Unicorns [are rarely](https://www.theringer.com/2016/12/21/16041164/battle-of-the-nba-unicorns-bdf6c4a7b331) seen: > u·ni·corn > ˈyo͞onəˌkôrn > noun > > A Unicorn is a mythical creature, something amazing which is hard to catch or simply a very rare find. [![](https://i.imgur.com/fF2exps.jpg) ^{Click to purchase the above item}](https://www.rockettstgeorge.co.uk/gold-glitter-unicorn-ornament.html) A pure _non-securitized_ distributed ledger utility token is analogous to a unicorn. Credit [this wit](https://youtu.be/CIiNK0VqixY?t=6596) to Sara Hanks the co-founder and CEO of `CrowdCheck.com`. Bona fide proof-of-work distributed tokens [aren’t likely](https://www.pryorcashman.com/news-and-insights/alberts-and-fry-author-is-bitcoin-a-security-article.html) to be securities. So they’re excluded from this analysis of the intersection of crowdequity and token issuance. _“I believe every ICO I've seen is a security,”_ the SEC Chairman Clayton has verbally [reiterated](https://steemit.com/cryptocurrency/@anonymint/re-finitemaz-re-anonymint-re-anonymint-re-rajsallin-re-anonymint-re-anonymint-are-most-cryptocurrencies-doomed-to-collapse-because-they-re-ico-issued-20180207t063625654z) numerous times over the past several months and again in December an official [written warning](https://medium.com/@shelby_78386/i-am-responding-to-a-draft-you-wrote-which-apparently-doesnt-allow-me-to-comment-on-it-so-i-place-dc7d5ebb3873). The [panel of](https://youtu.be/CIiNK0VqixY?t=1980) expert securities attorneys [agree](https://youtu.be/CIiNK0VqixY?t=6596) and 99% of the securities attorneys [agree](https://youtu.be/CIiNK0VqixY?t=6284) that the existence of a non-security, distributed ledger “utility token” is a yet unseen unicorn. And it’s unlikely such a unicorn could ever be devised^†… Apparently it’s a popular misconception to presume that major law firms have been providing legally _binding opinions_ blessing and indemnifying the sale of unregistered ICOs based on the premise of issuing non-securitized utility tokens. Au contraire, these lawyers are _merely_ providing non-binding legal analysis advisories or memos. Such analyses are laden with [caveats](https://youtu.be/CIiNK0VqixY?t=13106) which [_warn_](https://youtu.be/CIiNK0VqixY?t=18352) that the tokens might eventually be deemed securities. These legal analyses are [derived](https://youtu.be/CIiNK0VqixY?t=6624) from the following _historical instances_ of non-securitized utility tokens or coupons: * **closed loop payment systems**: e.g. Chuck E. Cheese's or arcades * **in-game currency**: e.g. World of Warcraft [gold](https://en.wikipedia.org/wiki/Gold_farming#Lawsuits_by_game_companies) * **loyalty programs**: e.g. [Groupon](https://www.groupon.com/merchant/blog/tag/loyalty-programs) However, the aforementioned historical examples **didn’t trigger the profit expectation prong** of the Howey securities test, because those example tokenized instruments [couldn’t be](https://medium.com/@shelby_78386/i-am-responding-to-a-draft-you-wrote-which-apparently-doesnt-allow-me-to-comment-on-it-so-i-place-dc7d5ebb3873) redeemed nor traded _at a potential profit_ in exchange for money, currency, or _fungible_ equivalents. I have assimilated the numerous assessments of the current situation by the pertinent expert attorneys. I’m lead to the following summary after cross-correlating all their logic, body language, and all relevant facts as I understand them. There seems to be underlying a nearly unanimous consensus about the securitization of all the so called distributed ledger “utility tokens” currently issued. The distributed ledger “utility tokens” all fail to exclude the profit expectation or other Howey test prongs. Mechanisms of form—such as stipulations or claims in white papers, web sites, or other disclosure documents—are irrelevant in the Howey test. (And such claims might even be fraud if they’re misrepresentations of material facts.) The Howey test’s [three prongs](https://medium.com/@shelby_78386/i-am-responding-to-a-draft-you-wrote-which-apparently-doesnt-allow-me-to-comment-on-it-so-i-place-dc7d5ebb3873) always emphasizes the underlying substance of the economic reality instead of any obfuscating form or scheme. The Howey test classifies the circumstances which constitute an [investment contract](https://www.bu.edu/jostl/files/2016/01/21.1_Alberts_Final_web.pdf#page=14) type of a security. The said law firms are apparently providing legal memos because presumably they’re [taking](https://youtu.be/CIiNK0VqixY?t=6663) huge commissions and [aren’t liable](https://bitcointalk.org/index.php?topic=2208231.msg26059539#msg26059539) if they’re wrong. The law firms have safe harbor from lawsuits because [the advisory memos](https://youtu.be/CIiNK0VqixY?t=13106) (which could plausibly even be _intentionally feigned_ legal arguments) are laden with sufficient (buried) legalese caveats. Yet there could be [“very expensive”](https://youtu.be/CIiNK0VqixY?t=1821) repercussions¹ including but not limited to potentially [irreparable rescission](https://youtu.be/CIiNK0VqixY?t=13079) for the issuers, [promoters](https://youtu.be/CIiNK0VqixY?t=6399), brokers, exchanges, and ([especially large](https://youtu.be/CIiNK0VqixY?t=17156)) investors who [intend to resell](https://www.bu.edu/jostl/files/2016/01/21.1_Alberts_Final_web.pdf#page=5) those tokens within 3 years. Paradoxically, an essential [motivation](https://youtu.be/CIiNK0VqixY?t=6676) for not issuing tokens as a compliant security is so the tokens trade on unregulated global exchanges. This provides greater and often expedient liquidity. Thus exhibiting a prioritization on reselling and profit expectation. Thus making the tokens securities by definition. ERC-20 tokens [are blatantly securities](https://youtu.be/CIiNK0VqixY?t=13503) because they have no utility as a platform, other than the _substance_ of enabling this expedient liquidity. Any _“bright-line rule”_ such as consumptive use notwithstanding… ----- ^† _{However, I _speculate_ that I may know how to create a non-securitized utility token, while partaking of securitized investment. That wouldn’t be an “ICO” though. This idea won’t be revealed today.