This is the first of a three-part series based on Gary Gensler’s extensive prior public statements on crypto. Links to parts 2 and 3 will appear here as they are published.
As the heir-apparent to the Chair of the Securities and Exchange Commission, Gary Gensler’s most critical role in the future of crypto will be his thoughts on how cryptocurrencies intersect with securities regulation.
Where crypto meets the SEC
The SEC has been a focal point for the crypto world’s attention for a long time. While its initial enforcement actions in crypto were largely limited to overt fraud, the 2017 DAO Report was its entry into even the best-intentioned of projects. It was that report that determined that crypto pre-sales could fall into the category of securities offerings.
In the intervening years, however, the SEC has frustrated the crypto community with its lack of clear definitions as to which tokens would not fall into the category. This is a big deal because issuers of securities are subject to rigorous reporting requirements that, critically, complicate the path towards decentralization.
Real-time thoughts on SEC entrance into unregistered offerings
While Gensler left public office as Chairman of the Commodity Futures Trading Commission back in 2014, in the years since he’s left an extensive body of work allowing us to glean at least some insight into his thoughts on initial coin offerings. Not least among these are the actual lectures from his time at MIT, videos of which come from the fall of 2018, at the tail end of the ICO boom. Which Gensler noted:
“The majority of ICOs have failed already. And because they keep failing so fast — by the end of this year or certainly by the middle of next year, over 90% or 95% of them will have failed if you take the whole total. So it’s pretty clear it’s going to come down”
Indeed, Gensler lectured on ICOs just days after the SEC made clear that it would start pursuing ICOs for failure to register: “For the first time, they really talked about illegal securities offerings. So they used the word illegal. And they’re starting to get to the place where they’re shutting some of these down that were not necessarily scammy or fraudy, but just saying you didn’t register.”
Bitcoin, based on its decentralized network and the lack of an issuer — aided by the mystery behind the identity of Satoshi Nakamoto — gets treatment as a commodity throughout the U.S. It’s a status that many other networks aspire to.
At the time, Gensler had positive things to say about projects like Ethereum and Filecoin, but did acknowledge that Ether benefited from being so early, saying that he would consider it a security:
“Ether: We’ll talk later in the semester as to whether that was really a securities offering. I’ve publicly said I think so, but that was in 2014. And in 2018, the Securities and Exchange Commission has said, ‘regardless of what it might have been in ’14, it’s now sufficiently decentralized that we’ll consider it not a security.’”
Similarly, Gensler was quick to point out that given the market dominance of Bitcoin and Ether, even amid the rush to fund ICOs, the bulk of crypto investment was not in securities at all:
“So we already know in the U.S. and in many other jurisdictions that 3/4 of the market are not ICOs or not what would be called securities, even in the U.S., Canada, and Taiwan, the three jurisdictions that follow something similar to the Howey Test that we’ve talked about. 3/4 of the market is non-securities. It’s just a commodity, a cash crypto.”
Whether Gensler agrees with predecessor Jay Clayton that every ICO he’s seen has been a security is in doubt, however.
The saga of the SAFT
The Simple Agreement for Future Tokens, or SAFT, was an important legal framework that many of the biggest ICOs of all time followed. The largest ICO to date, EOS in some ways led the charge by splitting the investment contracts it sold from the actual token distribution, but Block.one did not use a true SAFT.
The biggest SAFT ICO was Telegram, which raised $1.7 billion on its prospective GRAM tokens in the first half of 2018. In June of 2020, the SEC won a final legal judgment to cut off distribution of those tokens before the network even launched. At the time of the initial case, Telegram and the SEC were stuck arguing about how functional the actual network had become independent of Telegram — a critical determination when you are talking about decentralization.
While impressed with Telegram as a firm was skeptical about what function the actual GRAM tokens were supposed to be performing to merit their $1.7 billion valuation. Overall, he questioned the value of the bulk of ICOs being based, as they were, on prospective ideas rather than written code: “How do you really get to the value of a token when there’s so little written in these white papers about this specificity?”
