Mr Villardo's comments are chilling. If as you said "Basically, ICOs are 99% of the time classified as securities in the US.", the SEC needs to come out and say it.

This will of course lead to the freezing of US persons from participating in most ICOs, and lead most of our crypto community to move to Switzerland.

However, throwing any possible ICO idea at Mr. Vilardo, he was able to cite previous successful SEC lawsuits that the SEC could use as presedence.

The only token I could conceive that he thought there SEC would not be able to go after is a token that can only be bought and sold at a fixed price and only from the issuer (non-transferable).

He also reminded me that the SEC is one entity. States have their own securities law and you could easily be sued in state court under a different set of securities rules than the federal government has.

EDIT: Also, to be clear ICOs and securities are not illegal. Selling an unregistered security is illegal. If you want to sell a security you can register it with the SEC and be fine. That will of course be pretty expensive.

Ethereum itself seemingly fails the Howey test, so it will be interesting to see if they are all prosecuted.

"From April 30, 2016 through May 28, 2016, The DAO offered and sold approximately 1.15 billion DAO Tokens in exchange for a total of approximately 12 million Ether (“ETH”), a virtual currency used on the Ethereum Blockchain."

They might change their mind on the matter, and expand their definition of virtual currency to be securities, but they went out of their way to publish a piece which references the word "Ethereum" 39 times, "Ether" 2 times, and "ETH" 15 times. None of those times do they refer to Ethereum as as security.

[1] - https://www.sec.gov/litigation/investreport/34-81207.pdf

That's actually the entire point of the Howey test, which was established as part of a case to determine whether or not property that was classified as real estate could also be classified as a security.

ICOs are not crypto. They use a small amount of cryptography in their implementation, but no serious member of the real crypto community is working on any ICO (based on Ethereum anyway. Yes, a proof of stake coin is worth working on).

Given crowd funding through token sales is the first major use-case for cryptocurrency, and is funding numerous cryptocurrency projects, I can't see how one could argue that it is not important to the cryptocurrency sector. Also, almost all token sales are on Ethereum.

http://static2.businessinsider.com/image/598c2fd427fa6b5e174...

Could Blizzard have an ICO for WoW gold that could only be used as it is now with no attached ideas of selling equity?

1. Was there an investment of money? (money is actually broadly defined to mean anything of value)

2. Was there an expectation of profits from the investment? (this is easy to prove because it's the opinion of the investor)

3. Was the investment of money in a common enterprise? (this means are the interests of the investor and company aligned, or does the investment go into running a business)

4. Does profit come from the efforts of a promoter or third party? (This means is the investor mostly powerless in having their investment go up our down in value)

In your WoW example:

1. Yes

2. Probably for someone

3. Yes, the money is used to develop the platform

4. Yes, if Blizzard hypes their coin or if you can trade it on an exchange

I think the biggest difference between an ICO and a digital good is that ICOs are traded on exchanges. If you buy a digital good and can only use/redeem/trade on the company's platform then it is not a security.

Imagine that I bought $10k worth of Chuck E. Cheese tokens and I could convince the SEC that I sincerely expected the value of those tokens to go up substantially. I doubt that would be enough to meet the Howey requirements, even if my expectation was sincere.

Doesn't seem speculative for the people playing the game. Though for a trader it is.

Fail to see the difference between buy/sells on the company platform compared to a third party. Both could be used for speculation.

For your tacos to be securities, the company would have to be working in some capacity to give those tacos more value in the future. Since tacos expire, all reasonable taco investors know that their investment will go to $0 in the near future, therefore no expectation of profit.

It's amazing how broadly security is defined and enforced. The only examples I was able to discuss with the SEC that were not securities were when the asset being sold could not reasonably generate a profit and could not be transferred. Basically like selling a product or accepting a donation.

There is also securities case law where a company sold a security to a single person or very few people and they were sued successfully.

“reasonably expect”, in law, imposes an “objective” standard; the mere subjective expectation of a buyer won't meet it, the court applying the test will need to find that the expectation was objectively justified in the concrete circumstances that existed. It's a much higher bar than merely did any individual buyer have a subjective expectation of profit.

If the coin has a mechanism where it can always be bought for $1 forever it's reasonable that you can't expect a profit.

But ICOs don't do this. They limit quantity to drive demand of people hoping their limited resource will be worth more in the future.

They are certainly not shares. But could you turn such a token into an investment opportunity? Certainly you could.

The stunning reality is that Blockchain technology makes practically everything a security. SEC's wet dream.

It's probably why, on some level, all coupons carry the disclaimer that they have no (or nominal) cash value, and are void if tranferred.

Here is the big reason why. If you are creating an ITO, you are implicitly promising that you will provide tacos to someone in the future.

It is a taco future. You can't just create futures, even taco futures, without falling under regulations.

THAT is the problem with ICOs. Look, if you just want to sell a cryptocurrency, that has ALREADY been created, you won't run into any issues with the law. There is nothing illegal about premining, and selling a crytocurrency.

The problem is when you say "This cyptocurrency represents stake in something that doesn't exist yet, but I totally promise that it will exist in the future". No. Thats a future. Thats a security. If it doesn't exist yet, you can't sell it without falling under security laws.

They would dismiss your complaint as silly, trivial, and obviously frivolous. That is, your complaint would fail the test of common sense.

If Jose was communicating with an ISIS recruiter but they couldn't pin him on that - could they pin him on the Taco racket?

[1] https://www.wired.com/2009/06/e-gold/

"can be returned for what you paid for it"

This seems like a safe harbor if it's true! This is huge. So, an ICO with this clause would require the company to keep all the money raised on reserve, but then if the token goes up in price and never goes back down to the original level they can start using that surplus money. Kind of like a bank does with fractional reserve lending.

Do you have any more info on this?

This is a worst case scenario and realistically they can probably spend half of the USD / BTC / whatever raised on actually running the business.

As the token goes up in price, less and less people will want to buy at the current price. At some point issuer insure themselves against the remote possibility of the price crashing and people making a run on the issuer, by buying out-of-the-money call options if they can find some underwriter.

Then the underwriter's issuing the securities, and the issuer can spend some or all of the money protected by the call options / insurance.