SEC blocks the Telegram ICO – what this means, and what happens now(davidgerard.co.uk)
davidgerard.co.uk
SEC blocks the Telegram ICO – what this means, and what happens now
https://davidgerard.co.uk/blockchain/2019/10/13/sec-blocks-the-telegram-ico-what-this-means-and-what-happens-now/
104 comments
Isn't all that the stuff that makes crypto exciting? Its the wild west come again. A new frontier. Appeals to the desire to expose oneself to risks for profit. To do something that maybe you shouldn't. To operate outside of the soft, protected existence of mainstream first world society. Bowl without the bumper bars.
Absent that emotional fulfilment its just boring old money.
Absent that emotional fulfilment its just boring old money.
I know "wild west" is a popular analogy, but I fear people may forget it was awful.
Native peoples were slaughtered and forced off their land. Natural resources were mined and hunted with no regard for long-term sustainability. There was slave labor, sex trafficking, and endless profiteering based on speculation or downright lies. The rich got richer and maybe some poor people got a leg up? A whole lot of people ended up poorer, sicker, or dead.
So yeah, maybe cryptocurrencies are a bit like the wild west.
There are ways of taking risks, exploring, and pushing boundaries that don't put vulnerable people at greater risk. As far as I can tell the wild west and cryptocurrencies aren't it.
Native peoples were slaughtered and forced off their land. Natural resources were mined and hunted with no regard for long-term sustainability. There was slave labor, sex trafficking, and endless profiteering based on speculation or downright lies. The rich got richer and maybe some poor people got a leg up? A whole lot of people ended up poorer, sicker, or dead.
So yeah, maybe cryptocurrencies are a bit like the wild west.
There are ways of taking risks, exploring, and pushing boundaries that don't put vulnerable people at greater risk. As far as I can tell the wild west and cryptocurrencies aren't it.
"I know "wild west" is a popular analogy, but I fear people may forget it was awful."
Fair points about the American Wild West and lawlessness, genocide, etc. But I think a better analogy would be the medieval era. The economic similarities between cryptocurrencies and feudalism have been fairly well discussed already, e.g. the privatisation of money creation, proliferation of decentralised currency fiefdoms, the crypto-VCs and crypto-oligarchs the new feudal lords and the "hodlers" the new vassals, etc. But the potential social impact hasn't really been discussed much. If the crypto-lords, supported by their crypto-serfs, do succeed in breaking down the social contract, we do risk returning to an era when life was "nasty, brutish and short". Life in the medieval era, before the Age of Enlightenment, when magic and superstition ruled everyday life, when there was the ever-present threat of plague, pestilence and famine, makes the Wild West sound not so bad after all, and is not something I would have thought many would consider aspirational.
Fair points about the American Wild West and lawlessness, genocide, etc. But I think a better analogy would be the medieval era. The economic similarities between cryptocurrencies and feudalism have been fairly well discussed already, e.g. the privatisation of money creation, proliferation of decentralised currency fiefdoms, the crypto-VCs and crypto-oligarchs the new feudal lords and the "hodlers" the new vassals, etc. But the potential social impact hasn't really been discussed much. If the crypto-lords, supported by their crypto-serfs, do succeed in breaking down the social contract, we do risk returning to an era when life was "nasty, brutish and short". Life in the medieval era, before the Age of Enlightenment, when magic and superstition ruled everyday life, when there was the ever-present threat of plague, pestilence and famine, makes the Wild West sound not so bad after all, and is not something I would have thought many would consider aspirational.
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Same analogy was used for the internet and look what it gave us? It is also based on the Wild West of the USA and it turned out ok, not without its own problems but I'm not sure we would be saying let's just wipe the USA off the map because when it started things were not perfect.
> internet ... it turned out ok
Did it? The internet I see is largely overrun by bandits and shysters looking to make a quick buck at the expense of every sucker they can find.
Did it? The internet I see is largely overrun by bandits and shysters looking to make a quick buck at the expense of every sucker they can find.
Hype as the solution to boredom is a symptom of intelligent, capable people, not being tasked with valuable work they feel passionate about. I'd argue this is heavily due to built-in friction into our systems of indoctrination, educational pathways and a lack of basic foundation of capital to survive from - e.g. to develop your ideas, your skills - perhaps coding and designing, story telling to better, more eloquently express yourself and your ideas - all necessary skills to become a leader, to manage an organization - to organize.
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> Altogether cryptocurrency is such a terrifyingly irresponsible ecosystem, I'm surprised anyone wants to be involved in it.
Here are some reasons why people might be interested in the cryptocurrencies ecosystem:
- Paying 3% per credit card transactions isn't efficient
- Decentralized Finance matters. The DeFi movement is actually really interesting. You should look into decentralized lending protocols with stablecoins.
- Decentralized Governance is exciting and can facilitate new experiments like Quadratic voting
Here are some reasons why people might be interested in the cryptocurrencies ecosystem:
- Paying 3% per credit card transactions isn't efficient
- Decentralized Finance matters. The DeFi movement is actually really interesting. You should look into decentralized lending protocols with stablecoins.
- Decentralized Governance is exciting and can facilitate new experiments like Quadratic voting
This one is PoS though.
Supposedly, AFAIK it's vaporware and may never be released.
