SEC shows support for ICOs that are not obviously securities
Gil Penchina Contributor
The SEC appears to have taken very thoughtful action on two crypto projects to date. Nay-sayers are predicting the end, while proponents of crypto dismiss the actions.
Here’s a quick analysis of what is actually happening. The two recent steps by the SEC were:The SEC actually issued a letter on one project — the ill-fated DAO. This was a project that allowed investors in the token to pool their funds and invest in other crypto companies (including C Corps that were in the crypto space). This was a clear sale of securities under almost anyone’s definition, as the investors were to receive ownership in a variety of crypto startups. The SEC recently contacted Protostarr and as a result of the verbal inquiry, Protostarr decided to “shut down and return all funds.” What was Protostarr doing? They were securitizing the income stream of YouTubers and Twitch casters, by letting investors get a percentage of the future revenues of those stars.
In both cases, even a non-lawyer can see that both were clearly securitization and under the SEC’s jurisdiction, as there were underlying assets in both cases. The DAO securitized equity, Protostarr securitized a future revenue stream much like a royalty on an artist.
My takeaway is pretty clear:Protocol-level tokens (Bitcoin, Ethereum, etc.) do not have any assets of any kind underlying them and remain far from the SEC’s current focus. Apps that give you a credit for future usage (Filecoin, Civic, Gnosis, etc.) are in my opinion still effectively pre-paid gift cards like an Amazon gift card, and are not covered by the SEC. I have no proof of this but the analogy is amazingly sound. Apps that “sell...