote for the content you like. 1. For activity on the platform, participants receive from other users scores for each action that can be evaluated. At the end of the quarter, the rating of participants’ activity is drawn up based on the points they have collected.
2. All platform participants (both active and passive) can redeem up to 20% of ICO-issued tokens at an early stage (until publicly available outside the platform) at a discount price of 80% of the cost of the token on the public ICO. For tokens purchased at a given discount, the share matching rule operates, that is, there is a direct relationship between the number of tokens available for purchase and the number of Rocket ICO tokens in the user’s wallet.
3. 20% of the top of the table of the most active users share the reward (4% of the tokens released on the ICO platform). The distribution occurs in accordance with the activity coefficient and the share ratio according to the formula.
The formula for calculating the Rocket ICO user’s reward
X= The sum of the user’s points / The sum of points of 20% of the most active users; Y = The amount of user’s tokens / The sum of tokens of 20% of active users; , where R — token holder’s reward X — activity coefficient Y — share ratio S — ICO tokens produced on the platform, distributed between of ROCK tokens holders (the 4%)
Graphically, the ability to earn within the platform can be represented as follows:A, B, C — different categories of holders of Rocket ICO tokens located in the coordinate system relative to the volume of purchased tokens and activity within the platform. Back to the Howey test
Thus, if we return to the Howey test model, we see that our token in some ways matches the first and the second points. However, the earnings of token holders is not a passive investment.
In the case of distributing the 4% of free tokens, we provide an opportunity for the token holders to earn thanks to their own knowledge. And purchasing the same discounted tokens that reach the ICO is a kind of discount card.
We will be happy if our tokens model will help other teams to make real those of their ideas that were previously difficult to implement or not available due to the Howey test.
Also on our website https://rocketico.io/en/ you can find other information that may be useful. Thank you!Instead of the conclusion
Undoubtedly, in the nearest future we are waiting for a lot of discussions about the status of the token, because its purpose is limited only by the imagination of the issuer.
However, the uniqueness of the current situation is that the rate of change in the digital world is so high that the state regulation simply does not keep up with them. Bureaucratic ambages, the ambiguity of the interpretations of legislation, the imperfection of the judicial system — everything that was previously used by the state as a weapon, now acts against it.
Creating new precedents in the token system brings us closer to the era when ‘code is law’ becomes a reality. A smart contract will be a priority in relation to state codes, and someday, perhaps, completely replace them.