I'm glad the American Securities and Exchange Commission (SEC) is there to protect unsophisticated investors from hurting themselves in the Wild West of securities. We've got big plans for growing the BitShares ecosystem with a whole new family of SEC-compliant assets and services on an upgraded "institutional grade" BitShares platform.
One of the key players in the BitShares ecosystem, Stokens.com, has taken the position that there are only two types of coins in the universe: SEC Securities or CFTC Commodities.
This is a defensible position from a purely jurisdictional point of view, but there are some blockchain tokens that shouldn't be force-fit into that category for the superficial reason that they "quack like a duck" and meet some "settled law" or hastily improvised turf-based definition of a security or a commodity. Let's keep in mind that the original reason for US securities and commodities laws was to protect the consumer, not to build up regulatory empires. If you must have such empires, can we please recognize that one size does not fit all?
Of course we can. That's why we have the new "Jumpstart our Business Startups" (JOBS) Act carve outs that make it easier to do smaller, simpler fund raises. Which rules apply depend on how much you want to raise, how long you've been in business, whether you are dealing with "sophisticated investors" or the unwashed masses, and other fine points of discrimination. Let's run with that!
Having established that there are principles behind our existing laws, why not continue to reason about what regulations really need to apply to blockchain tokens based on first principles, not over-general definitions like the infamous "Howey Test". If you like, consider this a case for JOBS-II (although I think JOBS-I gave the regulators a clear mandate to embrace what I'm about to propose).
I'm going to suggest breaking security tokens down three different types that ought to be regulated differently. I don't care if the SEC winds up in charge of all three, I just think they merit different treatments. If it were up to me, I'd want to break non-commodity tokens down into: stokens, lottokens, and crayokens.
The key reason for making this distinction is so that we don't throw out the baby with the bathwater. There are things you can do with blockchain tokens that benefit mankind, but only if they are low-overhead. If you add on lots of regulations and legal costs, you destroy them.
If we can regulate something deadly like cigarettes with just a discretionary warning on the label, why isn't that all we need for most blockchain tokens? What is it about them that needs more regulation to protect people from that much less risky behavior? And why don't we need regulations for rock climbing, sky diving, and unsafe sex? Why do we need to create whole new categories of crimes just to stop people from taking victimless risks with their own money?
"Stokens"
A "Stoken" is a security token. At stokens.com we say, "If you are a security, admit you're a security and be proud of it." Under the American JOBS act, it's become a lot easier than it used to be. Just do the work to get properly licensed and enjoy the fact that you can now trade freely on the blockchain without looking over your shoulder all the time. And you'll have a nice discriminating advantage in the crowded ICO market which has been filled with sketchy projects that are probably going to make headlines this year for all the wrong reasons. You'll be a Safe Legal Security Token. You can get on with building your vision!
"Lottokens"
How is a penny stock or a crypto token different from a lottery ticket or a poker chip? Shouldn't free adult Americans be able to choose any as their preferred form of gambling... at least in jurisdictions that permit gambling? Poker is a mix of skill and chance. So is picking penny stocks. Lotto tickets are a more certain loss than any randomly-selected ICO token. Why do people need to be "protected" more from something they can study and research than from things that involve no skill at all?
Why can an American go to Nevada or out to sea on a ship and be governed by the gambling laws there, but they can't go anywhere to gamble on an international blockchain? What is the principle governing such a distinction? Why can't the blockchain be treated as "international waters" where free adult Americans can gamble on stocks, ICOs, poker, or lotto tickets?
And if free adult Americans are willing to gamble in that way, why can't young startup companies use that as a low-cost way to attract their first million in startup capital? How many great enterprises could have been started but couldn't afford the initial legal costs? How many young entrepreneurs had to give away half of their company to predatory venture capitalists just to get some seed money? Why can't consenting adults agree to engage in a common entrepreneurial gamble that has beneficial results for everyone? Why do we need to regulate such behavior out of existence in states with billion dollar lottos going on at every Seven-Eleven?
Think about how many more companies could grow to be able to pay taxes and legal fees in the next phases if we didn't prevent them from sprouting in the first place.
"Crayokens"
Children are required to play with crayons so they don't risk hurting themselves with pens, I guess. Why can't we issue toy tokens any way we want? One of the nice things about cryptocurrencies is that high school and college students could launch their own tokens right along with churches and food kitchens and Joe's Pizza and Lube Shop. Do we really want to prevent such people from experimenting with blockchain technology and put them in jail as felons if they do?
Some places require you to have a license for your kid to have a lemonade stand these days. Is that the way we want our country to operate?
All I'm asking for is a bit of common sense and we seek to regulate a promising new industry here in the Land of the Free.
I hope to get to make this case to the SEC in the near future.
I want my right to take my own risks back. Give me a Good Housekeeping label or a Surgeon General's warning label if you must. But let me decide whether to blog on Steemit or ride my bicycle without a helmet.
