New way of fundraising/ICO: eTokens (eBTC, eLTC, eDash, etc)
How do you think recent launching of many eTokens such eBTC, eLTC, eDash, etc will change/modify the way of fundraising and coin development, because its protected from whales which can buy big pie of any coin on ICO stage and manipulate price.
The history of eTokens is
discussed here.
Actually it doesn’t protect against whales who may own a lot of the coin that is being airdropped, and as well many of the tokens might be on exchanges, so the exchanges end up with the airdropped coins. Presumably these whales can split their addresses as necessary to bypass any filtering designed to prevent dropping to whales.
It’s interesting to me from another standpoint. It seems to perhaps present a way to turn an illegal ICO issued token into a legally issued token!
Imagine you did an ICO, then those tokens were ruled to be illegal securities. So as the developers you simply fork the open source code and airdrop to all those holding the illegally issued securities. Since your new issuance did not form an investment contract, i.e. no funds were transferred, then in theory the new tokens are not securities. Of course, if you had advertised this to original investors of the token sale, then maybe the new air drop tokens would be securities, so it would need to be something done later that investors were not expecting.
Another issue is that if the same common enterprise that sold the original token sale is the one managing the airdrop, then the new air drop tokens could also perhaps be argued to be securities because the investors’ profit (gain) expectations are still dependent on the same efforts of the others who they gave their money to in the token sale.
Presumably would only airdrop if the exchanges had delisted an ICO issued token, thus exchanges would not be an issue (unless the bastards had confiscated a lot of it, yet that’s the fault of those who leave their tokens on exchanges too long). If your altcoin has an easy-to-use built-in decentralized exchange, then presumably it’s only the traders who want to short or need more (or real-time) liquidity, who are going to be using the centralized exchange.
This appears to make securities regulation unenforceable against ICO issued tokens! (The issuer and perhaps some participants could still remain culpable though)
I have actually not seen yet anything in USA securities law that incriminates an accredited or non-accredited investor for buying a security that did not meet a registration exemption (or exempt but reports not filed). Rather afaik, it is the sales of securities that can make an investor (and any centralized exchange facilitating the trade) culpable. So if the investor is selling the non-security (which was air dropped), then afaik the investor is not incriminating him/herself.
@dinofelis had long claimed (and actually that originates from @Peter R’s spin-offs idea which @smooth and others also promulgated years ago) that airdrops would be superior to hardforks. Much less contentious, as BCH has demonstrated. It enables more degrees-of-freedom, because then everyone can simply vote with their wallets independently of each other.
I personally think these airdropped e-tokens make absolutely no sense, it takes 10 minutes to create them with no specific plan in mind other than to airdrop them […]
Indeed the dilemma is which airdropped fork is the “official” or unique one. But if for example some party which was very instrumental in the ecosystem, but which was not the original issuer of the token sale, was the one who issues the airdrop, then perhaps that is sufficient to determine which fork wins. It’s competitive, decentralized, and survival-of-the-fittest paradigm.
Someone pointed out to me that perhaps dividends of an existing (legal or illegally issued) security would also be considered a security. I think it depends on the circumstances as I stated above. Let me reiterate and elaborate my thoughts.
A dividend of a security is not a security under the Howey test unless it forms an investment contract. I think that is the legal argument that the Filecoin SAFT is employing.
I argued above that a dividend of a security which was promised at the time of issuance is part of the original security, because it formed part of their profit expectations when the investor invested and thus was included in the (even implied) original investment contract. Thus I argue the SAFT will be a security.
However, if someone decides to give away tokens to someone for any reason (such as to everyone who has green eyes), this is not an investment contract because nothing was invested nor risked nor any funds pooled.
The determinant appears to be that the dividend can’t be connected to the expectations of the investment contract of the security. Thus the issuers of the security and the dividend have to be distinct from each other in terms of which efforts of others the investors of the original security where depending their profit expectations on.
