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RE: BLOODY IMPORTANT QUESTION: should we consider STEEM-ENGINE tokens a security or utility?
The security question is pretty simple, Piotr. There are 4 questions the SEC is allowed to ask given the result of the SEC v. Howey case:
- Is it an investment of money? (This very much depends on what you think STEEM is. I think it's reasonable to argue "No" here.)
- Is it an investment in a common enterprise? (Most things get a "Yes" here.)
- Is there an expectation of profits? (The S-E tribe coins can very easily argue "No" here by saying "It's an expectation of influence in an ecosystem")
- Is success predicated on the efforts of others? (Almost all STEEM projects can argue "No" here)
That being said there are some S-E coins that would fail this test, I think, though I prefer to keep them nameless here.
Excellent.. finally someone referencing to the Howey test:
https://www.investopedia.com/terms/h/howey-test.asp
Another test is in simplified terms this:
If it looks like a dog, behaves like a dog and smells like a dog - it is a dog.
So actually you would have to consult a lawyer in the jurisdiction where you want to incorporate your venture and also a lawyer in every jurisdiction of a person living in you want to sell your token to.
Else you would not be able to get a reliable statement..
Having said this, this is what most likely will happen if you actually do this:
You will incur enormous bills from lawyers and you will get totally contradicting statements of those lawyers because this whole complex is still so new and fresh that there are no precedents or cases at superior courts you can reference to and also no clear cases of the big watch dogs as of this very moment.
So the only reasonable advice a non lawyer could give is:
do not do it!..
.. and if you still want to do it and take the possible risk, IMHO: abate the risk as much as possible.
Those abatement measures could be:
1.) Do not scam or mislead people! (this should be self explaining)
2.) Do not sell tokens for fiat
3.) Do not sell to people in certain jurisdictions as the likes of US/ UK / Japan / China / Kanada etc.
4.) Do not promise any "investment returns"
5.) Do not offer asset backed tokens but only utility tokens and explain the utility use of the tokens
6.) Stay small in regards of numbers of people you are selling the token to and in regards to overall volume raised
etc. etc. etc.
Dear @solarwarrior
Wow. This is obviously one of the most valuable comments I've read so far.
I absolutely appreciate your time and effort. RESPECT.
Yours, Piotr
Dear @shanghaipreneur
I cannot find a way to express how grateful am I for your comment.
I've been thinking: what if someone would like to create token on steem-engine, which would allow him to raise funds (STEEM tokens). Then he would use those tokens to grow his influence within STEEM blockchain and monetize it later on (by starting up digital marketing company).
And later on on monthly basis he would use part (let's say 20%) of real income in FIAT (taxed) to buy-back created token and burning it (decreasing supply and eventually buying back all previously "sold" steem-engine tokens)
Any thoughts on that kind of business model?
Yours
Piotr
Two questions I have there:
Dear @shanghaipreneur
Not by me. However let's I would use those raised steem for promoting purposes (mostly steem-bounties), perhaps to reward few people supporting my growth on daily basis (to avoid transfering funds I would bost their publications with upvoting-bots).
I would have my business legally registered and I would offer my services to Polish IT businesses looking for forign exposure (in english language). Those companies would receive invoices, taxes would be paid. And I would use part of profit to buy-back earlier realeased tokens and burn them.
This way whoever would purchase my token, would know that supply is constantly shrinking.
Yours
Piotr
Knock knock @shanghaipreneur :)
Hey there dear @Crypto.Piotr,
I do like the idea , yet personally I think You should have into consideration a way of making profit parallel that could allow some stability in a "down phase", but that might be me thinking ahead of time..About the %, maybe burning a lot less, making the burning phase last longer, allowing for more people to benefit of, both the tokens and the digital marketing company services, again, this is just my very limited view on the subject, there are many variables to take into account that are not known to form a better opinion, still, the idea doesn't seem bad at all..Ok, maybe a small percentage could be redirected to a trading bot, or traded manually to raise some of the overall profit instead of burning it at the ratio mentioned, I don't really know, just throwing out an idea =XAll the best,CyP.S.: Yes, I'm still awake x_D_
Dear @cyberspacegod
Thank you for your prompt reply. However I'm not sure what do you mean by "down phase"
ps. hope you rested a little bit. don't be a robot! :)
Yours
Piotr
Ohh, I mean, all tokens/coins are affected by some sort of inflation/deflation, according to what they are based upon, all of them are a form of exchange.. Pretty much like STEEM, with the ups and downs of BTC, the contracts in which it is used.. Something like that ^^)
All the best,Cy
Respectfully, I strongly disagree with your application of the Howey test.
