NFTs were supposed to be an end-run around the Howey Test. ICOs were clearly securities offerings, and the SEC shut down most of those. NFTs were specifically designed to evade that test, by claiming they were really "digital artworks". This one, though, was clearly marketed as Make Money Fast. The Securities Act of 1934 has a "duck test" definition of security - if it is marketed, bought, sold, and held as a money-making thing, it's a security. The contract terms don't matter. This is because creative financial scams long predate 1934.
> The Securities Act of 1934 has a "duck test" definition of security - if it is marketed, bought, sold, and held as a money-making thing, it's a security
That doesn't seem right. You're missing a really fundamental part of what makes a security a security. Let's steal the cut phrase from investopedia
> an investment contract, for the purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third part
Investing in a common enterprise is a really key part.
A random beeple NFT wouldn't meet that definition, even if marketed as "this hot new thing that's only going up in value". The SEC isn't stopping people buying daft things.
> The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts
This is where it differed from many other NFTs that aren't securities.
The good news is that judges can read the law and interpret it without having a myopic focus on specific wordings. They also don't use investopedia as a legally-binding source.
Whether an NFT (or any other crypto token) is a security is still very much up in the air, and I am assuming is not able to be uniformly defined.
People making noises like "you are investing in a project" and "there will be airdrops to NFT holders" sure seem like they are trying to run an unregistered securities offering. On the other hand, tokens like LINK (which you spend to do call APIs) and NFTs that are sold purely for the art don't really seem like securities. Even tokens like ETH or BTC could be considered currencies/commodities rather than securities despite all of the "project" language.
This posts reads like you don't understand the Howie Test. Literally, that decision blew away any offering designed to evade SEC rules. The Test is incredibly general and has never been defeated. Why do you think this time is different?
I really appreciate the way the Howey Test matches the regulatory purpose, its operationalist approach to the question. That it's stood up to nearly a century of scammer "innovation" is admirable.
It does have the drawback of requiring some interpretation, some thought. But I think that's necessary. Rather than requiring regulators to keep creating ever-broader definitions of "security", patching every scammer hole, it throws the burden back on those wanting to innovate. They're supposed to stop and say, "Well what are we really up to here?" And I think that's where the burden should be.
My only real grumble is that the SEC gave the cryptowhatever world too much rope. I wish they had been faster off the mark, so there was less nonsense. But even there I can't complain too much. Generally I want regulators to be cautious squashing new things.
Not trying to kill the vibe of your comment, I just want to point out that the burden of proof historically has fallen on the accuser, the regulator, the plaintiff, (point is: not the defendant,) to prove that some behavior is illegal and problematic. So I’m not sure I agree that it’s good to foster a regulatory regime where everyone trying to innovate is questioning whether the political winds will change in the future and some new hotshot regulator is going to make their career by being tough on whatever they’re currently doing when last year nobody cared. Post facto regulation doesn't really do any good as you’ve realized in your comment—the damage is already done.
So at least I think we need to protect innovators by holding regulators to a statute of limitation on enforcing policy (like no bringing cases against activity that predates some signaling by the regulator that the interpretation is changing), and ideally require regulators to publish guidelines before they’re allowed to take legal action. Or maybe regulators should have to inform an innovator that they’re no longer in compliance with an updated perspective and provide them actionable steps that if taken would make them compliant, etc. prior to taking legal action.
I’m not saying there’s no room for interpretation practically, but this deal where the SEC sits silent on whether “crypto assets” are securities or not and the only way we’ll know is if they sue one of the innovators doesn’t seem particularly healthy either. It’s exactly why you can’t be held criminally accountable for something you did before it became a crime, and we should hold regulators to the same expectations.
OP is missing “common enterprise” part of definition, which covers commodities. Security futures are securities (jointly managed by SEC and CFTC), commodity futures are not (as they are a derivative on a non-security). The main inconsistency is that bank loans are not securities.
> if it is marketed, bought, sold, and held as a money-making thing, it's a security
No, sorry, no such legal language exists and how absurd of a law would that be. Anything which goes up and down in value could be bought or sold as "a money making thing" including collectible video games, books, Pokemon cards, .com domain names, pork bellies, houses, bar codes, imported goods, rare sneakers, wholesale products, golf club memberships, Picasso paintings, etc.
