Utility Tokens: Avoiding The Long Arms Of The SEC

[GreenBits]

So with the SEC actually going after individual projects, it seems that the only way to pass the Howey test and still offer something that people actually want to buy is by offering a utility token. Not a promise of profit; its more of a purchase than an investment.

You are essentially buying brand credits for whatever functions that platform provides. If the token is to increase in value, it would due to market speculation on the "scrip", not because of on increase of valuation in the underlying asset (the issuing company). Is this truly a work around? fundamentally, the price is tied to the valuation of the brand, even if the share doesnt represent equity.

its like buying walmart store cards in a walmart ico 

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[audaciousbeing]

So with the SEC actually going after individual projects, it seems that the only way to pass the Howey test and still offer something that people actually want to buy is by offering a utility token. Not a promise of profit; its more of a purchase than an investment.

You are essentially buying brand credits for whatever functions that platform provides. If the token is to increase in value, it would due to market speculation on the "scrip", not because of on increase of valuation in the underlying asset (the issuing company). Is this truly a work around? fundamentally, the price is tied to the valuation of the brand, even if the share doesnt represent equity.

its like buying walmart store cards in a walmart ico  

I just laugh at this illustration because most times its not only the form that matters but also the intention which will only be interpreted in the law court. SEC I know would  thought about that angle and even though its dicey, they can still act on it then push the onus of otherwise on the promoters to come and defend while its otherwise.  Its a strategy and it has worked quite a number of promoters or developers would want to shy away from such back and forth litigation in proving who or who is not right and at the end of the day it might amount to waste of time and energy.

The best way to go about it, is to either comply with their rule or avoid it all together rather than looking for loopholes in those laws.

[HeRetiK]

So with the SEC actually going after individual projects, it seems that the only way to pass the Howey test and still offer something that people actually want to buy is by offering a utility token. Not a promise of profit; its more of a purchase than an investment.

You are essentially buying brand credits for whatever functions that platform provides. If the token is to increase in value, it would due to market speculation on the "scrip", not because of on increase of valuation in the underlying asset (the issuing company). Is this truly a work around? fundamentally, the price is tied to the valuation of the brand, even if the share doesnt represent equity.

its like buying walmart store cards in a walmart ico 

If I remember correctly utility token have been brought up before as tokens that would not fall under the SEC's jurisdiction. Arguably it's also one of the reasons why the SEC stated that not necessarily all ICOs are deemed to be securities.

I don't think it really matters whether the price is tied to the valuation of the brand. In case of an utility token, it's not much different than any other crowdfunding campaign where funders are offered product instead of equity. I guess the main challenge for ICO projects will be to find a way that makes utility tokens gain value over time, without triggering the SECs interest. If each token is pegged to a fixed fiat value, akin to a gift card, there's no reason for people to buy in.