Even if it is functional PoS (which sounds like a codified plutocracy, but I could be wrong), they still managed to botch securities regulations. Even if they sneak past that somehow, it seems likely they'll also fall afoul of AML/KYC regulations.
Maybe not! Maybe they're finally the ones who will do it all! Legal and ecologically responsible! If so they're off to a very bad start.
Even if it is functional PoS (which sounds like a codified plutocracy, but I could be wrong), they still managed to botch securities regulations. Even if they sneak past that somehow, it seems likely they'll also fall afoul of AML/KYC regulations.
Maybe not! Maybe they're finally the ones who will do it all! Legal and ecologically responsible! If so they're off to a very bad start.
Do fully legal cryptocurrencies even make sense? They have to be legal only to sneak past regulations and gain adoption, but still somehow escape government control, so that AML, etc. cannot be enforced.
Besides proof-of-work and proof-of-stake, I’m surprised the more ecologically-friendly proof-of-space system isn’t being looked at harder. FileCoin uses it (it’s integral to the system to prove you have the space you’re selling) but it could also be used by other distributed Blockchains to prove that a node’s operator has invested in the ecosystem (by buying lots of storage) - I’d say I’d prefer to run out of HDD supply than destroy the earth through fossil-fuel power plant emissions.
If Filecoin works (still haven’t shipped), then it’s unclear whether it’s less wasteful than PoW. This is because coins are mined by using up hard drive capacity, whether or not useful data is stored. The theory is that it will be better to store useful data for people because miners will get paid for that in addition to the mined coins. You could have a situation where 99 percent of the storage used in Filecoin is storing junk.
Proof-of-space rapidly goes to the price of the cheapest bulk storage, which is who can rent space on AWS cheapest, per David S. H. Rosenthal:
https://blog.dshr.org/2018/03/proofs-of-space.html
https://blog.dshr.org/2018/09/chia-network.html
> Note also that it is possible at low cost to rent very large amounts of storage and computation for short periods of time in order to mount a 51% attack on a PoSp/VDP network in the same way that "mining as a service" enables 51% attacks on alt-coins.
> For example, a back-of-the-envelope computation of a hour-long Petabyte attack at Amazon would start by using about 7 days of AWS Free Tier to write the data to the sc1 version of Elastic Block Storage. The EBS would cost $35/PB/hr, so the setup would cost $2940. Then the actual hour-long attack would cost $35, for a total of just under $3000.
> I'm skeptical that the low-reward approach to maintaining decentralization is viable.
https://blog.dshr.org/2018/03/proofs-of-space.html
https://blog.dshr.org/2018/09/chia-network.html
> Note also that it is possible at low cost to rent very large amounts of storage and computation for short periods of time in order to mount a 51% attack on a PoSp/VDP network in the same way that "mining as a service" enables 51% attacks on alt-coins.
> For example, a back-of-the-envelope computation of a hour-long Petabyte attack at Amazon would start by using about 7 days of AWS Free Tier to write the data to the sc1 version of Elastic Block Storage. The EBS would cost $35/PB/hr, so the setup would cost $2940. Then the actual hour-long attack would cost $35, for a total of just under $3000.
> I'm skeptical that the low-reward approach to maintaining decentralization is viable.
Proof-of-Capacity schemes would incur ecological cost as well, replacing a constantly escalating energy demand for a constantly escalating rare-earth metal demand.
Does Proof of Space work? I seem to remember there being fundamental issues FileCoin hadn't resolved, but I probably last looked into it months or years ago.
Maybe this? https://github.com/filecoin-project/research/blob/master/ope...
I don't have the time/desire right now to figure out how the project is doing and the soundness of the approach.
Maybe this? https://github.com/filecoin-project/research/blob/master/ope...
I don't have the time/desire right now to figure out how the project is doing and the soundness of the approach.
Burstcoin uses proof-of-space. IIRC it was launched in 2014.
PoW is arguably ecologically irresponsible, but PoS consensus should fix that issue. Have you read the ouroboros papers?
https://eprint.iacr.org/2018/378.pdf
https://eprint.iacr.org/2018/378.pdf
The web could also be associated with all those subjects, but despite that there is value in the world wide web. Regarding the environmental impact of Bitcoin, pre-mined coins like Telegram ICO solves that problem.
No serious digital asset still uses PoW or at least is on the way to ditch PoW. If you look at the most popular tokens/coins you'll see all the PoW coins are useless and no one is developing anything for them. They are just there to speculate and because people can't let go. TON uses PoS btw.
Usually when I visit web shops accepting cryptos as a payment all top coins accepted are pow coins.
Crypto payment in a web shop isn't even a real use case. What they do is send crypto to a third party which sells it for fiat and then the good is paid with fiat. Does that need crypto? No that would work with anything else. The Code on a Paypal PSC for example isn't a crypto coin/token but it can do the exact same thing just better in most cases. The reason you can buy stuff with crypto in web shops is because people wanted to not because it makes sense to do that. It would kinda make sense if there would be a world current with rather stable value. But stable coins are IOUs aka debt so they are not really cryptos.
The difference is that if a web store accepts crypo they don't need to worry about the payment processor oligopoly cancelling them.
They get fiat whenever someone makes crypto payments to them. The payment can be stooped by anyone in between like the exchange the bank of said exchange or the web shops bank who gets the payment form the exchanges bank. None of these web stores circumvent the payment processor oligopoly.