There is a Supreme Court precedent called the Howey test which specifies 4 criteria for which all 4 must be true in order for something to be a security. You cannot have 3 of 4 and be considered to be a security:
1. An investment of money
2. In a common enterprise
3. With the expectation of profit
4. To be derived from the efforts of others
Notably, speculative flipping of owned assets is not considered to profit derived from a common enterprise. Speculative flipping happens everywhere in all supply chains you participate in on a daily basis. Everyone is attempting to buy low in an attempt to sell high. Everyone loves to compare crypto to the tulip mania in the Netherlands from the 17th century. While that is true in some cases, you certainly can't make the case that tulips should be regulated by the SEC.
That seems to reinforce the grandparents characterization of this as an evasion of the Howey test, not refute it. You really think the technical distinction of a unique number defeats the idea of "common enterprise"? Doesn't the fact that all the initial profit goes to one enterprise clearly make it "common"? Conversely, aren't traded shares of common stocks on NYSE merely "speculative flipping" unless they're specifically paying dividends?
Meh. I mean, fine, you can make that argument but I don't think this is nearly as clear as you think it is. From my perspective: I mean, duh. Of course these are securities. "Give us money for this thing and you'll get more money later" isn't a hard idea to understand as the spirit behind securities regulation.
Actually, Pokemon cards fit all four prongs of Howey as does Yu Gi Oh etc. SEC would have a slam dunk against these sales (to children, no less!) but they just chose never to pursue that.
1. They buy the cards
2. The Pokemon show and franchise
3. They keep them in MINT CONDITION and don’t open them
4. If the show fails to entice more kids in the future then everyone will forget about that special charazard card, so it all depends on the show and movies to keep the pokemon franchise kickin
So really, all the holier-than-thou types should realize how many of the counterexamples who never got sued are just SEC exercising their discretion
Yeah, well the SEC also has rules from the 1930's stating that brokers who sell shares to clients and fail to deliver them should have their license suspended.
Guess how often that rule was applied since the 30's?
Zero. And that's not because fails to deliver don't exist.
So yeah, there's a massive regulatory crisis going on and SEC rules are applied however the future employers of the SEC decisionmakers want.
Care to offer some evidence of that? I haven't heard that and I am in the vertical. I agree that Impact Theory was selling securities, and I think it's pretty clear. But bored apes a security? I don't think many share that opinion. How is it any different than art or pokemon cards? People buy both all the time with the expectation they go up in price.
Its great to see commissioner Mark T Uyeda also dissenting, because for some time it was only Hester Pierce that would take these views on digital assets, and for her views to be elevated to head commissioner it requires a Republican President to make that nomination, as she is Republican.
There are many people that are not Republican that would aim to get her appointed and do whatever it takes. Which means casting a vote for a Republican Presidential candidate no matter who that is, simply because the power is imbued within that person.
Mark T Uyeda's existence as a Democrat makes this a lot simpler, for people that would find the above to be awkward, as Democrat leadership could also nominate him for head commissioner.
Bipartisan dissent is great.
It really isn't enough to just not like digital assets or the industry, to establish jurisdiction over them for enforcement.
Oh no people lost money.... because they couldn't resale a consumer product?
> We do not routinely bring enforcement actions against people that sell watches, paintings, or collectibles along with vague promises to build the brand and thus increase the resale value of those tangible items.
exactly, its either go after all of them until Congress rescinds the agency's charter completely with this outstanding application of Howey, or show the exact distinction that crypto asset creators can follow to act solely as a consumer product.
You’re right, I agree, I’m more so glad that they are willing to use this as a place to point out other unanswered questions and incongruencies in SEC actions
I agree that the dissenters bring up a lot of good questions that need answering.
However, if you believe their fundamental argument that NFTs aren't really securities... what regulatory body should prevent this kind of behavior? Or should rug-pulls effectively be legal, and buyer beware?
The partisan assignments are explicitly partisan, but independents can be appointed too. There is a limit to how many commissioners can be from a single party.
There seem to be a lot of people out there with paper cryptocurrency gains who are happy to use them for absolutely anything that will make more money.
This is how the free market works, however. You can sell yourself a pencil for 1mil and it will be technically valued at 1mil in the public market, but good luck selling that to someone else. Same applies to NFTs, just a bit more marketing (edit: and dumb hype i should add) is involved.
No, because your $1 million pencil was never on the market; your hypothetical self-sale was a fake transaction. With NFTs it was often deceptively represented that someone paid $1 million, disguising the fact that these were bogus self-sales.
I really enjoy a lot of Tom Bilyeu's content, but I've noticed he seems to lack a filter for great ideas from charlatans. And in some regards fair enough, it can be hard, but he's also building a brand and company around some folks who seem to be exaggerating their claims. For example Raoul Pal.
