How Filecoins Token Sale won’t piss off the SEC (like the DAO did)

Someone has to keep an eye on this. Pexels

Cloud computing – storing and processing data on remote hosts instead of relying on a local server – has been a hot topic since at least 2006, when Amazon began offering commercial cloud services. A decade of progress in Internet time is roughly 100 years in real time. It goes without saying that the cloud is a mature industry that is just as dynamic as social media or e-commerce are today.

But that is not entirely the case. While Amazon continues to be dominant, Microsoft has completely shifted its priorities to a cloud-first strategy, and so far it’s paying off. Google has partnered with Citrix to host desktop applications in the cloud and Cisco to access companies that host local area networks on their servers.

And with the battle for cloud warming among tech giants, a new class of startups has emerged, challenging the old-school approach that relies heavily on the sale of storage space in centralized server farms. On August 7th, upstart Protocol Labs will start a token sale for Filecoin, a decentralized peer-to-peer-based data storage system.

Filecoin’s offer will be one of the most watched of the year. Juan Benet, founder of Protcol Labs, has made a name for himself as a technical guru. What makes this offer particularly compelling, however, is the fact that his company has found a way to run an initial coin offering (ICO) that he suspects will satisfy Wall’s rule-makers, even though they don’t yet have rules for this one Sector have written. Partly because it doesn’t offer its digital currency so much now, but a token that will later be converted into it.

The original data format. Pixabay

Instead of building new servers, Filecoin will pay thousands of people to store data on unused space. It’s not the first company to start a business that hides data in the neglected nooks and crannies of the internet. Storj and Sia were two of the first to contest this Dropbox-like area. And Cloud With Me promises to use cryptocurrency to make the leading cloud services more user-friendly for small businesses.

But Filecoin is the first to take the law as seriously as it does the Code.

Protocol Labs’ efforts to stay on the right side of the law have been going on for some time, but that work now looks forward-looking as the U.S. Securities and Exchange Commission recently put down the lush new market for fresh cryptocurrency. Last year, the first major company debuted in code, The DAO. It ended in disaster when hackers stole much of the cryptocurrency invested. The SEC has since ruled that the smart contractual tokens that made it work were actually securities, as we previously reported, and their creators should have sought SEC approval for an offer in the US

“I expected it a long time ago. I think this is a room like any other and the regulators will be in it, ”Benet told the observer on a phone call.

Where are the 1993 accounts? Pixabay

The SEC has not sought judgments against anyone involved in the DAO, but its findings will inevitably have a chilling effect on companies that thought they could zero the legal cost limit in their ICO project budgets.

“What is good to read from the report is that the SEC is very thoughtful in its analysis,” said Benet. He pointed to previous work by the think tank Coin Center that anticipated much of what the SEC found in its review of the DAO. “It confirmed many of our expectations.”

In particular, Benet made a distinction between offering a coin for the purpose of raising money and using it as a coin to perform a useful service.

Most ICOs tarnish the two uses. The Kik messaging platform is a case in point. She hopes to create a new platform that will pay developers to create fun add-on services for Kik Messenger. People will buy these services and the developers will be paid to do it with Kik’s new digital money, Kin. Kik will also finance the development of this platform through the sale of Kin. So people will start trading Kin before developers and consumers start actually using it.

The law is often ridiculed for being behind the times, but Coin Center and the SEC point to longstanding principles that guide regulators even as the economy changes. In 1946 the Supreme Court established principles now known as the “Howey Test” to determine whether something sold was a security. If a financial product meets the Howey criteria, it doesn’t matter whether the sellers refer to it as a stock or a bond. Also, it doesn’t matter if the product is sold in the form of paper, rocks, or digital fairy dust – the Howey test ignores form and examines function.

Protocol Labs has launched another project, CoinList, which, in collaboration with AngelList, aims to support ICOs and token sales within the framework of the law. CoinList created the simple agreement for future tokens. “Our position is that the funding we are seeking now is the SAFT,” explains Benet. The SAFT is security. It is for people hoping to speculate on Filecoin’s success. “It’s a much higher risk.”

It’s in here somewhere. Pixabay

When Filecoin is ready to do its real job and save people’s data, SAFT starts converting to Filecoin (some investors agree to delay conversions). Filecoin can still be traded for other currencies on exchanges and can be used as a medium of exchange with anyone willing to trade it as a means of payment. Some people will definitely buy and hold Filecoin speculatively just like they do Bitcoin, but that doesn’t make any of the coins a security, claims Benet.

Any form of money only has value if people believe in it, which is especially true of cryptocurrency. “They will only be of value if you can do something with them,” Benet said, but Filecoin has a real purpose. “We’re talking about creating a basic utility for the process of saving files.”

Both Benet and Coin Center have argued that not every cryptocurrency is a security. The SEC appeared to acknowledge this in a recent statement that said, “Whether a particular investment transaction involves the offer or sale of a security – regardless of the terminology or technology used – depends on the facts and circumstances.”

Following the SEC’s report on the DAO, Coin Center’s Peter Van Valkenburgh wrote in a statement, “We believe that applying the same facts and circumstances to other tokens will result in some not fitting into the definition of securities, especially security Tokens with an underlying asset are more of a use than a mere speculative investment value. “If he’s right, Filecoin’s SAFT approach could please the SEC.

Fortunately for other entrepreneurs, Coinlist will open its JUICE to anyone who wants to use it. Filecoin will be the first offering carried out on CoinList. Entrepreneurs wishing to follow Protocol Labs are invited to apply to use CoinList for their own startups.

Coinlist’s approach was written to conform to US law, specifically SEC Reg D. 506 (c). It is in the process of verifying its compliance in other parts of the world, however “The US accreditation standard is likely to be stricter than any other country,” said Benet. “Just because you refer to something as a blockchain or an ICO doesn’t mean you are not subject to normal laws.”

FIX: In an earlier version of this story, the Filecoin sale was referred to as the “first coin offering”. This has been continuously updated to “Token Sale” to take into account that the coin will not be sold next week, but a token that will later be converted into the coin. August 3, 2017 7:05 pm.

How Filecoins Token Sale won't piss off the SEC (like the DAO did)

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