> Telegram refused to accept a subpoena
Within the sea of stupid that was this endeavour—single-issuer token pretending not to be a security, the wholesale scam that are SAFTs—this really takes the cake.
Within the sea of stupid that was this endeavour—single-issuer token pretending not to be a security, the wholesale scam that are SAFTs—this really takes the cake.
If you'd like to join our legal team you can reply with your résumé!
I think that's arguable. You're completely within your rights to refuse an unlawful order from a police officer. That it usually would lead to you getting shot reflects poorly on our society, not on the judgement of the person refusing the unlawful order.
> You're completely within your rights to refuse an unlawful order from a police officer
Subpoenas are court-ordered requests for documents. If you disagree with them, you fight them in court.
Subpoenas are court-ordered requests for documents. If you disagree with them, you fight them in court.
FYI: The SEC can issue an "administrative subpoena" on its own authority, created by Congress. They're only tested in court if you refuse, at which point the SEC (or similar agency) can go to any court of competent jurisdiction.
This is not an unusual state of affairs; something like ~300 federal enforcement missions can independently issue subpeonas.
This is not an unusual state of affairs; something like ~300 federal enforcement missions can independently issue subpeonas.
If the court is in your home territory this may make sense. If, for example,you got a subpoena from a high court in Saudi Arabia, would you respond? Would you even hire a local lawyer? Nope,you would wait until it was filed in a court in your country of operations.
Resisting unjust legal action (initiated either by officer or judge) can happen any number of ways, including telling the court to stuff it.
Plea deals are the overwhelming number of convictions in the US, something like 90%. Most people do not have access to legal recourse and trusting any US court to operate sanely is a bad idea. Best to avoid it if you can.
Plea deals are the overwhelming number of convictions in the US, something like 90%. Most people do not have access to legal recourse and trusting any US court to operate sanely is a bad idea. Best to avoid it if you can.
> Most people do not have access to legal recourse
This is a red herring. Telegram have access to lawyers.
This is a red herring. Telegram have access to lawyers.
It's not. They have access to lawyers, but can they outspend the SEC or any other agency that wishes to participate? One of the best predictors of whether a lawsuit succeeds is money spent.
Another good predictor of lawsuit success is what the law says, and in this case it's pretty clear Telegram is in the wrong.
That's an essentially totally misinformed view of the law -- especially civil law -- in the US.
It's all about how much money you can spend on lawyers and experts, not whether you're right or not.
Hell, the government doesn't even know what the laws they write say, and they rarely agree on what they mean.
It's all about how much money you can spend on lawyers and experts, not whether you're right or not.
Hell, the government doesn't even know what the laws they write say, and they rarely agree on what they mean.
This just isn't true. Yes, if you have zero dollars it's bad news for you. But if you have enough money to have decent lawyers then things even out, even if the other person has much more money than you. Then what the law says is a big deal!
See https://news.ycombinator.com/item?id=21245365
See https://news.ycombinator.com/item?id=21245365
Ehh, no; and frankly, it's like you've not even read my comments at all. If you have please speak to some specific argument they bring up. Otherwise, repeating the opposing argument serves no point.
It's almost always about money. On the defensive side, there are enough ways to stall that you can almost always outspend someone to win. On the offensive side, you can spend more time investigating and almost assuredly turn something indictable up. Have you really never heard of this?
It's almost always about money. On the defensive side, there are enough ways to stall that you can almost always outspend someone to win. On the offensive side, you can spend more time investigating and almost assuredly turn something indictable up. Have you really never heard of this?
> It's almost always about money
As someone who as gone through a fair deal of litigation and arbitration, this is wrong (or at the very least, inapplicable). It’s a common armchair lawyer’s myth.
If your opponent has more than $100,000 the tables are fairly even; more than $1 million, totally even. There is a ceiling to court costs, and a finite amount of time before judges issue rulings. (Spending to try and get an outcome predictably pisses off judges.) Getting to a judge costs money; once you’re there, American courts are robust.
At an individual level, these thresholds are prohibitive. At a corporate level, they’re not. Exhibit A for you should be the SEC’s win-loss record, even against individuals. (It’s mixed.)
As someone who as gone through a fair deal of litigation and arbitration, this is wrong (or at the very least, inapplicable). It’s a common armchair lawyer’s myth.
If your opponent has more than $100,000 the tables are fairly even; more than $1 million, totally even. There is a ceiling to court costs, and a finite amount of time before judges issue rulings. (Spending to try and get an outcome predictably pisses off judges.) Getting to a judge costs money; once you’re there, American courts are robust.
At an individual level, these thresholds are prohibitive. At a corporate level, they’re not. Exhibit A for you should be the SEC’s win-loss record, even against individuals. (It’s mixed.)
Do you think there are any viable financial instruments that would allow the little guy to not be bossed around by the threat of ruinous legal fees? eg: Insurance that would cover up to $100,000 in legal fees in the event that you are sued. (If everyone were required to have such insurance, it would be quite cheap.) Another option could be to allow the defendant to "double the stakes" and say, "If I lose, I will pay 2x the amount you are asking for. If I win, you must pay the amount you are asking for... to me." That would allow innocent-but-nonrich people to secure loans for legal fees. Heck, some firms might even "invest" in the defendant by charging a percentage of the winnings (if they are judged not guilty).