} ¹ _{And there’s all sort of illegal trading [potentially going on](https://youtu.be/CIiNK0VqixY?t=6776) as well.} ## Any counter-examples? My intention is self-deprecating and not pejorative—because someone similarly corrected me in 2015. I provide an example of how we deceive ourselves and fall into the Dunning-Kruger syndrome by presuming expertise we don’t possess. We (including myself, even in this blog!) may be especially prone to do this because we presume our well-founded expertise in technical fields will carry over to logical analyses of any STEM field issue. I often read legally unsophisticated comments such as the [one](https://steemit.com/trading/@cryptomancer/re-anonymint-re-cryptomancer-re-anonymint-re-cryptomancer-re-anonymint-re-cryptomancer-re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180306t232758613z) quoted below. These non-expert intuitions suffer from the [level of unawareness](https://youtu.be/CIiNK0VqixY?t=13106) **_I had_** (and may still have) about securities law until I [studied the issue](https://bitcointalk.org/index.php?topic=1218399.0) from 2015 until now: > EOS would count as a utility token since it represents a user’s fair allocation of network resources and is thus required to power apps and provide storage. [“Bright-line rules”](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=5) such as the presence of consumptive use doesn’t absolve the [expectation-of-profit](https://medium.com/@shelby_78386/i-am-responding-to-a-draft-you-wrote-which-apparently-doesnt-allow-me-to-comment-on-it-so-i-place-dc7d5ebb3873) prong of the Howey test. Besides, it seems reasonable observers might conclude that Blockone/EOS [incriminated themselves](https://bitcointalk.org/index.php?topic=2208231.msg26059539#msg26059539). Dan ^{_{(who apparently [didn’t have](https://bitcointalk.org/index.php?topic=1904415.msg23260220#msg23260220) Satoshi’s admiration)}} blatantly [promoted](https://bitcointalk.org/index.php?topic=1904415.msg23304262#msg23304262) EOS making statements that afaics seem to trigger the common enterprise and expectation-of-profit prongs of Howey. My subsequent section ^{_{_§Utility tokens are securities if issued bound to an **investment contract**_}} which discusses the flaws of the SAFT’s attempt to separate the token issuance from the securities issuance, also seems to apply to the flaws in Blockone/EOS’s jurisprudence and metaphysics theory that the EOS blockchain will spontaneously implement and launch itself in a decentralized way not due to [“essential” efforts](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=11) of the common enterprise upon which the investors’ expection-of-profit depends on. A [former SEC enforcement attorney](https://youtu.be/CIiNK0VqixY?t=16619) late last year [stated](https://youtu.be/CIiNK0VqixY?t=17698) that he: > was on the phone recently with three attorneys in the enforcement complex financial instruments group who appear to be ones gathering information on ICOs; and they were very interested in looking at **_networks of promoters and structures who have done multiple large ICOs_**. EOS’ (BlockOne’s) board director and promoter [Brock Pierce](http://archive.is/YStwJ#selection-603.0-647.32) ^{_{(the [former childhood](https://medium.com/@shelby_78386/http-archive-is-e8raz-selection-4741-1-4741-258-f74b1c7292b0) ~~actor~~)}} and its CTO/promoter [Daniel Larimer](https://steemit.com/@dantheman) have each been involved in more than one large ICO². EOS is so far [the largest](https://www.coindesk.com/cryptos-biggest-icos-stay-silent-sec-subpoenas/) _public_ ICO ever and comparable in size to the [_private_ Telegram offering](https://news.bitcoin.com/icos-brush-off-regulatory-concerns-raising-1-billion-third-month-row/): > Brendan Blumer, CEO of Block.one, whose token sale for EOS is ongoing, with current [estimates at $700 million](http://www.businessinsider.com/biggest-cryptocurrency-ico-ever-going-on-right-now-2017-12), also said the company's token **_wasn't offered in the U.S._** but did not respond directly about a subpoena. The above quoted defense [with my emphasis added] seems to be an intentional misrepresentation of the facts because Blockone/EOS was _effectively_ promoted and [sold into the USA](https://bitcointalk.org/index.php?topic=1904415.msg23003824#msg23003824). I posit that it’s obvious to reasonable observers the situation has the hallmarks of being just an obfuscation of the economic reality to [feign the presence](https://bitcointalk.org/index.php?topic=1904415.msg23015614#msg23015614) of precautionary measures [designed to](https://bitcointalk.org/index.php?topic=2159815.msg21639378#msg21639378) enable denial of solicitation while employing measures which were a priori known to be subvertible and subverted by many if not most. Surely with it’s lucrative bounties the SEC can find innumerable witnesses who can attest to this fact. If the NBA commissioner can figure out how to [fine $500,000](https://www.washingtonpost.com/news/early-lead/wp/2017/08/31/nba-hits-lakers-with-500000-paul-george-tampering-fine-citing-rob-pelinka-over-magic-johnson/) for [winking](https://www.celticsblog.com/2017/8/20/16176364/los-angeles-lakers-magic-johnson-under-investigation-for-tampering-with-paul-george-indiana-pacers), presumably the SEC can too if they want to. Howey is supposed to look at the substance of the economic reality and [not the form](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=6). Yet when you’re money grabbing $1 – 2 billion in cryptocurrency in the first fundraising round (an amount entirely unnecessary for implementing the project) for the [_vampire squid_](https://financial-dictionary.thefreedictionary.com/Vampire+Squid), you probably don’t have [friends in low places](https://www.youtube.com/watch?v=mvCgSqPZ4EM). ----- [_The Creature from Jekyll Island – Unprofessional Propaganda Book_](https://www.armstrongeconomics.com/world-news/central-banks/the-creature-from-jekyll-island-unprofessional-book/)
[![](https://i.imgur.com/2qLrD0J.jpg) ^{Goldman Sachs Is A Small Fish; The Fed Is The Vampire Squid}](hhttp://www.economicnoise.com/2013/09/20/cruel-myth-fed/) Matt Taibbi in [Rolling Stone](http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405#ixzz1gRJfhAh1): > ^{The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.} [_Euro is a Monetary Enslavement Paradigm_](https://gist.github.com/shelby3/c192cedaed52ef11ef97acb239dc5986#euro-is-a-monetary-enslavement-paradigm)
[![](https://i.imgur.com/2KJcfrm.png) ^{The European Stabilization Mechanism, Or How the Goldman Vampire Squid Just Captured Europe}](http://www.courtfool.info/en_ESM_How_Goldman_Just_Captured_Europe.htm) ----- Goldman Sachs’ recent [purchase](https://www.coindesk.com/sec-ico-probe-underway-stories-conflict-extent-sweep/) of the exchange Poloniex, alleged leak of confidential SEC intent to ignore all past violations for this specific case, and the purported plan to morph Poloniex into a _regulated_ tokens exchange similar to Overstock’s plans for tZero, motivates me to ponder [what might be](https://steemit.com/trading/@anonymint/re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180307t192240406z) Goldman Sachs’ role and influence³ in the future of distributed ledgers and their tokens. In that [linked post](https://steemit.com/trading/@anonymint/re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180307t192240406z) (←click that link!) I mentioned highly speculative conjecture that posits the failure of SegWit (via donations theft by miners) and of Tether, potentially leading to an upcoming crypto winter due to bankrupting the _non-regulated_ exchanges. If that outlandish hypothetical happens it might eliminate any remaining defiant resistance (to regulation) outside of U.S. jurisdiction. In [_§Possible Causes of Crypto Winter 2019 – 2024_](https://steemit.com/trading/@anonymint/bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019) of my prior blog, I wrote the following: > 2‍. The regulators/banks have also been ramping up their probe/pressure on Tether (USDT). Estimates are some 15% of exchange volume and capital is tied up into USDT, and that the peg has been excessively printed out-of-thin-air. Pegs always fail, because the math of markets will not allow them to be viable (no matter how they’re constructed). > > 3‍. The SegWit theft and reversion to Satoshi’s Bitcoin protocol is still on the table as a possibility which I covered in my blogs [_The Real Bitcoin: which Bitcoin fork will win?_](https://steemit.com/bitcoin/@anonymint/the-real-bitcoin-which-bitcoin-fork-will-win) and [_Shocking Crisis Coming to Cryptocurrency_](https://steemit.com/cryptocurrency/@anonymint/shocking-crisis-coming-to-cryptocurrency-in-sept) , as well as a [Bitcointalk thread](https://bitcointalk.org/index.php?topic=2259054.0) I started. If this happens, it could potentially bankrupt many exchanges. ----- ² _{Brock claimed he was involved in at least the first ICO: Mastercoin. And Dan issued the Protoshares ICO in 2013 that became Bitshares. There was Dan’s [_premeditated_ admission](http://archive.is/rvSdc#selection-485.197-489.1) of the planned obfuscation of the Steem ICO as a sneaky insta/fastmine, which appears to flaunt regulations.} ³ _{Whether the three above named individuals [will be personally](https://youtu.be/CIiNK0VqixY?t=18284) liable is afaics dependent on whether they committed premeditated fraud and misrepresentation of the material facts intentionally attempting to subvert the law. Blockone/EOS and Brock Pierce [may be](https://steemit.com/trading/@anonymint/re-cryptomancer-re-anonymint-re-cryptomancer-re-anonymint-re-cryptomancer-re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180305t060632525z) (c.f. [also](https://medium.com/@cuttlefish_btc/brock-pierce-timeline-a230ad1ecdc5) and [also](https://medium.com/@shelby_78386/http-archive-is-e8raz-selection-4741-1-4741-258-f74b1c7292b0)) connected to Goldman Sachs which [apparently has](https://steemit.com/trading/@anonymint/re-cryptomancer-re-anonymint-re-cryptomancer-re-anonymint-re-cryptomancer-re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180305t060632525z) its alumnus in the [key positions](https://www.armstrongeconomics.com/international-news/politics/gary-cohn-resigns-from-trump-administration-good-riddance/) at the U.S. Treasury and SEC. It’s [not clear](https://steemit.com/trading/@anonymint/re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180307t192240406z) whether other countries will also crackdown on ICO-issued token such as EOS, and whether the posited connections to Goldman Sachs could provide any protection in those other nations.