>But I am not sure that it is actually all that good for crypto in the long run. The message of this decision is that crypto companies can freely sell tokens to retail investors as long as those retail investors are uninformed and the companies are secretive about it; only if they sell tokens openly to sophisticated investors will they get in trouble. That’s bad. In the 1920s, a lot of people started very shady companies and raised a lot of money by selling stock with bad and misleading disclosures, and so the securities laws were created to stop them. That did not have the result of stamping out stock issuance in the US

I wish we would just let the free market work. That means prosecuting those committing fraud, but otherwise allowing investors to invest how they wish, and learn their lessons the hard way, which is to lose money.

Copy-pasting my earlier comment on this:

What was remarkable to me was how quickly the token sale investment sector evolved between 2016 and 2018.

When token sales began in 2016, a white paper alone was enough to raise $40 million worth of cryptocurrency. By the end of the brief experiment, which ended with the SEC's entry into the sector in early 2018, the typical token investor was highly discerning, with the result being that only reputable teams were able to raise money.

This transformation occurred completely independently from any regulatory action. The collective intelligence of the market increased from hard-won lessons in the need to do due diligence, and the emergence of numerous internet resources that advised on how to effectively invest in token sales.

My preference would be for the government to not intervene with regulatory regimentation of the token sale market, but that obvious frauds - where a team promises the moon and then uses the money raised to buy themselves lamborghinis - be punished after the fact. In other words, that the government establish the rules of a free market - no prior restraint, but consequences if you are found to have committed fraud. Yes people would still lose money, but at least the fraudsters wouldn't learn that crime pays, and survive to defraud another day.

This would provide the benefits of free market evolution, while still removing bad actors from the market.

>By the end of the brief experiment, which ended with the SEC's entry into the sector in early 2018, the typical token investor was highly discerning, with the result being that only reputable teams were able to raise money.

* FTX * CEL * 3AC * SafeMoon * The entire NFT "ecosystem"

None of those are token sales. FTX, CEL and 3AC were centralized custodians, and in terms of insolvencies/hacks of centralized crypto custodians, the situation was much worse in 2010-2016.

There was mybitcoin.com, in 2011, which closed down after it claimed it had been hacked for 250,000 worth of customer BTC.

Then there was Bitomat.pl, the third largest exchange, which closed down in 2011 after accidentally deleting their wallet.dat file and with it, 17,000 of their customers' BTC.

There was MtGox - the largest exchange which at its peak accounted for 80% of crypto exchange volume - which was closed down in 2014 after it was revealed that it has been hacked for 850,000 BTC.

There was Bitcoinica which shut down after it was hacked for around 100,000 BTC in 2012.

There was Bitfinex which was hacked for 120,000 BTC in 2016.

By 2017 the major crypto exchange had proper security in place, and major crypto exchange hacks became far less frequent.

Here is a list of hacks and the dates they occured:

https://chainsec.io/exchange-hacks/

CEL is a token，FTT is a token, SafeMoon is a token, the T in NFT is for token. 3AC didn't list a token but they were an investor in obviously stupid token schemes - 20% inflationary APY with an algorithmic "stable"coin. The facts are that a lot of money was poured either directly into stupid/fraudulent tokens or into enterprises that made a big deal out of issuing their own stupid/fraudulent tokens. "only reputable teams were able to raise money" is simply not true.

>the situation was much worse in 2010-2016

That might be true, but the people being scammed with lambo dreams in 2016 were a fraction of those getting scammed in 2021.

Of those only CEL was involved in a token sale, and it wasn't an obvious scam at the outset, so the fact that it attracted capital wasn't unreasonable. It had known functionaries, and that meant that they could be arrested later on when it became clear they were engaging in fraud.

Celsius and FTX (FTT) also attracted much of their capital because reputable and established exchanges like Coinbase were prevented by regulatory gatekeeping from providing competing products. The SEC ordered Coinbase to cancel its LEND program that would have competed direct with Celsius for example.

>>but the people being scammed with lambo dreams in 2016 were a fraction of those getting scammed in 2021.

I have no idea what the basis of your claim is. In any case, a proper comparison is to look at what fraction of token sales were fraudulent at the beginning of the token sale era, and at the end of it, in 2018. That tells us whether free market development works to create a progressively better functioning market.

Terra had an ICO in 2019. SafeMoon had its pump and dump in 2021. NFTs were sold at auction directly to the public. 3AC is the existence proof that token investors were not all sophisticated.

>CEL [...] wasn't an obvious scam at the outset

From the Celsius website:

>Earn up to 17% APY and get paid weekly when you HODL your coins with Celsius

It is not possible to pay 17% on deposits in a time of historically low interest rates while taking the low level of risk Celsius was claiming. The specific mechanism that was claimed, namely that they were taking a lower spread than banks, was obviously absurd. On the same website there is a diagram that is literally a circle explaining how CEL returns work.