Surely class actions cover this sort of thing? And I know court costs work differently in the US and UK, but there are plenty of "no-win, no-fee" legal firms over here - affectionately known as "ambulance chasers" lol.
You seem to have completely misunderstood me. I'm talking about situations where a poor or middle class person is being sued by a rich person or large company. How does a class action cover that? And ambulance chasers sue big companies on behalf of poor people, not defend poor people from lawsuits. Both of your examples are the opposite of what I'm talking about.
class actions exist solely to enrich lawyers. They generally do little to nothing for the people who are the parties to them.
It seems you interacted with reasonable people who wanted to uphold the rule of law. Not all lawyers, prosecutors, judges, or police officers are like that. The best suggestion I can make is to look up the correlation between time spent preparing in a criminal case and conviction rate. I do not have research db access anymore and can't do this for you.
It should be obvious that time/money spent and outcome correlate by looking at the reverse. Spending no time would assuredly prepare an inadequate case. What is unusual is the almost unbounded positive direction correlation.
You need to divorce "following the law" and "following the law that was intended or that may result in the most freedom for the most people." Many high level cases are the former, not the latter.
It should be obvious that time/money spent and outcome correlate by looking at the reverse. Spending no time would assuredly prepare an inadequate case. What is unusual is the almost unbounded positive direction correlation.
You need to divorce "following the law" and "following the law that was intended or that may result in the most freedom for the most people." Many high level cases are the former, not the latter.
Absolutely.
I have a friend who went to prison for a crime someone else committed, almost solely because the defense did not have the financial resources to fight the charges effectively.
I have a friend who went to prison for a crime someone else committed, almost solely because the defense did not have the financial resources to fight the charges effectively.
Which order is unlawful in your mind?
It is not necessary that I agree, but probably that the Telegram offering is not a security. Sure, "all they had to do was file" but that is a pretty onerous requirement if you think you're not a security, and hugely restricts your market.
The Telegram token may increase in price but there's no profit sharing directly from Telegram. It's as if you funded a kickstarter for a limited edition trading card and the company was going to soon start printing more.
Nobody is actually commenting on this argument. It just seems like there's a team of people following me around downvoting me.
The Telegram token may increase in price but there's no profit sharing directly from Telegram. It's as if you funded a kickstarter for a limited edition trading card and the company was going to soon start printing more.
Nobody is actually commenting on this argument. It just seems like there's a team of people following me around downvoting me.
>but that is a pretty onerous requirement if you think you're not a security
But the SEC does, so tough luck?
>The Telegram token may increase in price but there's no profit sharing directly from Telegram
Sounds like a weasely attempt to skirt the rules. Look up the Howey test
>The leading case on the definition of an investment contract is the U.S. Supreme Court case, SEC v. W.J. Howey Co. Under the Howey test, an investment contract is “a contract, transaction or scheme whereby a person invests his money in a common enterprise[1] and is led to expect profits solely from the efforts of the promoter or a third party.”
But the SEC does, so tough luck?
>The Telegram token may increase in price but there's no profit sharing directly from Telegram
Sounds like a weasely attempt to skirt the rules. Look up the Howey test
>The leading case on the definition of an investment contract is the U.S. Supreme Court case, SEC v. W.J. Howey Co. Under the Howey test, an investment contract is “a contract, transaction or scheme whereby a person invests his money in a common enterprise[1] and is led to expect profits solely from the efforts of the promoter or a third party.”
How is that subpoena "unlawful"?
SEC is blocking their launch. On the face of it, telegram has been complient with the SEC up to now and have filed exemptions for their sale.
https://www.sec.gov/Archives/edgar/data/1729650/000095017218...
On their own discounts are not illegal.
I think what’s obvious is that the network is not truly decentralized and depends on telegram and investors expect to profit from telegrams work on the network. So they should probably file an s-1 and follow the blockstack route.
What would have been ironic, is if TON was truly decentralized and independent of telegram than the network would have been launched anyways.
https://www.sec.gov/Archives/edgar/data/1729650/000095017218...
On their own discounts are not illegal.
I think what’s obvious is that the network is not truly decentralized and depends on telegram and investors expect to profit from telegrams work on the network. So they should probably file an s-1 and follow the blockstack route.
What would have been ironic, is if TON was truly decentralized and independent of telegram than the network would have been launched anyways.
Read their paper, they stated form the beginning that TON isn't able to launch decentralized. The initial investment to run a node is to high so they can't just put some binary on the net and ask people to run it. They planed to run every node in the beginning to show that it works and then everyone can join (with no control over who joins) but to join you have to have GRAMs so by stooping them to distribute grams they basically made it impossible to decentralized. Although they could still give out GRAMs, start the network and just ignore the SEC. Technically the network would decentralize over time but for that to happen there must be a market for GRAMs. Who's gonna obtain "illegal" GAMS to run a node and get paid with "illegal" GRAMs which can only be sold "illegal" again. And even people would do the services on TON are meant to be used by the masses if they can't simply buy GRAMs the whole thing can't fuel itself.
>I think what’s obvious is that the network is not truly decentralized and depends on telegram and investors expect to profit from telegrams work on the network.