Each coin and token is being treated by the various departments (SEC, FinCEN etc.) differently depending on how the coin or token is used. It doesn't matter how you or I view STEEM, it matters how the governmental department we are dealing with views it.
STEEM is used like money on a daily basis. STEEM is used to buy and sell things and on Steem Engine it is not SBD that is used but STEEM to buy and sell tokens. It is most certainly being treated as a "virtual currency" according to FinCEN.
This is shaky ground. I really don't know what to say on this one. There are lots of ways to buy "influence" on a network that does not result in you earning anything. That is not how the reward pool/inflationary model works exactly. While it is true that it does have the utility of providing increased visibility to you via self-voting, which is often looked down upon in the community, the cost vs. visibility ratio is terrible.
Additionally, it cannot be ignored that investment terms and suggestive concepts related to investing is all over the place on the Steem blockchain and the Steem Engine platform. Terms like "staking", "vesting shares" do appear like financial terms speaking to the investor mindset.
The Proof of Brain approach of "mining" for coins by curating content is not in itself any indication that a coin must be a security. And token sales make logical sense even by a project that is centralized so long as the token has an essential function for the product/service or ecosystem. However, arguing that "influence" is the utility of the token very much depends on how that token provides utility.
For a token to not be a security it needs to be a utility token, commodity or currency. If it is a currency then you must familiarize yourself with FinCEN and other currency managing departments and their policies. If it is a utility token that use of the token needs to be essential and its use in the ecosystem or product/service needs to be clearly conveyed.
Why can they argue "no" here?
That entirely depends on how the token is structured.
That’s why you have lawyers, bud.
Posted using Partiko iOS
Yes, having lawyers is nice, but those departments also have lawyers, many. My point is that you are making bold claims that are clearly not accurate. Why do I say that? Because I am familiar with the guidelines and the no-action letter cases by both the SEC and FinCEN.
The response:
Is a poor reply, considering the fact that what you are telling people can most certainly be construed as financial advice. You're playing a dangerous game telling people that STEEM doesn't count as money while FinCEN views cryptocurrencies as convertible virtual currencies.
It is not that I don't want to agree with you, but the problem is that I know that your opinion doesn't match with the positions of these departments. That means you either plan to take the SEC and FinCEN to court in order to establish the appropriate standards like DefendCrypto.org is trying to do now, or you don't mind letting people believe you and get into serious trouble.
I’m not a lawyer and this is not legal advice. It’s pretty clear I’m just offering my opinion about the law, which in the US is open to interpretation and based on precedent. In other words, the whole point of the law is it should be debated. I am looking forward to a new and updated version of Howey from the Supreme Court as it relates to digital assets. But for now, we are using a dull knife to deal with some very specific instances. But it is all that we have in the cupboard.
Posted using Partiko iOS
Indeed @shanghaipreneur
It's very clear that you're not providing financial advice and you're simply sharing your own knowledge and experience with us.
I absolutelly appreciate it.
Yours
Piotr
Dear @blake.letras
In my own opinion @shanghaipreneur isn't really "telling people". He is simply sharing (in form of comment) his own knowledge within discussed topic. That's very different.
Either anyone here is right or wrong - time will tell.
Yours
Piotr
Wow. What a mindblowing comment @blake.letras :)
Seriously I appreciate your time and effort. One of the best comments I've read in this topic; without any doubt.
Yours
Piotr
As someone from the EU, and thus who have a slightly different law to work under, the questionnaire for security would be:
There's also the thing with how important is it if it's security? Or a company share? In the US everyone will make a big fuss over it. From the standpoint of most of the world, it's "only troublesome for those who want to implicate the US" aka, for everywhere in the world, it just means they have to avoid the US. So I can understand that since you are in the US, it's a big difficulty for you, but I'm not sure about how it would go if you did that under your personal name since I don't know if the SEC consider people as capable to issue securities.
Yours,
@djennyfloro .
Thank you @djennyfloro for this amazing comment.
Your knowledge is simply mindblowing.
Yours
Piotr
Have you thought of doing an offshore company, and simply avoid the US? There's English-speaking business all over the world, and having that translated in spanis &/or french isn't that costly of an issue too.
What... I think people invest real money and expect them to rise to profit! lol Everyone buying these coins must be expecting them to go up, or at lease some of them right? As soon as the Gov decides to crack down you'd be surprised at just how many will fail. All we need is one big scandal and then we might all get in trouble? We'll see, time's a ticking!