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Comment by senttoschool | Hacker News Reader

Of course Coinbase will say they're not securities.

All crypto should be treated as securities. The rampant insider trading, lack of transparency in project finances and decision making is insane.

I've consulted for a few crypto projects. In most of them, the founders completely misused ICO funds for personal gains and traded their own tokens with inside info.

If your project token is available to be purchased and sold in the US, they should be subject to the same rules other securities follow.

Scamming people shouldn't be this easy.

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What blows my mind is how laissez faire regulators have been when it comes to these scams. Countless billions of dollars and thousands, if not millions, of man hours went into this scam economy. It's just such a waste of time and resources, and it flies in the face of the idea of market efficiencies.

China got this right by banning cryptocurrencies. It seems like the US is happy to wallow in its own crypto scam waste while other countries are more efficient with how they allocate resources in their economies.

> It seems like the US is happy to wallow in its own crypto scam waste while other countries are more efficient with how they allocate resources in their economies.

You probably aren't from the US, but we don't have a top down rule of how resources are allocated like other countries. It is a free market, so if someone wants to waste their resources building electric cars or a search engine - they are more than welcome to do so.

What happens if someone wants to manufacture and sell LSD?

You heard him, it's a free country. /sarcasm

Man, the crickets in here are deafening.

Then they get to skip the step of asking the government to allocate resources for building an LSD factory.

You are confusing economic policy with enforcement of laws. If the majority of people thought LSD what a good idea, they would elect people who would change that law.

It's weird that you think that I'm advocating for "asking the government to allocate resources for building" anything. Bans and regulations have nothing to do with that, as the multitude of bans and regulations in the US have illustrated.

Just because you can insider trade doesn't make something a security in my view. You can do insider trading around gold or palladium or any other commodity for instance. You can do insider trading with property and land. You can even do insider trading with currencies.

They're not securities because you can insider trade them -- they're securities because they fairly clearly meet the Federal definition;

> The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

https://www.law.cornell.edu/uscode/text/15/77b

Your comment has not contributed anything. Which of those many categories do you think crypto falls within?

For example, foreign currency is not a security, and an intuitive stance would be that crypto is far closer to foreign currency than it is to stocks. Other sources have a more useful definition in my opinion [1]:

> Firstly, a security is simply a financial instrument that represents a specific ownership position in either a corporation, a creditor related to a governmental body, a publicly traded corporation, or rights to ownership as represented by an option. The security must represent some type of financial value. Securities are generally categorised as either debts or equities, with a debt security indicating money that has been borrowed and must be repaid.

Under this definition, it is hard to see how the average "boring" cryptocurrency is a security.

[1] https://www.onefinancialmarkets.com/securities-vs-forex

> The security must represent some type of financial value

This is probably going to be the point of contention. There's no shortage of people wanting to argue Bitcoin really does have financial value, cures cancer, etc...

Is "must be an agreement for future performance" a fair first test of whether something is a securities contract?

1) If there is no contractual agreement for future performance, it cannot be a securities contract (a "security").

That we can test before applying 2) the Howey Test, and then 3) assessing whether it's a Payment, Utility, Asset, or Hybrid coin/token

From https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co. :

> "In other words, an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise."[1]

> "The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. If that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value."[1]

Collectible coins, trading cards, beanie babies, real estate, and rare earth commodities, for example, are not securities per US securities law. Do these things fail a hypothetical and hopefully helpful "must be an agreement for future performance" litmus test for whether a thing is a security per US case law precedent?

What must be fed into the FTC CAT is a different set of policies.

From "Guidelines for enquiries regarding the regulatory framework for ICOs [pdf]" (2018) https://news.ycombinator.com/item?id=16406967 https://westurner.github.io/hnlog/#comment-16407277 :

> This is a helpful table indicating whether a Payment, Utility, Asset, or Hybrid coin/token: is a security, qualifies under Swiss AML payment law.

> The "Minimum information requirements for ICO enquiries" appendix seems like a good set of questions for evaluating ICOs. Are there other good questions to ask when considering whether to invest in a Payment, Utility, Asset, or Hybrid ICO?

> Are US regulations different from these clear and helpful regulatory guidelines for ICOs in Switzerland?

As well, do investors have any responsibility for evaluating written agreements for future performance before investing?

Does a person have the responsibility of evaluating contracts before entering into them; for example, with the belief that it's a securities agreement for future performance? What burden of responsibility has a securities investor?

Does that business sell any registered securities at all? Why did you think they were selling you a security? Were you presented with a shareholders agreement? A securities agreement? Any sort written contract? Why did you think you were entering into a securities contract if there was no contract?

If someone makes hopeful, pumping, forward-looking statements, does that obligate them to perform?

When does the Statute of Frauds apply to phantom contractual agreements for future performance?

Statute of Frauds: https://www.investopedia.com/terms/s/statute-of-frauds.asp :

> The statute of frauds (SOF) is a legal concept that requires certain types of contracts to be executed in writing. The statute covers contracts for the sale of land, agreements involving goods worth over $500, and contracts lasting one year or more.