>reputable and established exchanges like Coinbase

Gemini is supposed to be reputable and established. How are investors in its Earn offering doing now?

My point was that the total number of people who gave away sovereign currency in exchange for cryptocurrency they did not intend to use directly (i.e., buying a pizza, publishing smart contracts, etc) was much larger in 2021 than 2018. I think we probably have different ideas about whether speculating in a manipulated market rife with fraud counts as getting scammed, but surely we can agree that crypto had much wider reach in 2021.

Terra wasn't one of the tokens you mentioned, and in any case —while fatally flawed in its design— was substantially less obvious in its shortcomings than so many of the projects that successfuly raised capital in 2016.

As for Gemini, it did traditional lending. Coinbase Lend used Compound to do algorithmically enforced loans that are over-collateralized. Compound, along with every other well-regarded DeFi app, survived the crash with all loans paid back.

In any case, if you're looking for anecdotes negating my point, you can find them. The point I'm making is that a much higher proportion of large token sales were baseless in 2016 than in 2018. I observed rapid improvement. I did not say that by 2018, every investor was sophisticated, and every project that raised capital was well-run, or responsible with the investment capital they received.

>20% inflationary APY with an algorithmic "stable"coin

Was a reference to terra and the anchor protocol. And while it's true that its flaws were less obvious than some truly stupid tokens from 2016, I don't think that's a fair characterization of the problem. In some ways it was actually a more obvious failure than dumb 2016 tokens. If I announce a perpetual motion machine, you don't need to actually analyze its schematic to know that it can't work the way I say. The same is true of a self balancing token pair scheme. A high school economics class is all that's required to understand why it can't work.

An overcollateralized loan is traditional lending. It's a software-implemented mortgage. How reliable it is is dependent on the risk profile of the backing assets and the creditworthiness of the borrower. A liquid market is a workable but imperfect way to assess value. It cannot measure risk - the information simply is not there. Volatility is not risk.

As for what portion was baseless... I think that's a fundamentally subjective question. From my perspective, the vast, vast majority in both years was baseless. I look at the entire cryptocurrency space as a place where interesting tech could have found value, but it's so infested with fraud and speculation that it can't.

We can agree to disagree. A significant fraction of the successful 2016 capital raises had almost nothing in the way of a plan for how to achieve their goals, and were set up to make it trivial for the fund soliciters to scam the investors. Having anonymous project leads makes an investment proposal indisputably worse, and that was case for many of the early token sales, to give one example of a feature that investors demonstrably learned to avoid.

Terra had actual development, a viable ledger, actual deployed dApps, and decent wallet software and consensus infrastructure integration, in being a Cosmos blockchain app.

Terra was bad, but when the totality of the projects is examined, nowhere near as bad as what was once common.

>An overcollateralized loan is traditional lending. It's a software-implemented mortgage. How reliable it is is dependent on the risk profile of the backing assets and the creditworthiness of the borrower.

The protocols that now constitute DeFi primitives survived completely unscathed in the recent crash, while numerous centralized lenders both inside and outside crypto became insolvent.

When loan contracts are enforced transparently and in accordance with terms that are immutably encoded, there is virtually zero risk of fraud and mistakes.

>When loan contracts are enforced transparently and in accordance with terms that are immutably encoded, there is virtually zero risk of fraud and mistakes.

Like solend?

https://app.realms.today/dao/7sf3tcWm58vhtkJMwuw2P3T6UBX7UE5...

Solend is not anywhere close to being a "DeFi primitive". Those would be:

* Uniswap V1/V2

* MakerDAO

* Aave

* Compound

* Curve

They're immutable, heavily audited, and been subject to intense live-testing in an adversarial environment, where billions of dollars worth of digital assets have been locked by them for years, which has acted as an effective bounty for every hacker in the world.

Is the US dollar also a "security"?

- It's created from nothing by the US Government in order to create a pool of "investors" who will fund the business of running the country.

- They regularly "buy back" USD in the form of issuing Treasuries

- It pays its employees in USD just like Meta pays its staff in stock.

- If USD becomes less valuable it makes its "stock buybacks" cheaper (borrowing is cheaper)

- It trades on public exchanges.

From the USG's perspective isn't it a security?

ChatGPT says:

I'm not a lawyer ...

Regarding the U.S. government, it is generally not considered a common enterprise for the purposes of the Howey Test. The U.S. government does not typically operate as a profit-seeking enterprise or pool funds from investors for the purpose of generating profits. The U.S. government is a political entity responsible for governing and providing public services, rather than engaging in commercial or investment activities.

The Securities Exchange Act of 1934 explicitly exempts currencies in section 3 part 10 (split across pages 11/12 of https://www.govinfo.gov/content/pkg/COMPS-1885/pdf/COMPS-188...).

Of course this is only an answer for the US legal system.