} ## Utility tokens are securities if issued bound to an _investment contract_ The SEC is [going after](https://www.coindesk.com/sec-going-saft/) SAFTs (c.f. [also](http://archive.is/KRxgQ#selection-2433.0-2433.158)). [I originally contemplated](https://bitcointalk.org/index.php?topic=2208231.msg22902804#msg22902804) similar reasoning in September last year. A report issued by the Cardozo Law School in New York explains that SAFTs essentially [subvert the substance](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=11) of the definition of the _investment contract_ security type, because the jurisprudence of a SAFT asserts that—a [bright-line rule](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=5) requiring presence of utility such as consumptive use, combined with [irrelevant timing](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=8)—supersedes or subsumes the economic reality of a securitized investment. > “The SEC is targeting SAFTs. The new approach of the SEC is to consider tokens as both utility and security at the same time, meaning a token can bring utility to a platform but at the same time can be considered as a security if you sold it to parties that mainly looked for profit on its increase in value.” In summary, in the context of fundraising there will be **no way to provide an investment return by issuing a tradeable token to the investor unless that token is a security** (and thus not purely a _non-securitized_ utility token). There’s a thesis [equating a SAFT to](https://www.coindesk.com/icos-saft-cftc-sec-cardozo/) the economic reality of a gold mine, wherein the issued tokens are equated to mined gold. Yet the comparison (to issuance of tokens) belies the inability of any efforts or impacts of a mining enterprise to significantly [affect the price](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=8) of gold. Which by the way is the basis of the definition of a commodity [I had explained](https://bitcointalk.org/index.php?topic=1864869.0) in April 2017. Thus the SAFT conflates [equity vs. commodity](https://bitcointalk.org/index.php?topic=1864869.0)⁴ creating a financial derivative which makes the securitization [risks worse](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=3) while [also adding](https://www.coindesk.com/icos-saft-cftc-sec-cardozo/) potential regulation by the CFTC for commodities derivatives [and even](https://www.coindesk.com/report-warns-saft-may-increase-legal-risk-token-sales/) consumer protection regulators such as the Consumer Financial Protection Bureau (CFPB) where the potential for [abusive market manipulation](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=13) also overlaps the CFTC’s jurisdiction: > "When stripped to its core, even though the SAFT Approach is couched in terms of consumer protection, the result very well could be the opposite." So another aphorism will become **don’t create a token which is both a commodity and a _securitized_ investment**. There’s investments which aren’t securitized such as buy and selling houses, [baseball cards](https://bitcointalk.org/index.php?topic=2156492.msg21587060#msg21587060), [Pokemon cards](https://bitcointalk.org/index.php?topic=1218399.msg14225248#msg14225248), [Cryptokitties](https://techcrunch.com/2017/12/03/people-have-spent-over-1m-buying-virtual-cats-on-the-ethereum-blockchain/), perhaps [the Jesuscoin](https://bitcointalk.org/index.php?topic=2159508.0;all#msg21616969), or [even consumptive goods](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=4) such as wine and event tickets. As explained in [_§Concern #3: […] Pre-selling Consumptive Goods Does Not by Itself Run Afoul of Securities Laws_](https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf#page=11) of the Cardozo report, the mere presence of risk is not sufficient to make a token a security even if it’s sold or [exchanged for](https://medium.com/@shelby_78386/i-am-responding-to-a-draft-you-wrote-which-apparently-doesnt-allow-me-to-comment-on-it-so-i-place-dc7d5ebb3873) (even non-fungible) value when issued. To be a security, it must also be an investment into a common enterprise managed significantly by others ([via the](https://bitcointalk.org/index.php?topic=2208231.msg22902804#msg22902804) horizontal or vertical [commonality criteria](https://www.bu.edu/jostl/files/2016/01/21.1_Alberts_Final_web.pdf#page=15)), with an expectation-of-profit or [in some](http://www.theselc.org/which_states_apply_the_risk_capital_test_when_deciding_what_is_a_security) U.S. States the risk of losing capital. ## Centralized regulation is an inherently corrupt paradigm: not an objective level playing field [A rebuttal](https://medium.com/votem/what-the-cardozo-report-gets-right-and-wrong-about-safts-approach-to-ico-self-regulation-3bf7fbcc7be5) to the Cardozo paper unwittingly argues it’s good for the SEC to be an _arbitrary_ “case-by-case” gatekeeper and as such misses the point that such discretion incentivizes corruption of the regulators themselves (how else can one navigate the [power vacuum’s labyrinth](http://esr.ibiblio.org/?p=984) but to buy off and “capture” the regulators): > So far, projects launched on CoinList — the SAFT-dependent ICO marketplace created by the agreement’s architects — feature user-first services, like Blockstack, FileCoin, and the upcoming PROPS ICO. These experienced development teams are a far cry from the hucksters who populate the Ethereum Scam Database. > > These utility tokens are **_particularly well suited to the