Why STOs are an ersatz product
As global awareness of crypto-currencies emerges, the character of the space is shifting — away from the initial spirit of the cypher-punk and crypto-anarchist, to one more mainstream, less idealistic, more practical and compliant
This progression is what it needs to be, and the crypto community must embrace the new, the ignorant, the dissident. As proponents of crypto, thought leaders in the space, technologists and pioneers, it is our responsibility to fulfill Friedrich Schiller’s imperative:
Seid umschlungen Millionen!
(Be embraced, you millions!) because it is utterly important that crypto find its way to planetary-wide adoption. To understand why, we must first understand what crypto is and the implications of the technology
The bedrock of civilisation lies in the notion of exchange — that when a man grows more potatoes than he can eat, he can trade them for the shoes another man has cultivated the skills to make. The trade is based on the dynamics of supply and demand at the time, the reification of an abstraction we’ve come to know as money
Throughout history, empires have flourished and fallen, not as a function of their military might, the sophistication of their rhetoric, or the ability of their demagogues to please their constituencies, but of their ability to manage their finances
Satoshi Nakamoto’s gift to humanity is, in essence, the power to shift power
…by which I mean that the governance structures developed and maintained across millennia have relied on their control of the money, and today, for the first time in history, humanity has an alternative: a form of money not issued or controlled by monarch or dictator, but by a machine¹
For money is power, as the famous Frankfurt Jew of the 19th century, Mayer Amschel Rothschild once cleverly remarked:
Permit me to issue and control the money of a nation, and I care not who makes its laws!
But in the same way that copyleft denies a copyright on content, bitcoin denies governments the ability to control the money
Today the US Securities and Exchange Commission wants to make the argument that tokens are securities². Why? Because capital formation outside of their control poses an existential risk to governance, and because it has become patently clear that this new mechanism works well and is on course to replace Wall Street as it has Sand Hill Road³
Capital is the blood of society, the juice that excites economic activity, the liquid that greases the wheels of innovation and development, the nectar of wealth and prosperity
Today a new form of initial currency offering (ICO), the soi-disant Security Token Offering (STO), is being propounded, which is said to have great potential (though it is relevant only to US fundraising)
Proponents (mostly lawyers) and promoters of this scheme, like Overstock’s t-Ø, cite a number of benefits to raising capital in this manner. I shall herewith try to address these:
STOs allow companies to raise funds in a regulated manner
This is true, and we already have a fully regulated mechanism that issuers of ICOs have chosen to avoid. So given that companies can legally raise funds without the burden of compliance, how is voluntarily complying a benefit?
Security tokens provide investors with rights
So does equity, for all that’s worth. But token investors don’t care about rights. What they care about is capital appreciation, and rights are only meaningful within the context of a court, where legal representation (which costs significant sums) may or may not be of help.
So if I can buy my tokens anonymously (which I can and prefer to), what are those rights worth? exactly zilch
the process is cheaper to execute
That’s a ludicrous statement. One of the primary reasons for early adoption of ICOs was the cost and complexity of IPOs. STOs carry the same burdens as IPO because, frankly, it is costly to comply with regulation
security tokens reduce legal risk
They do, if you issue them in a litigious and unfriendly jurisdiction where you may be held hostage at any point. The simple retort here is: issue them elsewhere. Malta, Singapore, Gibraltar. There are many jurisdictions where the issuer need not worry
makes ICOs more legit in the investment world
Perhaps. But do we in the crypto space care that Wall Street wants to invest? We don’t. Crypto is for the people, not for large institutions. If the larger institutions want to invest, they’re welcome to, but do we need to pander to them? We don’t
STOs protect investors from pump-and-dump schemes
Right, in the same way they’re protected within the existing (utterly corrupt) capital markets where the Federal Reserve manipulates interest rates, large banks collude to fix LIBOR prices, et cetera. That’s a laugh. The bottom line here is that regulation doesn’t protect anyone. It (sometimes) penalises a few participants, but that does not equate to protection
Certain parties can be blacklisted from trading these tokens
Seriously, that’s a benefit? Perhaps in the world of regulators, compliance officers, and people accustomed to applying handcuffs on others, but to the rest of the world (and particularly the crypto community), it’s unconditional freedom that is valued. It’s the whole reason bitcoin was invented
STOs will improve liquidity within crypto
If there isn’t enough liquidity in the markets its only because existing regulations have scared the public from participation and generally made the process cumbersome beyond hope. The answer isn’t regulation, it’s the liberalisation of ownership and purchasing. Even today Americans cannot buy bitcoin without KYC, or without fearing arrest for it, though it’s not illegal to do so. Why? Because of regulatory uncertainty
I once worked for the Trust Company of the West, an LA fund manager owned by the French bank Société Générale. I was then suffered to watch compliance videos each year explaining in great detail the bizarre circumstances under which I was allowed or disallowed to enter into a transaction. The Chief Compliance Officer there used to often repeat that the company sought to engender “a culture of compliance”
To me the notion was both sad and revolting — that people should have to bow their heads as a condition to earn a living. That corporations are forced by their governments to inculcate in their employees a mantra of obeisance. Not the ideals of Nakamoto or crypto, for sure. Not freedom but serfdom
In my opinion,
STOs represent the capitulation of the crypto community to government control, a betrayal of the ideals of Nakamoto
The STO is a statement that we failed, succumbed to the existing power structure, and that we did so willingly (because we didn’t have to). But it’s a sham failure because we have not yet lost. More sadly, it’s one that applies only to America. For the rest of the world will move forward whilst the US gets left behind