This a great step in the right direction for the post-ICO-craze phase. Once we are over the bullshit utility tokens we can go back to building valuable companies with a whole new way of funding them.
Crypto securities don't replace the US dollars. They replace the shares you're buying when you invest in a company. You are welcome to use US dollars for that if you want. Chances are depending where the companies are based, getting the money in USD to them could be tricky though.
What company people are going to build is anyone's guess, but mine is that there's going to be a lot of them. Silicon Valley is only but a small dot on the face of the Earth. A lof of potential is going to be unlocked.
Not all shares provide voting, as I'm sure you are aware of.
But essentially, the paper the shares are printed on doesn't provide any legal guarantees by itself either. The fact that ownership is tokenized doesn't prevent companies from issuing guarantees to token holders.
See my comment on the comment next to yours for more:
Explain how crypto-tokens are going to enable the vast amount of rights shareholders get in a company. Can crypto holders vote on the direction of the company, compel changes in the board, etc? If not, there's no reason for them to exist, because those rights are the entire reason one buys stock.
My point is, for anything like a crypto-security, you have to integrate with meatspace, which requires the introduction of legal agreements (because there's nothing about 0s and 1s in ledger that can compel company representatives to act in a certain way). At that point you've completely gotten rid of decentralization, and you might as well use a more robust, faster, and environmentally friendly centralized option.
Conventional paper-type legal agreements exist already for this kind of thing, and will mature further as jurisprudence and experience are developed. They don't introduce much centralization that I can think of. They are mostly P2P agreements about the guarantees given to token holders.
On top of that, smart contract mediated investments can have much more additional guarantees. Projects like Aragon are creating DAO governance UIs that are on-chain, usable (from a UX perspective) and transparent for token holders. They allow holders to vote on transfers of funds, or monthly capital allocation, with the possibility to withdraw funds if they deem the operation of companies irresponsible. This a programmable financial infrastructure: the tools are there to build whatever you can come up with in terms of governance.
Besides DAO governance platforms, what will compel executives, for the cases where this applies, is the same thing that compels them right now: financial incentives, and the threat of prosecution. Are the guarantees comparable to those you get from a CEO on a NYSE traded company? Not by a long shot, this is the wild west right now.
But in keeping with the "Internet of Money" metaphor from my other comment, lack of controls and accountability didn't prevent Wikipedia from displacing the Encyclopedia Britannica.
You're missing the point. Blockchain tokens are worse than centralized alternatives in most ways, so if the integrity of a financial security is codified through law then there is no need to pay the expensive costs to also have it codified as a blockchain token, especially because the law is the ultimate arbiter of the security's qualities and capabilities not a blockchain. A blockchain is useful when it can establish consensus rules around a system that is not controlled by a centralized authority, but if a centralized authority is already necessary to recognize the asset, the cost of decentralized consensus is unnecessary and thus wasted.
There is not much that is centralized about "the law", and "the law" isn't really a mechanism for modeling and trading securities. To some extent, by the same logic, the Internet is inherently a centralized platform (because it's governed by law as well) and would therefore be better if replaced by AOL.
I looked at your comment history and it seems you are assuming that people with a so called "pro blockchain" angle are all missing the point. I assure you not everyone in the space is an idiot, and you might be missing some points yourself.
> There is not much that is centralized about "the law"
Perhaps, but the SEC is pretty centralized, when two people can't come to an agreement then securities law enforced by the legal system determines the outcome of the dispute not smart-contract rules enforced by blockchain consensus.
> * I assure you not everyone in the space is an idiot, and you might be missing some points yourself.*
I don't think they're idiots, I think they're financially and emotionally invested in a fascinating technology that's not very useful. I don't think anything is wrong with that, and maybe one day I'll be proven wrong, but I have worked in this space (backend engineer for an exchange) and continue to follow it closely but skeptically and with good reason if you're intellectually honest about the track record of this industry.
What's exciting to me about this is that it could enable trading of these crypto securities outside of typical brokers/exchanges, as well as derivative securities (ie. hold an index of crypto securities, rebalancing from in/out flows from those who buy/trade on the derivatives).
Honestly, I can see an "regulated"[0] crypto securites derivative market being deeper than the underlying crypto securites themselves since they'll trade more OTC.
[0] To the same degree that any government can regulate trade of their currency/debt on global markets.
Why would I want a crypto token instead of shares, though? With shares, I have ownership in the company, and I have a number of rights. With a token, I have precisely squat.
>”It's not a good store of value over the long haul”
Well sure, but no one is storing their wealth in USD. You use it to purchase assets. What store of value can you purchase with BTC without first converting to USD?
>”Binance made more money than Deutsche Bank last year. They funded growth with an ICO.”
Concentrated more wealth, you mean. What, exactly, did they contribute to the economy? At the very least, banks provide liquidity. The furthest I can gather of any crypto company mission is “make money”.
I am in Argentina. I can do an investment on a company being founded in France tomorrow and cash out in 3 months on a secondary market to a buyer in Angola. The friction involved in doing this in a pre-crypto world makes it a non-starter.
One of the reason VC has its characteristic geographical distribution is because exit opportunities are extremely localized. No more.
This in turn unlocks a ton of talent-capital synergy opportunities for a myriad of projects outside of the large tech hubs.
But you're not doing it because of any intrinsic property of crypto-coins. You're doing it because they haven't been regulated yet. (I am not implying any ill intent on your part.)
You could do the same thing with normal investments, if trading houses and banks didn't do any KYC checks.
I don't know about "intrinsic". No other asset class has the same characteristics. It's making investments viable that were not viable before.