SEC’s case-by-case method_**, as stated by the researchers since each token is structured differently. That’s analogous to the myopia [of arguing that](https://youtu.be/CIiNK0VqixY?t=7217) improved disclosure of management biographies is a sufficient benefit to justify the existence of the securities regulation morass. I’ve taken note of the true nature of this securities regulation beast as it applies to distributed ledger tokens. Its jurisprudence interpretations are nebulous enough to foster a massive ICO bubble which can trap naive participants in a labyrinth of multi-jurisdictional, arbitrary case-by-case legal jeopardy. This has the potential to later destroy a significant swath of the open source community. This might even one day be viewed as a weapon-of-mass-destruction crafted by nameless chaos. This quandary of whether to join ’em or forsake the carrot is analogous to choosing between the Mark of the Beast or the rapture purgatory. Decentralized objective protocols are the antithesis to these corruptible, power vacuum, tragedy-of-the-commons clusterfucks. Even the [morass of the self-regulation](https://www.coindesk.com/bitcoin-twitter-war-raging-no-account-safe/) of Twitter is an example of the truth of this section’s title. I had anticipated this with my recent [_Twitter is fucked._](https://steemit.com/psychology/@anonymint/twitter-is-fucked) blog and my oft-stated intention to enable decentralized curation on a ledger. Could objectivized regulation be put into a smart contract? Perhaps eventually so. It seems plausible at least to contemplate limiting the amounts each investor can invest relative to their net worth in cryptocurrency as tracked on the ledger. And limiting how much each issuer can raise in a given timeframe. Regulating disclosure of material facts seems too subjective to automate. Apparently the recent innovation of securities regulation CF is based more [on limits](https://help.startengine.com/hc/en-us/articles/115002616306-How-do-people-invest-in-my-campaign-#h.p_ny4pwOwXgtmY) commensurate to individual risk and thus subsuming the primacy of disclosure. Seems that systemic risk is tied significantly to the underlying economic reality of individual leverage (amplified by unlimited participation and rapid flipping of gains) w.r.t. the limits of liquidity created by the wealth effect of the liquid float that is always only but a fraction of the market capitalization. IOW, the leverage due to the market capitalization growing faster than the actual liquidity. Also there is the alleged fraudulent [faked float](https://medium.com/@sylvainartplayribes/chasing-fake-volume-a-crypto-plague-ea1a3c1e0b5e) on _unregulated_ exchanges. ----- ⁴ _{The SAFT doesn’t create an equity investment. However, in the context of the comparison to gold mining, I don’t foresee^† any non-equity scheme of returning dividends to investors from a common enterprise that “mines” a commodity utility token. Such a common enterprise doesn’t even have to be an issuer. Who issued the gold in the ground?} ## Enforcement is accelerating Regulators are likely to develop [some automated way](https://youtu.be/CIiNK0VqixY?t=18506) to sweep away a large swath of illegal ICO securities. They would continue to aggressively seek enforcement actions against fraud (such as premeditated misrepresentation of facts, [insider trading](https://youtu.be/CIiNK0VqixY?t=19032), etc.) and some large, high-profile ICOs (The DAO being the first example). Their greatest leverage may be to pressure all exchanges within their jurisdictional reach [to delist](https://youtu.be/CIiNK0VqixY?t=18584) all ERC-20 tokens, if not with a direct ban then by ramping up the statements (Edit: which [they just did](https://www.sec.gov/news/public-statement/enforcement-tm-statement-potentially-unlawful-online-platforms-trading)) of potential culpability for the exchanges that continue to trade the ERC-20 tokens which weren’t issued in compliance with SEC, FinCEN, and CFTC regulations. One of the attorneys on the [second expert panel](https://youtu.be/CIiNK0VqixY?t=16619) currently has an associate that was formerly employed inside the SEC. She [pointed out](https://youtu.be/CIiNK0VqixY?t=18691) that the SEC doesn’t want to be embarrassed by the sort of failures that occurred in the subprime collapse for example “Bernie” Madoff. A recent Wall Street Journal [article](http://archive.is/https://www.wsj.com/articles/sec-launches-cryptocurrency-probe-1519856266) stated: > “We’re seeing the tip of the iceberg … there is going to be a ton of enforcement activity,” said Dan Gallagher, **_an SEC commissioner_** from 2011 to 2015 who now sits on the board of blockchain company Symbiont. Mr. Gallagher told an SEC conference in Washington last week that the largely unregulated token offerings are “the freaking Wild West—it is ‘Wolf of Wall Street’ on steroids.” ## Vampire squid reasserts “divided-and-conquered” dominion over securities? As quoted [in that](http://archive.is/https://www.wsj.com/articles/sec-launches-cryptocurrency-probe-1519856266) Wall Street Journal article: > “This feels like Wall St. It’s gross. It’s shady. It’s not what blockchain technology or ICOs were supposed to be about,” Jeremy Gardner, a co-founder of hedge fund Ausum Ventures, said in a tweet in February. [![](https://i.imgur.com/7HCFBXH.jpg) ^{Wrestling the Vampire Squid: Why Goldman Sachs Still Rules The World}](https://www.occupy.com/article/wrestling-vampire-squid-why-goldman-sachs-still-rules-world) Tangentially note that a highly speculative conjecture about the [real