This seems reasonable. From what I am able to pick up, they thought they had found some clever loophole to ICO by selling NFTs. Despite the C&D some of their founders key benefits are still up: https://founderskey.io/images/fk/legendary-key.png
Basically 1. until the platform is implemented the key is basically an IOU. However, it can be sold and transferred for a profit AIUI so it’s not like a crowdfunded game where you get some similar benefits as those can’t be sold for a profit. 2. all your NFT corresponds to is a literal key representing the benefits Impact Theory will make available to you in the future so per the Howey Test you are purchasing a contract (not a specific piece of art or cosmetic) yielding profits from the sole efforts of a third party (Impact Theory).
Honestly, they probably could have gotten away with it if they had been a little less lazy! I bet if they tried to raise money by selling some kind of character art (that currently exists like a normal NFT, not a custom avatar they’ll give you one day) that they’d eventually also display in their final product they’d have been fine.
The interesting takeaway though is that it seems like you can’t do kickstarter-style crowdfunding through transferable NFT ICOs, at least in this form in which you got nothing but a key.
I hate to dunk on this type of art while it's down but
> Impact Theory agreed to destroy all Founder’s Keys in its possession or control
What does this mean practically -- like they delete the files that would allow them to transfer control of the NFT? What even are these things, are they just text files in a distributed file system that list the owner's name or what?
They would most likely "burn" them which means giving control, transferring ownership, of those NFTs to a wallet address that no one controls which means they are out of circulation.
I assume they see using a standard NFT contract which doesn't have any way of taking control of those NFTs once ownership is to that burner address. It would be impossible.
The concept of NFTs stored on a distributed ledger makes sense to me especially for the shitty games that sell skins.
The idea they have some sort of value and can be considered a security, doesn't really. It is no different than the current in-game marketplaces that sell/resell skins from whatever game has skins this week.
At what point does a thing you buy or sell become a security? Are baseball cards a security? Should my local baseball card shop be closed down as an unregistered securities broker?
I don't own crypto or NFTs, so maybe I'm just not informed enough?
From what I'm reading here, the company misled "investors" by attaching the NFT to ownership in the company, which would be considered a security.
"The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts."
When I purchase a baseball card, I do not have the expectation that there is any additional value attached to the baseball card beyond what the collector's market will pay.
With baseball cards, You have an expectation that the MLB will continue to promote and develop Baseball as a top sport. You purchased an illegal security.
> When I purchase a baseball card, I do not have the expectation that there is any additional value attached to the baseball card beyond what the collector's market will pay.
What about music royalties rights? Those are almost always purchased with expectation of profit. Those are even explicitly marketed on the basis of how big an artist is going to be. Yet the SEC does not consider them securities
> At what point does a thing you buy or sell become a security? Are baseball cards a security? Should my local baseball card shop be closed down as an unregistered securities broker?
The SEC's legal theory is specific to this case, and does not seem to apply generally to all NFTs. Here's the SEC's explanation:
> According to the SEC’s order, from October to December 2021, Impact Theory offered and sold three tiers of NFTs, known as Founder’s Keys, which Impact Theory called “Legendary,” “Heroic,” and “Relentless.” The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts. Among other things, Impact Theory emphasized that it was “trying to build the next Disney,” and, if successful, it would deliver “tremendous value” to Founder’s Key purchasers. The order finds that the NFTs offered and sold to investors were investment contracts and therefore securities. Accordingly, Impact Theory violated the federal securities laws by offering and selling these crypto asset securities to the public in an unregistered offering that was not otherwise exempt from registration.
This comes back to the core problem of crypto though - I agree that transferring skins would be cool or whatever, but distributed consensus does almost nothing to accomplish that.
A game developer already has to opt-in to the NFT system and then maintain indefinite support for the NFT system, so if you trust them to do that why don’t you also trust them to maintain the ownership ledger?
I guess there are a few concerns here. What if the game developer goes out of business, or dies, or accidentally drops their db? What happens if they decide they don't like one of their collectors and want to wipe their balance clean? (Of course, you could do this with NFTs as well, but you'd have to write it into the contract ahead of time).
On top of that, the developer would need to build and operate their own infrastructure for trading with the tokens. If they were NFTs, then they just slot into existing applications without any extra work.
There’s a lot of reasons this mechanism would be interesting for a game developer besides trust. e.g. mitigating payment processor fees.
But to your question of trust, one interesting application would be in distributed & decentralized games intended to be released to the commons, see Dark Forest or Lattice.xyz. For these OSS projects, even if the original game devs decided to stop development, the community could permissionlessly continue to build atop the game’s immutable contracts.
