Just because it’s a self-serving pitch, doesn’t mean it’s wrong. I love Matt Levine, but this take of his is a little too glib/snarky and short on analysis.
There is a coherent, rationale analysis that certain tokens, once live, are “utility tokens” that should not be considered securities. For example, USV has invested in Filecoin, a distributed data storage network. Given the network is not live, this was sold via a SAFT (simple agreement for a future token) to accredited investors only, with the tokens to be delivered once the network is launched. At that point, since the tokens are used to pay for storage, is the token a security or a utility token? Reasonable arguments can be made for the latter, and regulatory clarity to that affect would be extremely helpful to this developing space. It’s great that these VCs are working with regulators to explain and advocate for positions that are helpful to the crypto community. They are NOT, I’d sure, arguing that any company should be able to ICO freely.
> Given the network is not live, this was sold via a SAFT (simple agreement for a future token) to accredited investors only, with the tokens to be delivered once the network is launched. At that point, since the tokens are used to pay for storage, is the token a security or a utility token?
Filecoin ran an exceptionally-compliant process. That said, it's not obvious that even their token will not be a security.
SAFTs are self-admitted securities. (One can think of them as deliverable forwards.) There aren't many securities in the wild that convert into non-securities for the simple reason that they were bought for investment purposes, and so anything they become traces to that desire.
So even in the case of the exception, we need to wait for the SAFT to convert and see if that token does what every other token so far has done: die or "moon" as a speculative investment vehicle.
> They are NOT, I’d [sic] sure, arguing that any company should be able to ICO freely
"The group wanted formal assurance from regulators that their products would be exempt from SEC oversight" sounds like that [1]. They asked for too much, too soon; this presentation is part of the backtracking.
I don't mean to say it isn't worth flipping through. Just that this context is material to any analysis of it.
>> "They asked for too much, too soon; this presentation is part of the backtracking."
The WSJ article is very thin on details, and I suspect is missing important nuances. I do not know what happened at the SEC meeting, but my guess is that they pitched something very close to this linked presentation (which you'll note is dated March 13, likely before the SEC meeting). In particular, take a look at slide 11, which tries to bifurcate the world into (i) pre-launch securities and (ii) post-launch live networks, with the latter perhaps being a currency, commodity, security or some other beast, depending on its properties (e.g. a post-launch token with profit sharing features would likely still be a security).
These VCs and their lawyers are not morons -- the case for most ICOs being blatant securities offerings is impossible to argue against, but the more narrow view that Nick has outlined has real merit to it and I'm sure is close to what they pitched.
Also, I don't disagree that a ham-fisted SEC regulator could easily argue that Filecoin post-launch is a security -- that's precisely the problem. Crypto today can often be treated as a currency, a commodity and a security all at the same time, and often in incompatible ways. The industry _should_ be meeting regulators, and coming to a sane coherent policy on how to treat these things in different contexts (perhaps via well-delineated safe harbors), so that people can continue to innovate without worrying they are breaking the law.
The industry should be trying to create a single example of a non-fraudulent non-investment utility token.
The optics of millionaire VCs flying across the country on their millionaire LPs' dimes to safeguard hypotheticals against regulatory scrutiny while millions of regular Joe's are getting scammed are palpable. Before you can argue "X should be exempt from regulation because it exhibits Y properties," you have to have an X with Y.
Of course not, they're smart people trying to finagle exceptions to the regulations to enrich themselves.
>Also, I don't disagree that a ham-fisted SEC regulator could easily argue that Filecoin post-launch is a security
"ham-fisted" meaning properly applying long-established standards to what are clearly, without question, securities. The only people arguing otherwise are the wealthy investors who stand to gain from an alternate ruling.
There is a coherent, rationale analysis that certain tokens, once live, are “utility tokens” that should not be considered securities. For example, USV has invested in Filecoin, a distributed data storage network. Given the network is not live, this was sold via a SAFT (simple agreement for a future token) to accredited investors only, with the tokens to be delivered once the network is launched. At that point, since the tokens are used to pay for storage, is the token a security or a utility token? Reasonable arguments can be made for the latter, and regulatory clarity to that affect would be extremely helpful to this developing space. It’s great that these VCs are working with regulators to explain and advocate for positions that are helpful to the crypto community. They are NOT, I’d sure, arguing that any company should be able to ICO freely.