This matches exactly the concept of collectible items. In fact, there's a blockchain based TCG: https://godsunchained.com/.
Is the point of the card packs not in large part speculation? One card apparently went for ~$60k, and there is a discount being offered for early buy-in.
This matches exactly the concept of collectible items. In fact, there's a blockchain based TCG: https://godsunchained.com/.
Is the point of the card packs not in large part speculation? One card apparently went for ~$60k, and there is a discount being offered for early buy-in.
Eh, magic cards have independent value from the company, and MtG sells them at a fixed price to consumers.
If you want a decentralized TON, get all the investors together and launch a genesis block with the open source code. That’s basically what EOS did.
If you want a decentralized TON, get all the investors together and launch a genesis block with the open source code. That’s basically what EOS did.
The author of this article is turning inches into miles. SAFTs aren't dead. The SEC is alleging Telegram has failed to deliver the promises it has made, so the SEC is pre-emptively stating they need to halt delivery. Presumably, once they complete their promises they'll be able to deliver Grams.
From the SEC Complaint:
The Whitepaper spoke of potential future products and services that investors could use in connection with Grams, but also made clear that these products were not available at the time the Offering began and would not be available by the time Defendants delivered Grams to Initial Purchasers.
Telegram, however, does seem to be in a pickle regarding the PoS consensus model. The SEC seems to be alleging that in order for the network to be sufficiently decentralized, having only qualified investors staking is not enough.
Also from the SEC complaint:
Defendants knew, however, that to actually implement the TON Blockchain in the real world, the project would require “numerosity”: a widespread distribution and use of Grams across the globe. Indeed, by definition, the TON Blockchain can only become truly decentralized (as contemplated and promoted in the Offering Documents) if Grams holders other than the original Grams purchasers actually stake Grams and, thereby, act as “validators” of transactions on the TON Blockchain. Stated differently, if the original Grams purchasers alone all immediately staked their holdings, the TON Blockchain would be centralized rather than decentralized and, therefore, subject to misuse and majority attacks. This fundamental need for additional Grams holders demonstrates that the TON Blockchain was designed from inception to require the Initial Purchasers to immediately distribute their holdings to the public.
From the SEC Complaint:
The Whitepaper spoke of potential future products and services that investors could use in connection with Grams, but also made clear that these products were not available at the time the Offering began and would not be available by the time Defendants delivered Grams to Initial Purchasers.
Telegram, however, does seem to be in a pickle regarding the PoS consensus model. The SEC seems to be alleging that in order for the network to be sufficiently decentralized, having only qualified investors staking is not enough.
Also from the SEC complaint:
Defendants knew, however, that to actually implement the TON Blockchain in the real world, the project would require “numerosity”: a widespread distribution and use of Grams across the globe. Indeed, by definition, the TON Blockchain can only become truly decentralized (as contemplated and promoted in the Offering Documents) if Grams holders other than the original Grams purchasers actually stake Grams and, thereby, act as “validators” of transactions on the TON Blockchain. Stated differently, if the original Grams purchasers alone all immediately staked their holdings, the TON Blockchain would be centralized rather than decentralized and, therefore, subject to misuse and majority attacks. This fundamental need for additional Grams holders demonstrates that the TON Blockchain was designed from inception to require the Initial Purchasers to immediately distribute their holdings to the public.
Indeed what they want is an S-1 or an F-1 form filling. A security registration. That's it. The SEC has no opinion on the offering other than they think it's a security (this claim itself could also be challenged), and as such has to be registered under the 1933 act.
What are the odds that Telegram, despite believing they didn't need to do an S-1 or F-1 form filing, complied with the letter of everything that the form filing is intended to determine? They would likely have to materially change the offering so that the form filing didn't invite another action.
(author here) nah, pretty sure SAFTs are dead. The whole point of the SAFT rigmarole was to sell tokens as securities but not have them be securities on delivery, pretty much as Telegram was planning to do here - the point was not to be considered securities by the SEC.
This complaint demonstrates what the SEC think of the idea, i.e. they don't care and will look at how your token actually works and whether this is an investment contract under the Howey test.
But as I said - maybe Telegram will prevail in court! Do you feel lucky?
This complaint demonstrates what the SEC think of the idea, i.e. they don't care and will look at how your token actually works and whether this is an investment contract under the Howey test.
But as I said - maybe Telegram will prevail in court! Do you feel lucky?
I think the argument could be a bit clearer here.
A SAFT allows a party to offer the delivery of tokens at some point in the future. This offering is a securities offering under US law, and therefore has to comply with the relevant regulations. In practical terms, that means filing some forms with the SEC, ranging from fairly lightweight forms if you're offering the SAFT privately without marketing, to increasingly heavy burdens if you want to market it, and the "mini-IPO" leavels of bureaucracy that would attach to a Reg A+ offering. So, it's perfectly possible to offer a compliant SAFT if you do it right.
The problem comes when the tokens are to be delivered (which was imminent, in Telegram's case). The SEC argues that not only was the SAFT contract a security, but the rights offered to Gram holders are themselves constitutive of a security, despite not being registered as such.
The SAFT is a security, but one for which Telegram appears to have been mostly compliant. The tokens themselves, which are set to be delivered to those original investors, are not registered as securities, and this is the problem, because the plan is to distribute those widely to the public, or "retail investors" as they would be regarded in the context of a securities offering.