reason](https://steemit.com/trading/@anonymint/re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180307t192240406z) Bitcoin was created and who created it, might seemingly explain some of this³. Some of (if not most or all of) the major nations will probably eventually force ICO-issued tokens to trade only on regulated exchanges because they’re not purely _non-securitized_ currencies and/or purely _non-securitized_ utility tokens. Thus effectively subjecting participants to a Kafkaesque labyrinth of different rules and requirements in each jurisdiction. ICO-issued tokens might in some jurisdictions be deemed to include those which are obfuscations of ICO-issued such as Dash and Steem which were issued by proof-of-work distribution schemes which retained planned centralization via [premeditated](http://archive.is/rvSdc#selection-485.197-489.1) sneaky and [instamines](https://bitcointalk.org/index.php?topic=999886.0). Note the obfuscation of the term ‘decentralization’ by pretending or insinuating it has the same meaning as ‘distributed’ (which is a common technically erroneous defense of Dash’s and PIVX’s masternodes scheme). A technologically distributed network can still be centrally controlled at the economic and/or ownership “whom is really in control” layer. But what if other nations ignore the SEC and unbridled ICOs [continue unabated](https://news.bitcoin.com/icos-brush-off-regulatory-concerns-raising-1-billion-third-month-row/) abroad? The regulators can bring enforcement actions against the whales of ICO-issued consortium blockchains, potentially taking possession of their bank accounts and other assets as holdbacks for rescission awards. How much speculative value will a token retain if its [developers have vanished](https://bitcointalk.org/index.php?topic=708729.0;all)? Which app developers are going to develop for a token that is considered to be a security in some jurisdictions causing them to take on jurisdictional liability up the wazoo and geo-fencing users from a Kafkaesque labyrinth of jurisdickinmyassertions and jurisfuckmeovertions? How much speculative value will a token retain if its app [developers have vanished](https://bitcointalk.org/index.php?topic=708729.0;all)? A [recent research](https://news.bitcoin.com/research-paper-says-issuers-of-ico-tokens-will-face-class-action-lawsuits/) paper and an expert from the aforementioned panel both agree with [my statement](https://steemit.com/steem/@anonymint/re-smooth-re-anonymint-re-smooth-voting-is-a-popularity-contest-20180304t074212983z) that (and even more so when/if the next crypto winter comes) [the class action lawsuits will proliferate](https://youtu.be/CIiNK0VqixY?t=6975). Tezos is a [recent example](https://youtu.be/CIiNK0VqixY?t=18048) of the certainty of the coming flurry of class-action litigation, analogous to certainty of flies at a picnic that partake of the opportunity to defect and extract from a tragedy-of-the-commons resource. In this case the ~~pot of honey~~loot⁵ is $8+ billion and rapidly growing. So do countries stoop to sanctions on each other for not cooperating on rescission awards by judicial bodies? In short, any outcome is eventually mayhem of a tragedy-of-the-commons as described in the [“Zombie Marmot Apocalypse”](https://prestonbyrne.com/2018/03/07/ico-dead/). But I digress on the [reason](https://steemit.com/money/@anonymint/get-ready-for-a-world-currency) ~~Biblical Revelation~~Bitcoin was created [to overcome](https://bitcointalk.org/index.php?topic=1082909.msg28558297#msg28558297) this nation-state tragedy-of-the-commons. Additionally, a highly speculative conjecture is that non-regulated exchanges outside the jurisdiction of strict regulators could possibly [be bankrupted](https://steemit.com/trading/@anonymint/re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180307t192240406z) by a posited failure of Tether and/or SegWit. It’s possible that peer-to-peer, decentralized exchange and spending on goods or services will remain largely unregulated in many countries. It’s not a certainty though, because government wield increasing power over black markets as both cash and barter are phased out by electronic currency that’s traceable. This epochal technological shift even [renders gold a barbarous relic](https://bitcointalk.org/index.php?topic=1082909.msg28787016#msg28787016). Yet even if decentralization can mitigate totalitarianism, projects which were mostly hype won’t have significant decentralized use going on anyway. _{I [tweeted](https://twitter.com/airdrop_cryptoz/status/973031073516081152) to refute the FUD in [_We Need To Shut Bitcoin And All Other Cryptocurrencies Down. Here's Why._](https://www.forbes.com/sites/jasonbloomberg/2018/03/10/we-need-to-shut-bitcoin-and-all-other-cryptocurrencies-down-heres-why/):} > ^{Errors in your assumptions:} > * ^{Mining on CPUs is pointlessly insignificant compared to ASICs.} > * ^{Permissionless isn’t a problem because AML/KYC requires a documentary trail of all funds brought into the mainstream financial system.} _{And [tweeted](https://twitter.com/proofpoint/status/972908782375366656) to refute the FUD in [_Top Cyberthreat Of 2018: Illicit Cryptomining_](https://www.forbes.com/sites/jasonbloomberg/2018/03/04/top-cyberthreat-of-2018-illicit-cryptomining/):} > ^{[…] Mining on CPUs is pointlessly insignificant compared to ASICs and if Monero ever becomes as economically significant as say Litecoin, then [it’s possible](https://gist.github.com/shelby3/67d990230e2dc9eb8be9e43e0b0b77a7) to create an ASIC for it.