No regulation exists now in conventional banking that prevents me from doing that investment without crypto. It's just not practical and therefore unviable. I would need to surf through 3 different bureaucracies in 3 different languages and currencies. If you are doing this kind of thing, it's in your best interest to always do KYC, mostly not for AML - just for general due diligence purposes.
The fundamental thing is disintermediation, not deregulation. Regulation might be able to kill the space, but it would really be a triumph of the incumbents over a real progress opportunity.
PS I'm going at it from the investor angle here but it goes without saying that enabling investment enables entrepreneurship.
Most ICOs don't sell security tokens. They sell utility tokens. But many ICOs have happened that sold security tokens, they just tend to be more discreet these days because of the limits on public security offerings. The security token space is also very immature still.
On the other end of the discreetness spectrum, The DAO was a security ICO and it was the largest crowdsourced project in history at the time.
I am not familiar with any exit scam that was done based on issuing crypto-powered company shares, which is the topic of discussion. None of the ones you mentioned seem to fall into that category. Most are MLM type stuff.
Where you got the idea that I'm denying the existence of ICO scams, I'll never know.
Bitcoin has crazy volatility compared to gold and even USD. Sure, you can use it for speculation, but no one in their right mind uses Bitcoin as a store of value.
People just hope that someone else will use it as a sure if value, so that the price rises and they get rich off it. Ie, speculation.
Especially considering that approx. 90% of the volume of crypto exchanges -with the exception of U.S exchanges- (therefore Binance included) is what's commonly referred to as "wash trading". I'd estimate Binance's 1Y EBTDA to be $100M at best, but I suspect it's way lower.
Uh, the US is at war now in Afghanistan and until 2011 was at war in Iraq. The USD is fine.
If WWIII breaks out, I’m betting the Internet (in its current open and international form) will be an early casualty. How’s that going to work out for bitcoin exactly?
Assuming that people who disagree with you do it only because they "don't understand economics" (here's a huge hint: That's not why at all) is extremely uncivil and dismissive.
In the same token, I can easily say that the only reason you are in favor of these things is because you've forgotten the last couple hundred years of economic history.
It requires fiat banking less than you might think, depending on what you are doing and what jurisdiction you are in. I am in Argentina. I don't personally do it, but I know a lot of people that live on cryptocurrency salaries (not "crypto gains" but actual money paid to them periodically in a cryptocurrency).
I find your last statement extremely unlikely. I think Ethereum has a pretty solid utility story (and I'm definitely not putting Ethereum in the "bullshit utility" bucket). Making Ether a security would severely handicap the US as a jurisdiction for what could eventually be a huge new industry. If you look at the statements from the SEC and CFTC chairs in congress this is stated pretty openly.
I think a useful metaphor is to think of cryptocurrencies as the "Internet of money". Handicapping the Internet might have been possible before the Internet, but these days, people will find a way to operate businesses in new jurisdictions that are more friendly (because they will use the Internet to figure it out together). And crypto money might go to these jurisdictions just as fast, since it's not hampered by banking regulations.
With that being said, it's hard to figure out the outcomes of such a complex landscape with so many forces at play. But there's my alternate view for you to consider.
You need fiat banking to cash in and cash out. You are at the mercy of the fiat banking stakeholders.
You can create any crypto currency but if nobody can buy it with cash or sell it for cash, it's worthless.
SEC has already announced they are looking at Ethereum as security, insiders have already sold according to rumours, because they are being targeted by the SEC-
Turns out if you sell tokens with expectation of investment returns, you've entered the danger zone unwittingly.
According to my sources, the SEC has Vitalik in crosshairs. He's fucked...but he doesn't know it yet
I didn't make it explicit in my previous comment but in Argentina you don't need to use a bank to get your hands on physical cash for your cryptocurrencies, in the same way you don't need to go to a bank to buy US dollars with Argentinean pesos.
You don’t need fiat, you can sell your startup shares for AAA bonds, both denominated in ETH. Treat the bonds like a checking account.
Technically you could buy coffee with a fractional share of a goat or similar. Once a critical mass of securities are tokenized, we enter essentially the “Infinite Currencies” phase of money where there’s no difference between assets and currencies in terms of ease of spending.
Yes I don’t think that’s accurate. The SEC chairman in a cnbc interview the other day said that bitcoin will count as a currency while ICO tokens as assets. When asked explicitly about ethereum he said roughly that they haven’t decided yet.
My plan to sidestep these regulations is to take an existing cheap chain and launch a product on it, without consent or communication with stakeholders. I will buy a large percentage of the chain before doing this, of course.
Maybe plug it into zrx so the conversion is automatic for the end user.
Just another launch cost and I can avoid the SEC entirely.
I generally don't seek funding for my apps. I instead just build them with a monetization path attached.
What I would aim to do is to boost a crypto community coin with adoption. My monetization would be to sell the ownership I have of the coin when the dapp is in use.
I don't know if it's legal according to the SEC. I would love some clarity.
Utility tokens are fine. They are just a waste of time in most cases, since they introduce a complex mechanic that is only needed for the purpose of monetizing the platform growth (therefore everything needs to be a "platform" where there are these security-like things moving around).
I think a lot of the scare about securities is going to go away and a market will evolve with proper jurisdictions that are friendly to this.
Keep in mind that most so-called utility tokens today fail the Howey test and 10 get issued every minute. Yet no one will list a self-proclaimed security token. The big difference, I think, is that the perception of wrongdoing is very different, even if the wrongdoing itself is very similar.
