Matt Levine: Ripple Is a Security and It Isn’t

https://www.bloomberg.com/opinion/articles/2023-07-14/ripple-is-a-security-and-it-isn-t

13 15 3 years ago

ETH_start6• 3 years ago

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.

charleslmunger5• 3 years ago

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"

ETH_start6• 3 years ago

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/

nly• 3 years ago

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?

nivertech• 3 years ago

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.

Armisael16• 3 years ago

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.

Matt Levine: Ripple Is a Security and It Isn’t

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