> The statute of frauds was adopted in the U.S. primarily as a common law concept—that is, as unwritten law. However, it has since been formalized by statutes in certain jurisdictions, such as in most states. In a breach of contract case where the statute of frauds applies, the defendant may raise it as a defense.* Indeed, they often must do so affirmatively for the defense to be valid. In such a case, the burden of proof is on the plaintiff. The plaintiff must establish that a valid contract was indeed in existence.

Statute of Frauds: https://en.wikipedia.org/wiki/Statute_of_frauds

Q: When should you check for a contractual agreement for future performance, for future returns? A: At least before you give more than $500.

In the US, cryptoasset exchanges have gained specific legal approval from each and every state where those assets are listed for sale.

What process does your state have for approving assets for listing by cryptoasset exchanges? When or why does a state reject a cryptoasset exchange's application to list a cryptoasset?

Is it the case that we have 50 state-level procedures for getting a cryptoasset approved for list by an exchange?

Is it the case that SEC does not provide a "formally reject an unregistered security which is thus not SEC jurisdiction" service?

If some 50 states failed to red flag a cryptoasset, I find it unreasonable to fault cryptoasset exchanges for choosing to list, or retail investors for failing to review a contract for future performance and investing.

I have to say that it's not clear to me from your comment. If it is an open-and-shut case, why is it the subject of such controversy?

Because of vested interests with power to keep the controversy alive at a high level.

I don’t really see how it meets that definition. It’s not a note or a contract, it’s just numbers and a global state, it represents nothing.

>Just because you can insider trade doesn't make something a security in my view.

I'm not an expert on security law. All I know is that there needs to be far better regulation around crypto whether it's labeling them as securities or creating brand new regulation. It's just way too easy to scam people in crypto.

In crypto, they just call insider trading "sharing alpha".

Its rampant in discords and telegram chats.

What a wonderfully content-free discussion on hacker news regarding crypto currency. Again. They're all the same. Crypto scammers. It's so tiresome.

At least acknowledge the difference between ICO funds, NFTs, native tokens, inflationary or deflationary assets, liquidity pools, slush funds with voting and governance attached.

Even getting some nuance on the different ways in which one thinks different crypto assets are a scam would be nice. But here I see no engagement or interest in the particular assets in question or the details of the story. Why?

Let's note up front that Coinbase also did not engage with the particular assets in question, instead making a blanket statement that absolutely no securities are on Coinbase (but also that nobody knows how to define a digital security in the first place?). A cynical person like myself would see this as evidence that Coinbase knows there's no story to tell about how the world is better off for having these coins listed. But going to the tweet that started this all (https://twitter.com/cobie/status/1513874972552355846) and spot checking the first three coins:

* Indexed says that you'll "gain exposure to passively-managed crypto index portfolios represented by a single token" and references their $2.25m assets under management.

* Kromatika says that they'll be selling some reserved KROM tokens on an ongoing basis in order to fund their project.

* DappRadar says that, by buying their RADAR token, you will help scale their "Dapp store".

The second and third are perhaps arguable, although I struggle to believe that anyone would buy their tokens except as an investment in the future of their platforms. The first is the most obvious security imaginable. This kind of thing is why I don't usually engage with the details of specific coins; at least when we're talking about exchange-listed coins, they all end up being like this.

> At least acknowledge the difference between ICO funds, NFTs, native tokens, inflationary or deflationary assets, liquidity pools, slush funds with voting and governance attached.

They don't want to distinguish between any of that and instead want to blanket all of them and say that they are all the same. Not all NFTs are JPEGs and there is an obvious difference between a 'coin' vs a 'token' where those blockchains which allow tokens, you will see them have ICO launches since 2016.

> Even getting some nuance on the different ways in which one thinks different crypto assets are a scam would be nice. But here I see no engagement or interest in the particular assets in question or the details of the story. Why?

I think the right approach is to wait for the Ripple vs SEC case which will not only determine whether if XRP (Ripple's blockchain coin) is a security or not, but the wider implications on other coins and tokens. But as for ICOs in general, the SEC has already cracked down on unregistered ICOs in 2018, making them illegal in the US.

Overall I don't think you will get a rational response on this site about anything mentioning crypto. Instead, the typical response you will get on HN is always to the extreme: 'All of crypto is scam', 'Ban it all, ban everything crypto, all of it', 'web3 should die in a fire'.

It is indeed the same absolutist nonsense that doesn't add any new arguments other than spreading regurgitated garbage that is recycled from other anti-crypto supporters and repeated here.

The thing is that all of those are avenues for fraud and scams. And very little else. Even the apparently honest actors in the space seem to get wound up investing in fraud and scams somewhere down the line.

> It's so tiresome.

Yes, isn't it? Can we regulate this space under the same rules as other finance yet? Or do we need Joe Public to be ripped off for a few more billion first?

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