If the Gram token were not a security, designed in such a way as to avoid triggering the Howey test, then there would be no problem (aside from Telegram's other problems, but I'm keeping the scope narrow here).
So the "SAFT is dead" argument isn't that the SAFT is automatically non-compliant, or that nobody can do a compliant SAFT offering, but instead is this: that some people in the blockchain community erroneously encouraged the belief that whilst a SAFT offering is a securities offering, the tokens that result from the investment are somehow prevented from becoming securities because the "security-ness" stuck to the SAFT itself, and that this view was wrong.
This gets tricky to discuss because the SAFT contract is basically fine, but the mistaken understanding of what a SAFT can do in practice is what allowed people to believe that selling Grams to the general public was likely to be a non-regulated activity. So, that interpretation of what SAFTs can do is dead, yes. For my part, it's not something that I ever believed, so it doesn't register as being the real news here.
A SAFT allows a party to offer the delivery of tokens at some point in the future. This offering is a securities offering under US law, and therefore has to comply with the relevant regulations. In practical terms, that means filing some forms with the SEC, ranging from fairly lightweight forms if you're offering the SAFT privately without marketing, to increasingly heavy burdens if you want to market it, and the "mini-IPO" leavels of bureaucracy that would attach to a Reg A+ offering. So, it's perfectly possible to offer a compliant SAFT if you do it right.
The problem comes when the tokens are to be delivered (which was imminent, in Telegram's case). The SEC argues that not only was the SAFT contract a security, but the rights offered to Gram holders are themselves constitutive of a security, despite not being registered as such.
The SAFT is a security, but one for which Telegram appears to have been mostly compliant. The tokens themselves, which are set to be delivered to those original investors, are not registered as securities, and this is the problem, because the plan is to distribute those widely to the public, or "retail investors" as they would be regarded in the context of a securities offering.
If the Gram token were not a security, designed in such a way as to avoid triggering the Howey test, then there would be no problem (aside from Telegram's other problems, but I'm keeping the scope narrow here).
So the "SAFT is dead" argument isn't that the SAFT is automatically non-compliant, or that nobody can do a compliant SAFT offering, but instead is this: that some people in the blockchain community erroneously encouraged the belief that whilst a SAFT offering is a securities offering, the tokens that result from the investment are somehow prevented from becoming securities because the "security-ness" stuck to the SAFT itself, and that this view was wrong.
This gets tricky to discuss because the SAFT contract is basically fine, but the mistaken understanding of what a SAFT can do in practice is what allowed people to believe that selling Grams to the general public was likely to be a non-regulated activity. So, that interpretation of what SAFTs can do is dead, yes. For my part, it's not something that I ever believed, so it doesn't register as being the real news here.
What I mean by "SAFT is dead" is that the purpose they were overwhelmingly used for - which really was to try to sell token futures as a security, but have the resulting tokens not be a security - is a non-starter.
Sure you can try to construct exceptions to this - but dodging the Howey test was what SAFTs were invented for, and I feel reasonably confident in stating that this complaint against Telegram makes it very clear that this just isn't going to fly.
Sure you can try to construct exceptions to this - but dodging the Howey test was what SAFTs were invented for, and I feel reasonably confident in stating that this complaint against Telegram makes it very clear that this just isn't going to fly.
> they don't care and will look at how your token actually works and whether this is an investment contract under the Howey test.
This is 100% correct, but you're making the wrong conclusion. You're concluding the SEC considers the legal framework bogus, when the SEC is arguing they have not met the legal framework.
In a SAFT you sell securities for future non-securities. What Telegram did was sell securities for future securities. There's a couple of facts they use in this assertion:
1. Telegram said they would leverage their existing user base to promote the token (i.e. the success of Grams is based on Telegram's efforts as a promoter) 2. TON is PoS, and that its not possible to deliver a PoS network when the original stakers are all qualified investors
This is 100% correct, but you're making the wrong conclusion. You're concluding the SEC considers the legal framework bogus, when the SEC is arguing they have not met the legal framework.
In a SAFT you sell securities for future non-securities. What Telegram did was sell securities for future securities. There's a couple of facts they use in this assertion:
1. Telegram said they would leverage their existing user base to promote the token (i.e. the success of Grams is based on Telegram's efforts as a promoter) 2. TON is PoS, and that its not possible to deliver a PoS network when the original stakers are all qualified investors
Alternative: telegram launches anyway, and the SEC does... what exactly? Bans them from being traded on US exchanges? It would be impossible to stop the software, just as they can’t stop bitcoin.
> telegram launches anyway, and the SEC does... what exactly?
Refers Telegram to the DoJ for criminal prosecution, which results in bank accounts being frozen, any SAFT holders (or anyone else) who sold their Grams being on the hook to the buyers, and the seizure of Telegram’s assets in America and anywhere else with a mutual prosecution treaty, which covers much of the EU.
At the point of wilfully defying a court order to sell securities, it becomes fraud and potentially money laundering.
Refers Telegram to the DoJ for criminal prosecution, which results in bank accounts being frozen, any SAFT holders (or anyone else) who sold their Grams being on the hook to the buyers, and the seizure of Telegram’s assets in America and anywhere else with a mutual prosecution treaty, which covers much of the EU.