It’s very important to understand the preponderance of the horizontal commonality definition of ‘common enterprise’ as I had explained in detail and cited jurisprudence for in
my latest Steemit blog (see
also discussion) on this matter. This means that for an investment contract to exist there has to be value transferred and pooled by the common enterprise that is making efforts which the investors’ profit expectation depends on. This involves who issues, not just what is issued. Thus what determines whether the dividend is a security is not what is issued (e.g. some derivative profit even if generalized derivative profits were expected by investors) but rather whether the derivative is connected with the common enterprise of the original security. This is why I believe EOS’ or a SAFT obfuscation of a security with a dividend token is still a security because the dividend was promised along with or is connected with the original common enterprise. Investors who have generalized expectations of dividends from unknown future parties, have no horizontal commonality with those future parties, thus no investment contract was formed. IOW, how can an investment contract be formed with some entity the investors do not know even exists at the time of their investment.
Note like all airdropped coins such as BCH, I am not proposing a chain reorganization back to the genesis block. Rather the current token distribution at some block would form the basis of those who receive the airdrop.
I really think many of you readers still do not understand the Howey test and what makes a security per the investment contract category. It is quite clear that airdropped coins if issued by an entirely different issuer as the ICO can not be an investment contract between the ICO investor and the new airdrop issuer because it does not meet the Howey test, because there is no horizontal commonality for a common enterprise connecting the original ICO issuer to the airdrop issuer. There is no transfer of funds from the ICO investors to the airdrop issuer. And there is no profit expectations for the ICO investors that depended on the airdrop issuer from the time their investment was placed to the time when the token because already free trading and an operational cryptocurrency.
It’s a loophole but not a provably illegal one. No one is issuing an investment contract if they (other than Google) issue a token to everyone who holds shares of Google.
Every ICO does not do this because first they did not think of it yet. Secondly it does not protect the issuer of the ICO from culpability, it only provides a way to unencumber the token from being a security. And lastly, because up until just past weeks, no enforcement had taken place so no one was worried about ICO issued tokens becoming illegal to use and trade and delisted.
Basically you are saying that the trick will be doing the fork/airdop of the new tokens, while ensuring that nobody had prior expectations or knowledge that it would happen? I’m not sure how to put it in my own words. Is the term for this “plausible deniability”?
Well “plausible deniability” only applies to those who are potentially culpable of some illegal matter. Since none of the investors are the issuer, then they’re are not culpable of any illegality when buying an illegally issued security (i.e. the ICO). They’re are only culpable when selling it.
So if the airdrop converts the tokens into a non-security, then the investors are no longer culpable when selling. There’s no plausible deniability involved for them. It’s simply that someone issued an airdrop which isn’t an investment contract with the original ICO investors and thus afaics not a security, thus investors are free to sell it, just like any other gift that someone might give someone. If I give you chocolate bars, they’re not an investment contract and you’re free to sell them.
So what is the difference with this vs the distribution that was done by Byteball? They simply took a snapshot of BTC blockchain at a certain point and then handed out tokens based on your holdings. Could you not pick a blockchain and say that we'll release tokens to holders of tokens on said blockchain?
Byteball is not a security (unless perhaps they were receiving kickbacks from those exchanges or whales who received airdropped tokens). The difference between airdrops and ICOs, is that no funds are transferred from investors to the issuer, thus there is no horizontal commonality for any common enterprise managing the (even ongoing) development of the airdropped token.
I was not proposing that the airdrop will do a chain reorganization back to the genesis block. BCH did not do that. Why are people thinking that is what I meant???
What do you mean then? If the airdrop continues from the fork point like BCH then why is the airdrop needed? Or would the airdrop effectively double the tokens in circulation by airdropping to the original ICO investors an another batch of tokens?
My gosh. After I have explained numerous times in my writings and Steemit blogs and our communications in private, you all seem to still not understand the definition of an investment contract via the Howey test which makes a security, and the horizontal commonality requirement for the common enterprise. How many more times do I have to explain that before it is understood?
The airdrop creates a new token which has no “investment contract” connection to the ICO issued token.
Yes then there are two tokens and two forks of the decentralized ledger, but the airdrop is to whomever owns the tokens at the time of the airdrop and has nothing to do with the genesis block. But investors might be careful about selling the ICO issued token, as it might be considered a security, but some investors do not give a shit (middle finger to the regulators) and will sell it any way. Yet in any case, appears the properly airdropped token would not be a security and thus legal to sell, trade, and use.
Disclaimer: IANAL. This is not legal advice.