} The reality for goverments is expressed in [_An influential former bureaucrat thinks India just can’t regulate bitcoin_](https://qz.com/1224492/bitcoin-just-cant-be-regulated-in-india-insists-an-influential-former-bureaucrat/): > _“Let us accept that it would not be possible to regulate it effectively. Because they will do transactions from their houses. You cannot enter every home to check what transactions are going on. So, I think this is a serious challenge, and this should not be allowed at all,”_ said Das, currently a member of the 15th finance commission that has been tasked with reviewing the government’s financial situation. > _“That would work very well if the global financial community was moving that way, but since it is not, and, if you want to be an outlier in that regard, it is going to have an adverse impact on your (India’s) financial system,”_ Rastogi said. _“If two or three of the largest economies are giving it legitimacy, one needs to take a hard look at it before you take a drastic step.”_ ## Regulation will crash liquidity? One significant effect of sudden lurch to regulation could be a short-term squeeze on liquidity during the transition from well-established non-regulated (and [allegedly pumped up](https://medium.com/@sylvainartplayribes/chasing-fake-volume-a-crypto-plague-ea1a3c1e0b5e) with faked liquidity) to the _nascent_ regulated exchanges. Another significant chilling effect could be essentially the increased legal compliance effects for those who want to issue, trade, or convert (to/from fiat currencies the) securitized tokens. For example in U.S. securities law, security issuance slows down the realization of liquidity for investors and trading a securitized token on an unregulated decentralized exchange would be illegal for the issuers and their affiliates. **The ability to sell hype into an unregulated _global_ market of speculators will vanish or significantly diminish**. Thus likely popping the speculative bubble in ICOs. ## Kafkaesque clusterfuck of discordant jurisdictional jeopardy There’s a transition underway for governments towards [_enforcing_ a distinction](https://www.coindesk.com/fincen-money-transmitter-rules-apply-ico-developers-exchanges/) between _securitized_ tokens (aka ICOs or implied _investment contract_ token sales) and non-securitized [_convertible virtual currencies_](https://www.fincen.gov/resources/statutes-regulations/guidance/application-fincens-regulations-persons-administering) such as those issued by bona fide proof-of-work. A potentially catastrophic ramification is that issuers, affiliates, and the group running the common enterprise are potentially liable in some of the myriad of ways the use of said securitized token infringes upon the ([often _Twilight Zone_-esque bizarre](https://steemit.com/money/@anonymint/re-anonymint-re-anonymint-re-anonymint-global-contagion-of-bank-failures-coming-20180305t131750853z) parochial) laws in some jurisdictions. It can be argued that the common enterprise is the responsibly party for regulating the usage of said securitized token because the investors are dependent on the “essential efforts” of the common enterprise for their expectation-of-profit. Securitized tokens are thus permissioned tokens that run on [consortium blockchains](https://steemit.com/trading/@anonymint/re-cryptomancer-re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180302t164036406z). Those who issue securitized tokens (i.e. those attached to an investment contract) should probably be wary of [not allowing](https://en.wikipedia.org/wiki/Gold_farming#Lawsuits_by_game_companies) them to trade freely decentralized as a controvertible virtual currency (even if they represent an equity share in a company), because they’ll be potentially liable to legal jeopardy up to the wazoo! **So the irony is that issuers will be begging for assistance to regulate/restrict the trading their securitized tokens**. Lol. I reiterate the maxim: > So another aphorism will become **_don’t create a token which is both a commodity and a securitized investment_**. We slide into the insoluble, Kafkaesque [clusterfuck of discordant jurisdictional jeopardy](https://youtu.be/CIiNK0VqixY?t=958) not limited to just [tax issues](https://youtu.be/CIiNK0VqixY?t=1931). This is analogous to the fact that the average American unwittingly commits [three felonies per day](http://www.businessinsider.com/henry-blodget-you-commit-three-felonies-a-day-2009-9) without knowing it. Even [non-securities regulation](https://youtu.be/CIiNK0VqixY?t=1099) such as [Office of Foreign Actions Control](https://youtu.be/CIiNK0VqixY?t=13624) (OFAC) [sanctions law](https://youtu.be/CIiNK0VqixY?t=1413) and the newly enacted EU [_“General Data Protection Regulation”_](https://steemit.com/money/@anonymint/re-anonymint-re-anonymint-re-anonymint-global-contagion-of-bank-failures-coming-20180305t131750853z) (GDPR) constitute legal jeopardy minefields of unfathomable complexity. Even attempting to rescind ICOs to extricate from legal woes could run into the clusterfuck of negotiating with [regulators in “117 different countries.”](https://youtu.be/CIiNK0VqixY?t=17972) Even [the quip](https://youtu.be/CIiNK0VqixY?t=19151) referring to only two axes of the labyrinth—don’t expect to simultaneously avoid income taxation and securities regulation—is inapposite: ![](https://i.imgur.com/AbBdfJv.png) Even expert legal ~~advice~~compliance [such as](https://youtu.be/CIiNK0VqixY?t=19304) the following won’t help avoid the death by unfathomable legal jeopardy for a securitized token that attempts to also be borderless: utility tokens must have a consumptive