It depends on exactly how the system is decentralized, but let's imagine that the tokens contain sufficient information to generate the e.g. skins. And now imagine some company decides to stop supporting this group of tokens, or perhaps goes bankrupt. In a centralized system that's the end, but in a decentralized one another company is now free to take advantage of that gap in the market and offer to support those tokens.
There's some pretty neat possibilities here, but they'll take a while to emerge. Not only is there no immediate profit motive (for a company on the complete up and up) but there's an active anti-profit motive since you're voluntarily ceasing otherwise profitable/powerful control for ideological gains.
The test for “is it a security” revolves around the idea of investing in a common enterprise with the expectation of returns. Sellers of TF2 skins or Football cards at no point advertise that they are an investment and that buyers should expect returns
> At what point does a thing you buy or sell become a security? Are baseball cards a security?
I don’t know about baseball cards, but the way Wizards of the Coast handles their policy around rare Magic: the Gathering cards makes me think their lawyers are definitely concerned about this kind of stuff.
WotC's steadfast refusal to publicly acknowledge the secondary resale market in any way gets comical at times, but they are a good example of how you should behave if you suspect you might have accidentally created a security.
I am not a financial person. This is speculation on my part. Please correct me where applicable.
It seems to me the operative difference between crypto assets and other collectibles is the market-making aspects and the original promises. Full-stop, the vast majority of NFTs and crypto assets are being hyped as investments. This covers the original promise. The market-making aspect is in how these collectibles accrue value. Most collectibles rely on a secondary market, whereas crypto assets don't seem to have an appreciable difference in secondary vs primary markets. This means the same asset is meant to accrue value in the venue it is originally purchased, among the same conceptual group of purchasers. I also wouldn't be surprised to find out that the utter uselessness of most crypto assets plays into their status as securities (or not).
> The concept of NFTs stored on a distributed ledger makes sense to me especially for the shitty games that sell skins.
NFTs are/will be really useful to account for transactions involving unique assets or bundles of rights associated with unique assets. They're perfectly suited for things like writing digital deeds to real property, transferring ownership of IP, validating chains of provenance for various items, etc.
The problem is that the current use cases are all spurious. NFTs used for "artwork" are neither transferring ownership of a unique fixed form of media nor used to convey any IP rights associated with the artwork. In these use cases, the NFT itself is non-fungible, but it encodes a reference to an external item that is both fungible and intangible, which makes it little more than a novelty.
That's exactly what we've been trying to build at Ultra.io
The push back from gamers has been non-stop and intense. I don't get it. They are willing to buy digital assets which can't be resold on an open market. They are not willing to buy digital assets that can.
Because there's no guarantee that those assets will be respected.
At any point the game maker can say "V1 assets aren't supported in V2". Or they can flood the market with "rare" items. Or they'll buy an item which was "stolen" and have it unilaterally revoked. Or... the list goes on.
There's also zero possibility of cross-game use. If ID releases the BFG9000 for free, is Skyrim going to let you shoot that at dragons?
But, here's the thing, don't listen to me. Listen to your (potential) customers. If they're all telling you that they don't want to buy what you're selling then take that as a sign.
There is push back because it's not a viable business plan and will never work with the most popular games. Games are controlled by publishers. They want to completely own the market for skins and other virtual assets. Why would they ever share their revenue with you guys? What's in it for them?
If you want to succeed with this scheme then ultimately you need to produce your own games. And those will have to be games that people actually enjoy playing, not just grinding for worthless coins.
Most gamers aren’t whales. Most gamers don’t want NFTs polluting an already stagnating games industry as they recognize those psychological levers preyed on through MTX mechanics are just wrong and at their worst reflect the worst aspects of the gambling industry.
I spend plenty of money in games on stuff like DLC or skins or unlockable characters and the idea of reselling them on an "open market" or having their price be subject to the whims of the market is thoroughly unappealing. If I want to make a profit why would I do that in the wild west with video game skins instead of real regulated markets where I'm far less likely to get scammed? I buy skins or spend money to unlock characters because I like them and want to use them.
Furthermore skin resale markets and skin gambling (the two tend to be connected) mean we're roping young gamers into gambling and gambling-adjacent stuff at a young age before their brains are mature enough to handle it. It's disgusting.
As a game developer, also, it just doesn't make sense. Giving skins resale value means that now I can never revise them or patch them out of the game, no matter the reason. Even worse, it cuts the value of each skin I sell because now a player who quits can unload all their skins first which means I earn less revenue off new players.
Because people want to play games that are fun not grind on some play to earn scheme or cash grab. turning games into marketplaces often ruins the fun.