At the point of wilfully defying a court order to sell securities, it becomes fraud and potentially money laundering.
But these are foreign corporations? I think I’m confused about how Russians, with offshore corporations, and foreign bank accounts, can suddenly be banhammered by the SEC...
Telegram was implemented in Berlin and now is domiciled in UK; most of their operations, money and people are fully within reach of the western judicial system. While Durov comes from Russia, he is in exile and Telegram is structured to keep their money and people out of the reach of the Russian judicial system for various reasons.
Also, a big part of their target audience of Gram early holders is in USA, so they also obviously care about the legality of these transactions. For them it's not sufficient to have some technical workaround that enables them to sell the tokens they have, they need a solution that allows them to do so legally.
Also, a big part of their target audience of Gram early holders is in USA, so they also obviously care about the legality of these transactions. For them it's not sufficient to have some technical workaround that enables them to sell the tokens they have, they need a solution that allows them to do so legally.
>Telegram was implemented in Berlin
Why are you spreading this lie? It’s very well known by now that Telegram was primarily developed in St. Petersburg, in a building shared with VKontakte.
https://twitter.com/bershidsky/status/910169626989953024
https://twitter.com/ChristopherJM/status/910186197598838784
https://theoutline.com/post/2348/what-isn-t-telegram-saying-...
>While Durov comes from Russia, he is in exile
Durovs exile is very fleeting, normally you wouldn't visit the country you're in exile from... https://tjournal.ru/tech/52954-durov-back-in-ussr https://lenta.ru/news/2017/03/20/durov/
I should also add the obligatory note that Telegram has shipped obvious backdoors in the past allowing them to selectively decrypt secret chats https://habr.com/en/post/206900/
lol @ the downvoting TON bagholders
Why are you spreading this lie? It’s very well known by now that Telegram was primarily developed in St. Petersburg, in a building shared with VKontakte.
https://twitter.com/bershidsky/status/910169626989953024
https://twitter.com/ChristopherJM/status/910186197598838784
https://theoutline.com/post/2348/what-isn-t-telegram-saying-...
>While Durov comes from Russia, he is in exile
Durovs exile is very fleeting, normally you wouldn't visit the country you're in exile from... https://tjournal.ru/tech/52954-durov-back-in-ussr https://lenta.ru/news/2017/03/20/durov/
I should also add the obligatory note that Telegram has shipped obvious backdoors in the past allowing them to selectively decrypt secret chats https://habr.com/en/post/206900/
lol @ the downvoting TON bagholders
You are right that they could conceptually have been operating entirely outside the US, which would shield them from any SEC actions... but of cause they aren't operating entirely outside of the US, and as such are not in any meaningful way shielded from SEC actions.
Their people could get arrested while vacationing here.
Why do you think they are so keen to list in US?
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Where are the two corporations that substantially control your app being on phones located?
Ok so the SEC order really has teeth because they can use it to pressure Apple and google to remove telegram from their app stores? That’s a significantly less impressive penalty than what Internet lawyers have been telling me.
There's a few other obvious things:
They can sanction individual directors (ban them from holding office in any US corporation)
They can freeze any US assets
They can ban any US companies transacting with them
They can sanction individual directors (ban them from holding office in any US corporation)
They can freeze any US assets
They can ban any US companies transacting with them
do eeeeeet
That would be an interesting situation.
I feel sure that the US would finds ways of shutting it down, but the idea of just going ahead with their plans and maybe block the US from their network would be legally and politically interesting to watch.
I feel sure that the US would finds ways of shutting it down, but the idea of just going ahead with their plans and maybe block the US from their network would be legally and politically interesting to watch.
But this is indeed about money. Why tie up a crypto token with a messenger otherwise. No US, no money. That's how it is. I wish SEC had fined EOS more though
But why wouldn't they register? It really sounds like trying to make this harder than it is.
Isn't it true that the whole crypto world dreams of mass adoption? Well guess what - institutional money would greatly appreciate a valid S-1/F-1 filing in EDGAR.
Isn't it true that the whole crypto world dreams of mass adoption? Well guess what - institutional money would greatly appreciate a valid S-1/F-1 filing in EDGAR.
> It would be impossible to stop the software, just as they can’t stop bitcoin.
That’s very naive approach. Just because technology is solid, doesn’t mean that government is going to give up. Remember, governments are only entities in the world that are allowed to seize all your assets, throw you in jail and sometime kill you.
People in tech tend to overestimate value of technology and underestimate power of regulations and governments (I only realized it myself few years ago). I feel that we need to update this xkcd, to talk about regulations - https://xkcd.com/538/
That’s very naive approach. Just because technology is solid, doesn’t mean that government is going to give up. Remember, governments are only entities in the world that are allowed to seize all your assets, throw you in jail and sometime kill you.
People in tech tend to overestimate value of technology and underestimate power of regulations and governments (I only realized it myself few years ago). I feel that we need to update this xkcd, to talk about regulations - https://xkcd.com/538/
> It would be impossible to stop the software, just as they can’t stop bitcoin.
It seems impossible when you think about it for a little while, but when someone thinks long and hard about it because it's their full-time government job, maybe someone finds a way.
It seems impossible when you think about it for a little while, but when someone thinks long and hard about it because it's their full-time government job, maybe someone finds a way.
