I think by using the word "published", this guy confused his point. I think he means "released".
No. I meant "published".
We are in a decentralised, non-equity market. That means we are trading initially worthless tokens on a blockchain, not companies.
Ask yourself, what happens in an equity market when a company issues new shares at will and you purchase those shares. You still have your money because the company's entire asset base is owed back to you. Even if it converts your monetary capital into plant & machinery, those assets will be valued at an aggregate level, reconciled to a unit share value and their cost will always be owed back to you at LEAST at book value. Years later, if there's a discrepancy between the prevailing corporate valuation and what you paid for your share, that will be accounted for in a continuous sequence of annual trading accounts - even if it goes to zero.
Now lets compare that model with issuing tokens on a blockchain.
Centralised vs Decentralised ArchetypesThe original (mining) archetype was that tokens would be "released" through a decentralised process whereby the market at least paid for the cost of production of the token. A common definition of "marketcap" evolved which was based on the "circulating supply" (the mined supply to date) and "total supply" (the maximum ever possible to be mined). This would allow investors to reference an aggregate value for the asset - in so far as it is traded as a security - and work back to a corresponding exchange ratio with other assets.
So each of those two types of asset - corporate equity on the one hand and decentralised blockchain assets on the other - had their own respective valuation discipline which allowed markets to engage in a reasonable price discovery process.
The issue I've been raising in my previous, so called "troll" posts, is that we are now seeing a wholesale corruption of both these disciplines where ICO issuers simply cherry pick the capital generation properties from each paradigm while flushing all the key accountability properties down the toilet. Before illustrating why, lets recap the contrasting definitions of "token release" and "token supply" in the respective business models:
Summary of DistinctionsA. In the equity model, you can create 'tokens' (shares) at will, but the capital raised is still owned by the existing shareholders, not by the directors. Companies are therefore justified in calling themselves the 'source' of the equity and can fairly be described as "releasing" new shares in the sense of creating new capital that has immediate value for those investing, since investor capital is simply crossing from one side of a fence to the other and is still owned by the investor even though they’ve parted with their cash
B. In the (classic) blockchain model, the invested capital is not owed back to the investor, but, tokens
cannot be created at will. The investment comes from the miner who creates a monetary token at cost which the market then executes a price discovery process over to establish a final traded value
C. In BOTH cases, there is a categorical protocol for establishing an AGGREGATE valuation for the asset which is the only meaningful reference since unit valuations are simply an arbitrary subdivision of this. In the centralised model, it's the number of shares times the traded price per share. In the decentralised model it's the number of blockchain tokens created to date times the market value of the last traded token
Corrupted HybridNow lets observe how all the principle disciplines of accountability from the above protocols have been discarded in order to create a new "corrupt" hybrid:
From
A. we've retained the ability to create tokens at will, while we've
lost the condition that the invested capital is to be owed back to the investor
From
B. we've lost the cost of production of the tokens
From
C. we've lost the requirement to report an aggregate valuation appropriate to our business model which therefore leaves the unit exchange rate wide open to 'gaming' (i.e. we're issuing tokens as if they were equity but reporting them as if they were the current 'mined' supply).
So, in summary: in a decentralised context, Reggie is not the "issuer" and should not be presenting himself as such. He is a trader who is at liberty to sell as much or as little of his wallet as he likes. The difference being that if he was an "issuer", buyers would still own the Ether/bitcoin that they paid him for the tokens. His full wallet therefore counts towards marketcap just as much as mine or yours.
’The more the merrier’Lets turn for a moment to all the hand waving surrounding the idea that it’s actually a good thing that more tokens are sold - the so called “Metcalfe's Law”:
…platform business model or you would realize that the more the merrier (you know, Metcalfe's Law, and all...). Again, you are consistently looking at the economics as a inflationary item count or some sort of dilutive effect similar to traded equities. That is almost the antithesis of what we have here
There was no dispute here. It’s almost a universally understood concept that greater adoption garners value - even if it comes out of “Reggie’s wallet”. However “Metcalfe’s law” is no more than a philosophical nuance unless its effect can be measured and quantified at an aggregate level - independently of the type of asset concerned. Contrary to what Reggie asserts in that post, it’s not the “antithesis of what we have here”, otherwise he’d be selling software as a service and not as a tradeable “security”.
The reason this is significant is because there are two ways in which Metcalfe’s law can have an impact and only one of them benefits the small investor holding a fixed quantity of tokens. In particular, if all the new sales come out of a part of the supply that is not currently counting towards marketcap, then the Metcalfe’s law all goes into the hidden supply growth but the market’s valuing the unit rate as if there was none, so you’ve got this timebomb waiting to go off as soon as the real valuation is known. (NOTE: Nothing to do with ‘dilution’, simply establishing an authentic, commonly accepted aggregate valuation).