And how about the push-back from game developers who don't want to spend the extra incredible amount of work they would have to invest to enable importing digital assets from other games to unbalance and pollute their own games and cut into their revenue?
If you were an actual game developer yourself, this would be obvious to you.
>The push back from gamers has been non-stop and intense. I don't get it.
It's quite obvious why, so you should get it, but I'm afraid you never will, if your income depends on not getting it, and you prefer to ignore all the wise and precious "non-stop and intense push back from gamers" you're getting, and dispariage your reluctant potential customers as "bonkers", because you think you know better than they do when it comes to them spending their money on your NFT scams to line your pockets at their expense.
If you were an actual game player yourself, this would be obvious to you.
But if you were either, then it would be easy for you to understand the totally justified contempt that both game developers and game players have for all the crypto-bros who have invaded the game industry with their Web 3.0 bullshit, who have absolutely no idea what it's like to develop or play a game, who just want to push their NFT get-rich-quick pyramid schemes and rug pulls, and see game developers and players as suckers to be exploited.
It's been more than a year since "Line Goes Up" and Christopher Natsuume's videos came out. Please don't tell me you haven't heard of them or been able to find enough time in your busy schedule of shilling NFTs to watch them. Nobody believes what you're shilling any more. Time to stop. Please stop pretending you don't know the gig is up.
I think the people who would buy skins are unlikely to push back. The more vocal pushback is probably from people who, rightfully so, hate the micro-transaction game model. I play games to escape from capitalism, not to be forced to participate in the worst variant of it or face the choice of not being able to play at the same tier as everyone else.
Micro-transactions in general are gross. NFT backed micro-transactions are not more or less gross, but they're still gross by association./
It's a good question. I suppose it's possible that if your local baseball card store started marketing baseball cards as an investment, rather than a collectable, then they would land on the SEC's radar if they got big enough.
>At what point does a thing you buy or sell become a security? Are baseball cards a security? Should my local baseball card shop be closed down as an unregistered securities broker?
Does your local baseball card shop advertise the cards as an investment that will increase in value? From the link: "Impact Theory sold almost $30 million of NFTs along with making loud promises that the NFTs would increase in value".
>I don't own crypto or NFTs, so maybe I'm just not informed enough?
This is a bad-faith "I'm just asking questions" comment and every negative post about cryptocurrency stuff has comments like yours.
Readit News
That doesn't seem right. You're missing a really fundamental part of what makes a security a security. Let's steal the cut phrase from investopedia
> an investment contract, for the purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third part
Investing in a common enterprise is a really key part.
A random beeple NFT wouldn't meet that definition, even if marketed as "this hot new thing that's only going up in value". The SEC isn't stopping people buying daft things.
> The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts
This is where it differed from many other NFTs that aren't securities.
Whether an NFT (or any other crypto token) is a security is still very much up in the air, and I am assuming is not able to be uniformly defined.
People making noises like "you are investing in a project" and "there will be airdrops to NFT holders" sure seem like they are trying to run an unregistered securities offering. On the other hand, tokens like LINK (which you spend to do call APIs) and NFTs that are sold purely for the art don't really seem like securities. Even tokens like ETH or BTC could be considered currencies/commodities rather than securities despite all of the "project" language.
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It does have the drawback of requiring some interpretation, some thought. But I think that's necessary. Rather than requiring regulators to keep creating ever-broader definitions of "security", patching every scammer hole, it throws the burden back on those wanting to innovate. They're supposed to stop and say, "Well what are we really up to here?" And I think that's where the burden should be.
My only real grumble is that the SEC gave the cryptowhatever world too much rope. I wish they had been faster off the mark, so there was less nonsense. But even there I can't complain too much. Generally I want regulators to be cautious squashing new things.
So at least I think we need to protect innovators by holding regulators to a statute of limitation on enforcing policy (like no bringing cases against activity that predates some signaling by the regulator that the interpretation is changing), and ideally require regulators to publish guidelines before they’re allowed to take legal action. Or maybe regulators should have to inform an innovator that they’re no longer in compliance with an updated perspective and provide them actionable steps that if taken would make them compliant, etc. prior to taking legal action.
I’m not saying there’s no room for interpretation practically, but this deal where the SEC sits silent on whether “crypto assets” are securities or not and the only way we’ll know is if they sue one of the innovators doesn’t seem particularly healthy either. It’s exactly why you can’t be held criminally accountable for something you did before it became a crime, and we should hold regulators to the same expectations.
At face value that definition would, of course, include commodities and futures, which it doesn't. There must be more to the definition.