use, don’t sell it before it’s launched, license affiliates [who receive commissions](https://youtu.be/CIiNK0VqixY?t=7348) of funds raised, disclose all affiliates, make sure all representations in a securities fundraising are conservative, factual, and will occur (i.e. don’t speculate and no hype in a prospectus!). In addition to the affected tokens likely [losing the liquidity](https://youtu.be/CIiNK0VqixY?t=12283) of being tradeable at existing _borderless_ exchanges (_at least_ a liquidity squeeze until the regulated exchanges take form, such as Overstock’s tZero and Goldman Sachs’ revamp of Poloniex), transitioning to regulated tokens [means returning to](https://youtu.be/CIiNK0VqixY?t=874) a world with borders in a multifarious, Kafkaesque maze of regulatory jurisdictions such that tokens may no longer be issued and traded globally, e.g. [geofencing](https://youtu.be/CIiNK0VqixY?t=714) New York, Japan, China, South Korea, Singapore…which ties into the [observation of why](https://steemit.com/trading/@anonymint/bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019) the crypto markets may likely go into a _temporary_ crypto winter pause from 2019 – 2021: > ¹ _{Note a 2020/21 low would also correspond to an [expected bottoming for Asia](https://www.google.com/search?q=site%3Aarmstrongeconomics.com+China+bottom+2020) in the recently rapidly accelerating [coming global economic collapse](https://steemit.com/money/@anonymint/global-contagion-of-bank-failures-coming) which should only be a recession for Asia yet the start of an economic depression for Western Europe (i.e. the EU), noting what [I wrote](https://steemit.com/trading/@anonymint/re-rajsallin-re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180303t142729302z) to @rajsallin about Asia being the early adopters of crypto en masse.} My [_§ICO-issued Tokens Will Collapse?_](https://steemit.com/trading/@anonymint/bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019) refutes the [myopic claim](https://youtu.be/CIiNK0VqixY?t=22133) (from November 2017) that the ICO bubble was only _“1.5% of the $200 billion”_ crypto market capitalization. Their estimate of $3 billion raised in ICOs (which by now is in excess of [$8.16 billion](http://archive.is/https://www.wsj.com/articles/sec-launches-cryptocurrency-probe-1519856266)) doesn’t represent the [significant percentage](https://coinmarketcap.com/charts/#dominance-percentage) of the total crypto market capitalization for ICO-issued tokens. Additionally, the _“100,000 account signups per month with $30,000 average balance”_ demand for new Coinbase accounts cited by the panel (as evidence that the entire sector is not frothy) could have been largely demand for obtaining Bitcoins to invest into ICOs that accept only cryptocurrency investments. This is supported by the above growth from $3B to $8B in 3 months. ## My Conclusion **My current estimation is that issuing _securitized_ tokens which trade freely as a cryptocurrency will come back to haunt all those key people involved in terms of legal and financial woes potentially for the remainder of their miserable lives!** What appears to make sense by following the ICO mania now, is going to appear incredibly stupid in hindsight a few years from now. In mass manias, even very smart people such as Isaac Newton tend to forget to take off their rose colored glasses. We’re moving into a world where everything will be tracked and if you’re not compliant then everything you have can be clawed back from you. Increasingly no one will accept your tokens if you don’t pass AML/KYC bad actors checks. There will be no place to run and no place to hide with your crypto wealth if you’ve not complied with Caesar’s laws. I’m a rebel but also realistic. Remember Jesus’ advice in the Bible: > Render to Caesar the things that are Caesar's; and to God the things that are God’s. I think developers who invest their efforts in platforms based on [consortium blockchains](https://steemit.com/trading/@anonymint/re-cryptomancer-re-anonymint-bitcoin-to-usd15k-in-march-usd8-5k-by-june-then-usd30-k-by-q1-2019-20180302t164036406z) ostensibly controlled by oligarchies of whales and with tokens which were not clearly issued to avoid implicit investment contract securitization, are also going to suffer at least a loss of _sustainable_ upside compared with if they had chosen a more political-economics-scalable⁵, decentralized path less laden with luggage full of unstable hand grenades. And potentially lurking are the unfathomably complex downsides of obscure, arcane, parasitic, dysfunctional, tragic legality-related quagmires. ----- ⁵ _{And appositely, my [correction](http://unheresy.com/Essence%20of%20Genius.html) to Google’s sample intelligence test, is that the only Nash equilibrium for the captain is a tragedy-of-the-commons. He must offer to distribute the loot to everyone who doesn’t defect. Democracies and voting are a power-vacuum. Consider Mancur Olsen’s [thesis](http://esr.ibiblio.org/?p=984) on collective action or my [logic on why](https://steemit.com/steem/@anonymint/blog-rewards-can-t-be-widely-distributed) Steem’s voting can never be objectively distributed. Truly decentralized systems are hypothetically an [Inverse commons](http://www.catb.org/esr/writings/magic-cauldron/magic-cauldron-5.html). A truly decentralized ledger [doesn’t exist](https://gist.github.com/shelby3/e0c36e24344efba2d1f0d650cd94f1c7#file-public-preview-md) yet.} _{_Disclaimer: I’m not a lawyer, not your adviser, this is a blog, this isn’t advice._}

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