It seemed that Gensler was, overall, pretty unimpressed by the SAFT framework, saying of the writers of the initial whitepaper that “I think they were wrong, by the way.” However, he did have positive things to say about Filecoin, which ran an ICO using the SAFT framework to raise a quarter billion dollars.
“Filecoin seemed to be a good-faith concept about using a token to motivate the exchange of file storage,” said Gensler, before getting more skeptical: “They raised the money in October of 2017. It’s 13 months later. They still do not have a live network. And the latest announcement says it will come either in the first or second quarter of 2019. Some people might call that a scam. I wouldn’t.”
Filecoin’s network launch delays became a running joke, but the network did indeed launch near the end of 2020 and seems to be functioning as well as anyone could hope, with a circulating market cap of over a billion dollars and, theoretically, another $49 billion in value to come. Indeed, Filecoin seems to be the success story of the latter days of the ICO market, which Gensler was prescient enough to identify two years ago.
A reckoning for Ripple
Ripple’s relationship to XRP has historically been extremely controversial, with the firm running what many consider an extended ICO since 2013. Gensler was very open that he considered XRP to be a security as an investment in Ripple, an opinion that it would be another two years before the SEC would bring to court to fight for:
“Yes, I do think it’s a non-compliant security. But this will not be resolved just by the Securities and Exchange Commission. It will be resolved by some courts, whether it’s appellate courts or the Supreme Court.”
Given that Gensler will inherit the suit against Ripple, his attitude toward the company is critical. For comparison, another former CFTC Chairman, J. Christopher Giancarlo came out in support of XRP’s status as a currency last summer. Obviously, Ripple would prefer the commission to see it this way. Gensler, on the other hand, lambasted Ripple’s lack of use case — a critical part of demonstrating that a token does not depend upon the third party behind it in the same way that a stock does upon its issuer:
“For four years, you had no use of XRP, as I understand it zero use. Today, it’s the second highest-valued cryptocurrency. It’s past Ethereum with the fall-off of the value of Ethereum and Bitcoin. And at $18 billion, I couldn’t tell you what it’s worth. I can tell you that’s what coinmarketcap.com says they’re worth. But their revenue model is selling XRP in that case.”
Overall, Gensler’s mentality doesn’t seem to represent a sharp divergence from what the SEC has already said. He is, however, quite prepared to identify specific areas of concern for future ICOs, which seems a strong basis for future policy.
Man Behind Steven Seagal-Touted ICO Facing 5 Years in Prison
John DeMarr and his accomplices allegedly managed to net millions of dollars while deceiving investors
The U.S. Justice Department announced Friday that John DeMarr, a 55-year-old man from California, had agreed to plead guilty to one criminal count of securities fraud, which carries a maximum prison sentence of five years.
His sentencing is scheduled to take place on Jan. 4, 2022.
DeMarr participated in a multi-million securities fraud scheme linked to two cryptocurrency companies.
In order to drum up interest for the project, the fraudsters started touting a fake endorsement allergy made by a famous sports star.
While investors were promised they could easily withdraw their money, this wasn’t the case, according to prosecutors. DeMarr and others allegedly spent the investors’ funds on a Porshe and other luxuries after obtaining millions of dollars:
According to court documents, DeMarr and others falsely claimed that investor funds would be invested in digital asset mining and trading platforms that would earn them massive profits. In truth, however, the money was never invested and was instead diverted to accounts controlled by DeMarr and others and used for various personal expenditures, including the purchase of a Porsche, jewelry, and to remodel DeMarr’s home in California.
In early 2018, the victims were forced to move their funds to B2G, a fraudulent initial coin offering that was promoted by American actor Steven Seagal.
As reported by U.Today, Seagal had to pay a $314,000 fine to the U.S. Securities and Exchange Commission after being charged with illegally touting the investment.