No, sorry, no such legal language exists and how absurd of a law would that be. Anything which goes up and down in value could be bought or sold as "a money making thing" including collectible video games, books, Pokemon cards, .com domain names, pork bellies, houses, bar codes, imported goods, rare sneakers, wholesale products, golf club memberships, Picasso paintings, etc.
There is a Supreme Court precedent called the Howey test which specifies 4 criteria for which all 4 must be true in order for something to be a security. You cannot have 3 of 4 and be considered to be a security:
1. An investment of money
2. In a common enterprise
3. With the expectation of profit
4. To be derived from the efforts of others
Notably, speculative flipping of owned assets is not considered to profit derived from a common enterprise. Speculative flipping happens everywhere in all supply chains you participate in on a daily basis. Everyone is attempting to buy low in an attempt to sell high. Everyone loves to compare crypto to the tulip mania in the Netherlands from the 17th century. While that is true in some cases, you certainly can't make the case that tulips should be regulated by the SEC.
Meh. I mean, fine, you can make that argument but I don't think this is nearly as clear as you think it is. From my perspective: I mean, duh. Of course these are securities. "Give us money for this thing and you'll get more money later" isn't a hard idea to understand as the spirit behind securities regulation.
Which is a great indicator it's a scam.
1. They buy the cards
2. The Pokemon show and franchise
3. They keep them in MINT CONDITION and don’t open them
4. If the show fails to entice more kids in the future then everyone will forget about that special charazard card, so it all depends on the show and movies to keep the pokemon franchise kickin
So really, all the holier-than-thou types should realize how many of the counterexamples who never got sued are just SEC exercising their discretion
https://gamerant.com/pokemon-rare-charizard-card-value/
Guess how often that rule was applied since the 30's?
Zero. And that's not because fails to deliver don't exist.
So yeah, there's a massive regulatory crisis going on and SEC rules are applied however the future employers of the SEC decisionmakers want.
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How about BAYC?
All the a16z investments in crypto?
Will the hammer fall for these, too?
No, NFTs were to capitalize on the new tax reporting and valuation requirements for physical art that closed the money laundering loophole.
Thank you.
There are many people that are not Republican that would aim to get her appointed and do whatever it takes. Which means casting a vote for a Republican Presidential candidate no matter who that is, simply because the power is imbued within that person.
Mark T Uyeda's existence as a Democrat makes this a lot simpler, for people that would find the above to be awkward, as Democrat leadership could also nominate him for head commissioner.
Bipartisan dissent is great.
It really isn't enough to just not like digital assets or the industry, to establish jurisdiction over them for enforcement.
Oh no people lost money.... because they couldn't resale a consumer product?
> We do not routinely bring enforcement actions against people that sell watches, paintings, or collectibles along with vague promises to build the brand and thus increase the resale value of those tangible items.
exactly, its either go after all of them until Congress rescinds the agency's charter completely with this outstanding application of Howey, or show the exact distinction that crypto asset creators can follow to act solely as a consumer product.
The dissent even quotes Impact Theory's framing of the NFTs as an investment.
Given everything else, this is a pretty vanilla Howey test: they were selling shares with jpegs attached.
> Even if the NFT sales here fit squarely within Howey, is this set of facts one that warrants an enforcement action?
This dissent is really about the nature of enforcement, not whether these were unregistered securities.
However, if you believe their fundamental argument that NFTs aren't really securities... what regulatory body should prevent this kind of behavior? Or should rug-pulls effectively be legal, and buyer beware?
https://www.sec.gov/news/statement/peirce-uyeda-statement-nf...
is that truly a requirement, or do you mean realistically it would not happen because of party politics?
aka "wash trading" (which predates NFT and crypto):
https://en.wikipedia.org/wiki/Wash_trade
The hope is that some sucker will buy them for $10, thinking that it's a bargain.
Installment plan.
Basically 1. until the platform is implemented the key is basically an IOU. However, it can be sold and transferred for a profit AIUI so it’s not like a crowdfunded game where you get some similar benefits as those can’t be sold for a profit. 2. all your NFT corresponds to is a literal key representing the benefits Impact Theory will make available to you in the future so per the Howey Test you are purchasing a contract (not a specific piece of art or cosmetic) yielding profits from the sole efforts of a third party (Impact Theory).
Honestly, they probably could have gotten away with it if they had been a little less lazy! I bet if they tried to raise money by selling some kind of character art (that currently exists like a normal NFT, not a custom avatar they’ll give you one day) that they’d eventually also display in their final product they’d have been fine.