So it's not that the blockchain or exchange systems where insecure, only that tokens available at the ICO were being sold below par to investors? Setting aside the giant red flag that is refusing to accept a subpoena, if the ICO tokens are revalued to take away the discount to early investors would it then be legal?
> if the ICO tokens are revalued to take away the discount to early investors would it then be legal?
No. The tokens are securities. They are issued by a single issuer to fund development of a product which doesn’t presently exist, with early investors in SAFTs buying them on expectation of profit.
In any case, how would you value the discount? You don’t know the price until a market exists. And by that point, the 171 early investors have already dumped their pump on retail investors.
No. The tokens are securities. They are issued by a single issuer to fund development of a product which doesn’t presently exist, with early investors in SAFTs buying them on expectation of profit.
In any case, how would you value the discount? You don’t know the price until a market exists. And by that point, the 171 early investors have already dumped their pump on retail investors.
It's worth noting that quite a lot of the VCs in question had already written off their investments in 2017-2018 shitcoin ICOs.
This is why said VCs were suggesting to Coinbase last month that they list all these shitcoins that nobody even trades now, but which the VCs just happen to be holding massive bags of: https://blog.coinbase.com/coinbase-continues-to-explore-supp...
This is why said VCs were suggesting to Coinbase last month that they list all these shitcoins that nobody even trades now, but which the VCs just happen to be holding massive bags of: https://blog.coinbase.com/coinbase-continues-to-explore-supp...
You imply that Telegrams “Gram” has any buyers other than the early bagholders.
Is it the same stunt as Bitfinex and LEO backed by USDT "backed" by dollars? How is the lawsuit working for NY attorney General by the way? These guy just feel untouchable… it's unbelievable what they can get away with…
Recent related thread: https://news.ycombinator.com/item?id=21228415
I don't understand why the SEC (america) has jurisdiction to 'block' Telegram's operations (legal domicile in London) - am I missing something here?
> I don't understand why the SEC (america) has jurisdiction to 'block' Telegram's operations (legal domicile in London)
Because Telegram “committed to flood the U.S. capital markets with billions of Grams by October 31, 2019” and “sold more than 1 billion Grams to 39 U.S. Purchasers, raising $424.5 million from the U.S. market” [1].
[1] https://www.sec.gov/litigation/complaints/2019/comp-pr2019-2...
Because Telegram “committed to flood the U.S. capital markets with billions of Grams by October 31, 2019” and “sold more than 1 billion Grams to 39 U.S. Purchasers, raising $424.5 million from the U.S. market” [1].
[1] https://www.sec.gov/litigation/complaints/2019/comp-pr2019-2...
They're active in the US, selling to US investors, ...
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> The Telegram Open Network is probably dead. The emergency order stops Telegram from “delivering Grams to any persons, or taking any other steps to effect any unregistered offer or sale of Grams.” This is worldwide — not just for the US.
This completely blows my mind. How does the SEC have any power in telling a hypothetical European situated in Europe if they can or can't buy Gram from European sellers..?
This completely blows my mind. How does the SEC have any power in telling a hypothetical European situated in Europe if they can or can't buy Gram from European sellers..?
As soon as you are doing business with American citizens, the SEC can and will get involved so I imagine Telegram sold Grams to americans.
That's how it generally works. If you're subject to a court's jurisdiction, and the court orders you not to do something, you can't dodge the order by just doing it in some place where the court doesn't have jurisdiction.
But that is not how it generally works. If Unilever gets told by a UK court they can't sell peanut butter because that court doesn't like peanut butter, it doesn't mean Unilever is suddenly forbidden from selling peanut butter in the USA.
Edit: to clear up the analogy - UK courts don't have a say over what Unilever can and can't sell in USA jurisdiction. Likewise, the SEC can (should?) only regulate trade within USA jurisdiction or by USA entities. If Telegram wants to sell Grams on the UK market, Telegram should be able to tell the SEC to go pound sand, as any USA court orders don't mean jack outside that jurisdiction
Edit: to clear up the analogy - UK courts don't have a say over what Unilever can and can't sell in USA jurisdiction. Likewise, the SEC can (should?) only regulate trade within USA jurisdiction or by USA entities. If Telegram wants to sell Grams on the UK market, Telegram should be able to tell the SEC to go pound sand, as any USA court orders don't mean jack outside that jurisdiction
> Edit: to clear up the analogy - UK courts don't have a say over what Unilever can and can't sell in USA jurisdiction.
And the SEC is dealing with what is being sold in the US.
> committed to flood the U.S. capital markets with billions of Grams by October 31, 2019
> sold more than 1 billion Grams to 39 U.S. Purchasers, raising $424.5 million from the U.S. market
And the SEC is dealing with what is being sold in the US.
> committed to flood the U.S. capital markets with billions of Grams by October 31, 2019
> sold more than 1 billion Grams to 39 U.S. Purchasers, raising $424.5 million from the U.S. market
And the article says
> This is worldwide — not just for the US
I even quoted that in my parent comment.
> This is worldwide — not just for the US
I even quoted that in my parent comment.
PoW is an ecologically irresponsible algorithm.[1]
Altogether cryptocurrency is such a terrifyingly irresponsible ecosystem, I'm surprised anyone wants to be involved in it.
[1] https://www.sciencedirect.com/science/article/pii/S221462961...