Initial Coin Offering (ICO) and others: the projects of the moment
The hype of the crypto sector has sparked an incredible desire to launch new projects, some of which through ICO , Initial Coin Offering.
the ICO phenomenon appeared in all its disruption on the crypto scene between 2017 and 2018. But the sector was in full speculative bubble, so many promising projects failed to break through, others were real scams, others they made history. For example Ethereum , whose ICO is actually dated 2014. Ether tokens sold for $ 0.31. Not bad since Ethereum is now worth around $ 2,500.
Another ICO that went down in history as one of the “richest” ever was Filecoin . It raised $ 200 million in 2017. The project has slowed down, but today not only is its ecosystem online and usable, but FIL has even entered the Grayscale basket , which has a special trust dedicated to institutional investors.
Initial Coin Offerings today
Today in the sector there are not only ICOs. In fact, ICOs appeared on the scene with Ethereum for the first time, as mentioned in 2014. It was, at the time, an innovative system of financing blockchain projects: investors bought tokens, giving liquidity to the project that was in fact able to finance themselves.
Today there is also talk of IEO (Initial Exchange Offering), but in this case the project is launched in collaboration with a cryptocurrency exchange . This ensures that the project immediately acquires credibility, especially if the token exchange takes place on an authoritative platform. In the case of the ICO, in fact, the tokens are sent directly to the addresses of the recipients without going through the exchange.
Then there are the STO , an acronym that stands for Security Token Offering. In this case, the subject of the exchange changes, a security token, or a financial security.
The last frontier is that of IDOs ( Initial Dex Offering ), in which the launch of the token for self-financing is done on a DEX, a decentralized exchange. So in fact the launch is entrusted to the will of the community.
Today, there are numerous platforms that help investors navigate the world of ICOs. For example, Coinmarketcap provides a specific calendar with projects in the launch phase or in progress.
Top ICO List makes a real ranking of the projects considered best. At the time of writing this article, the PointPay ICO is in the lead , a project that aims to integrate 10 different products into its ecosystem, revolutionizing the payment system. Open from July 2020, it will close funding on 22 July 2021.
Even ICOholder seems to give much credence to PointPay, putting it in first place with a rating of 4.95. Another project follows , via IEO, which is Easy Feedback Token , the token of the EasyFeedback platform, a maxi review portal. The EFT token serves to reward those who launch reviews on the platform.
In short, those who thought that ICOs were dead will have to think again . The world of ICOs is not only more alive than ever but it is also going through a period of interesting evolutions.
Cardano’s (ADA) Pioneering ICO Revuto (REVU) Raises $10 Million: Details
Revuto (REVU), a multi-purpose decentralized financial protocol, shares the results of its tokensale. It is the first time that a crypto project has raised funds on the Cardano (ADA) blockchain.
First ICO on Cardano (ADA) completed successfully
According to official announcements on the results of the tokensale, its public stage ended in less than 90 minutes. REVU tokens were sold to Tier-1 Early Bird investors in 30 minutes, and to all Tier-2 investors in 18 minutes.
Also, it took 42 minutes for Revuto (REVU) to raise funds from retail supporters in the “Community Sale” stage.
During the most overheated stages of this ICO, the Cardano (ADA) mempool was congested by the transactions of ADA holders interested in the REVU tokensale.
Yoroi, a Cardano (ADA) wallet for end users, witnessed issues with transactions processing due to enormous pressure on the network.
The Revuto team expects REVU in top 10, warns about scammers
In its celebratory announcement, the Revuto (REVU) team congratulated all enthusiasts with this splendid milestone and teased the explosive growth of the Revuto ecosystem in the coming months:
Our team won’t stop until we bring REVU token into the top 100, and then in the top 10 tokens in the world.
The project reiterates that no member of its team will contact potential investors. Also, REVU tokens have not been listed by exchanges yet.
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