The interesting takeaway though is that it seems like you can’t do kickstarter-style crowdfunding through transferable NFT ICOs, at least in this form in which you got nothing but a key.
> Impact Theory agreed to destroy all Founder’s Keys in its possession or control
What does this mean practically -- like they delete the files that would allow them to transfer control of the NFT? What even are these things, are they just text files in a distributed file system that list the owner's name or what?
I assume they see using a standard NFT contract which doesn't have any way of taking control of those NFTs once ownership is to that burner address. It would be impossible.
What this article is linked to is a dissent from two of the commissioners.
See also https://news.ycombinator.com/item?id=37300225 and https://news.ycombinator.com/item?id=37300237.
The idea they have some sort of value and can be considered a security, doesn't really. It is no different than the current in-game marketplaces that sell/resell skins from whatever game has skins this week.
At what point does a thing you buy or sell become a security? Are baseball cards a security? Should my local baseball card shop be closed down as an unregistered securities broker?
I don't own crypto or NFTs, so maybe I'm just not informed enough?
"The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts."
When I purchase a baseball card, I do not have the expectation that there is any additional value attached to the baseball card beyond what the collector's market will pay.
What about music royalties rights? Those are almost always purchased with expectation of profit. Those are even explicitly marketed on the basis of how big an artist is going to be. Yet the SEC does not consider them securities
https://www.sec.gov/Archives/edgar/data/1490161/000104746910....
The SEC's legal theory is specific to this case, and does not seem to apply generally to all NFTs. Here's the SEC's explanation:
> According to the SEC’s order, from October to December 2021, Impact Theory offered and sold three tiers of NFTs, known as Founder’s Keys, which Impact Theory called “Legendary,” “Heroic,” and “Relentless.” The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts. Among other things, Impact Theory emphasized that it was “trying to build the next Disney,” and, if successful, it would deliver “tremendous value” to Founder’s Key purchasers. The order finds that the NFTs offered and sold to investors were investment contracts and therefore securities. Accordingly, Impact Theory violated the federal securities laws by offering and selling these crypto asset securities to the public in an unregistered offering that was not otherwise exempt from registration.
A game developer already has to opt-in to the NFT system and then maintain indefinite support for the NFT system, so if you trust them to do that why don’t you also trust them to maintain the ownership ledger?
On top of that, the developer would need to build and operate their own infrastructure for trading with the tokens. If they were NFTs, then they just slot into existing applications without any extra work.
But to your question of trust, one interesting application would be in distributed & decentralized games intended to be released to the commons, see Dark Forest or Lattice.xyz. For these OSS projects, even if the original game devs decided to stop development, the community could permissionlessly continue to build atop the game’s immutable contracts.
There's some pretty neat possibilities here, but they'll take a while to emerge. Not only is there no immediate profit motive (for a company on the complete up and up) but there's an active anti-profit motive since you're voluntarily ceasing otherwise profitable/powerful control for ideological gains.
I don’t know about baseball cards, but the way Wizards of the Coast handles their policy around rare Magic: the Gathering cards makes me think their lawyers are definitely concerned about this kind of stuff.
It seems to me the operative difference between crypto assets and other collectibles is the market-making aspects and the original promises. Full-stop, the vast majority of NFTs and crypto assets are being hyped as investments. This covers the original promise. The market-making aspect is in how these collectibles accrue value. Most collectibles rely on a secondary market, whereas crypto assets don't seem to have an appreciable difference in secondary vs primary markets. This means the same asset is meant to accrue value in the venue it is originally purchased, among the same conceptual group of purchasers. I also wouldn't be surprised to find out that the utter uselessness of most crypto assets plays into their status as securities (or not).
NFTs are/will be really useful to account for transactions involving unique assets or bundles of rights associated with unique assets. They're perfectly suited for things like writing digital deeds to real property, transferring ownership of IP, validating chains of provenance for various items, etc.
The problem is that the current use cases are all spurious. NFTs used for "artwork" are neither transferring ownership of a unique fixed form of media nor used to convey any IP rights associated with the artwork. In these use cases, the NFT itself is non-fungible, but it encodes a reference to an external item that is both fungible and intangible, which makes it little more than a novelty.
The push back from gamers has been non-stop and intense. I don't get it. They are willing to buy digital assets which can't be resold on an open market. They are not willing to buy digital assets that can.
It's kind of bonkers.
At any point the game maker can say "V1 assets aren't supported in V2". Or they can flood the market with "rare" items. Or they'll buy an item which was "stolen" and have it unilaterally revoked. Or... the list goes on.