What’s a ‘SecurityFinally, lets consider the idea that’s been posted both by Reggie and by others that VERI somehow “isn’t a security”. All I’d say to that is that it’s the market that decides whether it’s a security or not and basically anything at all that has a resale value and a variable price is a potential candidate.
There are indeed some justifiable cases for arguing that a “blockchain token is not a security”, but only when the market is deprived of making trading gains on it and they’re more properly described here by one of the more respected Ethereum project staff (and none of which apply to the VERI token).
You stated:
"So, in summary: in a decentralised context, Reggie is not the "issuer" and should not be presenting himself as such. He is a trader who is at liberty to sell as much or as little of his wallet as he likes..."
This is wrong. Reggie (or more appropriately, a company that Reggie works for has created a contract that) is both the issuer (creator) and a major stakeholder. You are loosely throwing around terms as jargon that have very little correlation to the topic at hand. Traders are speculators who chase price movement (in any direction they can monetize - whether up or down - with the anticipation of economic gain). Stakeholders seek economic gain from the increase in economic value of the asset in which they have some for of "economic" (and not necessarily equity) stake. This major misunderstanding on your part. I cannot overemphasize this point enough. I really do mean major - for this is massively inappropriate application of perverse logic that renders you incapable of both understanding how to value Veritas and Veritaseum, and anticipating the future action of the assets that I shepherd. It is in my best interest to perform in a fashion that maximizes the value of the economic stake that I shepherd and oversee. Thus what is good for the relatively smaller stakeholder (ie. many of those in this forum) is very, VERI good for me. What is bad for the relatively smaller stakeholders in this forum will be very, VERI bad for me. Your assert that I am a trader, where there's potential parting of interests between myself and the smaller stakeholders where what's good for me may not necessarily be good for the rest of you guys. That is simply wrong on a wide variety of levels.
You also stated:
"His full wallet therefore counts towards marketcap just as much as mine or yours."
I don't necessarily disagree with this, but it is also not necessarily a stated negative either. More on this later, though.
You stated:
"otherwise he’d be selling software as a service and not as a tradeable “security”."
This is an arbitrarily contrived opinion of yours that you are stating as fact. We are distributed and autonomous software and financial engineering-based solutions provider. The token enables the distributed and autonomous attributes of the delivered solution. Attempting to pigeonhole us into either a SaaS or a security decision is simply a capricious lumping of every potential option into category A or category B, even worse, rendering category B potentially illegal.
You then go on to state:
“However “Metcalfe’s law” is no more than a philosophical nuance unless its effect can be measured and quantified at an aggregate level - independently of the type of asset concerned”.
I don’t remember reading that in Professor Metcalfe’s thesis, but let’s give you the benefit of the doubt. Using the undisputed poster child of Metcalf’s thesis, the Internet, what is the stated “measure[d] and quanty[ified] at an aggregate level - independently of the type of asset concerned”?
Again, you are arbitrarily casting you opinion as stated fact, and more egregiously, doing so without any evidentiary or empirical backing. That may fool the uninitiated, but just a little critical thought pierces the illusion of intellectual authority, easily!
You then go on to state:
“The reason this is significant is because there are two ways in which Metcalfe’s law can have an impact and only one of them benefits the small investor holding a fixed quantity of tokens. In particular, if all the new sales come out of a part of the supply that is not currently counting towards marketcap, then the Metcalfe’s law all goes into the hidden supply growth but the market’s valuing the unit rate as if there was none, so you’ve got this timebomb waiting to go off as soon as the real valuation is known. (NOTE: Nothing to do with ‘dilution’, simply establishing an authentic, commonly accepted aggregate valuation).”
This is nonsense!!! Valuation is derived from economic cashflows. In essence, the amount of real, inflation and risk adjusted capital generated. You haven’t broached this topic ONCE in your entire diatribe, yet you haphazardly throw in the term and concept of “valuation”. That’s simply not how a prudent person approaches fundamental analysis. I’ve even been lenient enough to overlook the use of the term “marketcap” which although popular in the media and discussion boards, is highly misleading. Download our Gnosis report to glean an understanding on how to value tokens. In order for real valuation to be “known” of even honestly discussed, we need to broach topic of revenue generation and margins. I’m listening….
Then you go on broach the topic of what is a security. This is a legal issue, yet you are quoting a developer? It’s not in my best interest to open that hornets nest, but let it be known that we established nearly immediately, the utility value of out tokens through the issuance of research, and through the announcement of strategic deals wherein established institutions with strict regulatory oversight have agreed to purchase the tokens solely for their utility value in building their own constructs of value. It just so happens that the first of these deals to be announced was a securities exchange. You are purposely ignoring fact, to build an argument on fiction, and worse yet you are doing the equivalent of asking a law firm to build software. Head Smack!!!