There's also zero possibility of cross-game use. If ID releases the BFG9000 for free, is Skyrim going to let you shoot that at dragons?
But, here's the thing, don't listen to me. Listen to your (potential) customers. If they're all telling you that they don't want to buy what you're selling then take that as a sign.
If you want to succeed with this scheme then ultimately you need to produce your own games. And those will have to be games that people actually enjoy playing, not just grinding for worthless coins.
I don’t want to think of my shirt as a sellable asset.
Furthermore skin resale markets and skin gambling (the two tend to be connected) mean we're roping young gamers into gambling and gambling-adjacent stuff at a young age before their brains are mature enough to handle it. It's disgusting.
As a game developer, also, it just doesn't make sense. Giving skins resale value means that now I can never revise them or patch them out of the game, no matter the reason. Even worse, it cuts the value of each skin I sell because now a player who quits can unload all their skins first which means I earn less revenue off new players.
If you were an actual game developer yourself, this would be obvious to you.
>The push back from gamers has been non-stop and intense. I don't get it.
It's quite obvious why, so you should get it, but I'm afraid you never will, if your income depends on not getting it, and you prefer to ignore all the wise and precious "non-stop and intense push back from gamers" you're getting, and dispariage your reluctant potential customers as "bonkers", because you think you know better than they do when it comes to them spending their money on your NFT scams to line your pockets at their expense.
If you were an actual game player yourself, this would be obvious to you.
But if you were either, then it would be easy for you to understand the totally justified contempt that both game developers and game players have for all the crypto-bros who have invaded the game industry with their Web 3.0 bullshit, who have absolutely no idea what it's like to develop or play a game, who just want to push their NFT get-rich-quick pyramid schemes and rug pulls, and see game developers and players as suckers to be exploited.
It's been more than a year since "Line Goes Up" and Christopher Natsuume's videos came out. Please don't tell me you haven't heard of them or been able to find enough time in your busy schedule of shilling NFTs to watch them. Nobody believes what you're shilling any more. Time to stop. Please stop pretending you don't know the gig is up.
Line Goes Up – The Problem With NFTs:
https://www.youtube.com/watch?v=YQ_xWvX1n9g
>If someone pitches you on a "great" Web3 project, ask them if it requires buying or selling crypto to do what they say it does.
Let me explain Blockchain gaming and Play-to-Earn.
https://www.youtube.com/watch?v=UKzup7XDyq8
>NFTs are a pure scam. Blockchain gaming is a pyramid scheme. Play-to-Earn is not only a scam, it's deeply immoral.
Using NFTs to own ingame objects: Also pretty much a scam.
https://www.youtube.com/watch?v=8IYjsWBbmKI
>In this video, I'd like to clarify and further explain: Using NFTs to own ingame objects is an unnecessarily inefficient byproduct of a larger scam.
Sources and Further Reading recommended by Folding Issues:
https://web3isgoinggreat.com/
https://tante.cc/2021/12/17/the-third-web/
https://davidgerard.co.uk/blockchain/2021/03/11/nfts-crypto-...
https://amycastor.com/2021/03/14/metakovan-the-mystery-beepl...
https://www.stephendiehl.com/blog/crypto-absurd.html
https://blog.mollywhite.net/blockchains-are-not-what-they-sa...
https://www.motherjones.com/politics/2021/11/who-goes-crypto...
https://twitter.com/davetroy/status/1478017698676228099?s=20
https://davidgolumbia.medium.com/cryptocurrency-is-garbage-s...
https://marker.medium.com/fintech-is-a-scam-a-listicle-in-ei...
https://naavik.co/deep-dives/axie-infinity/#axie-decon=
https://www.gawker.com/culture/the-future-is-useless-expensi...
https://twitter.com/NFTtheft
https://www.theatlantic.com/ideas/archive/2021/04/nfts-weren...
https://www.gamesindustry.biz/baseless-nft-hype-hits-a-cresc...
https://www.technollama.co.uk/platform-is-law-the-cautionary...
https://davidgerard.co.uk/blockchain/2021/02/12/libra-shrugg...
https://twitter.com/Bitfinexed
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Micro-transactions in general are gross. NFT backed micro-transactions are not more or less gross, but they're still gross by association./
Does your local baseball card shop advertise the cards as an investment that will increase in value? From the link: "Impact Theory sold almost $30 million of NFTs along with making loud promises that the NFTs would increase in value".
>I don't own crypto or NFTs, so maybe I'm just not informed enough?
This is a bad-faith "I'm just asking questions" comment and every negative post about cryptocurrency stuff has comments like yours.