[HN Gopher] SEC charges Impact Theory for unregistered offering ...
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SEC charges Impact Theory for unregistered offering of NFTs
Author : Dowwie
Score : 106 points
Date : 2023-08-28 15:38 UTC (7 hours ago)
(HTM) web link (www.sec.gov)
(TXT) w3m dump (www.sec.gov)
| playday wrote:
| When you buy a restaurant lunch, you are expecting to increase
| your work income via the efforts of the cooks. And you clearly
| invested money since you pay for the lunch before you ate it.
| That's all 3 prongs if the Howey test.
|
| Why isn't the SEC enforcing securities laws against lunch fraud?
| Lunches must publish their financial statements so lunch buyers
| can make informed decisions! Personally I am angry that
| restaurants don't publish the information I need to make an
| informed decision regarding my investment. What if they go
| bankrupt after I paid for my lunch and before they deliver it?
| jkingsman wrote:
| If crypto was actually like lunch -- returns were generated in
| minutes, there were tens of millions of successful examples
| that don't fail, and the insanely rare ones that fail in that
| mode risk double or low triple digit dollars -- then maybe the
| SEC wouldn't care as much.
| woah wrote:
| It may seem like lunches are doing well for a little while,
| but 12 hours later, they all go to shit
| bigbillheck wrote:
| When lunches fail it's more often the CDC (or the local
| equivalent) that gets involved.
| jkingsman wrote:
| HAH right XD
| delecti wrote:
| Even under your ludicrous example, lunch is not an investment
| because the increase in income does not come from reselling the
| lunch. At the absolute most, if you really squint and stretch,
| you could argue that lunch is a business expense.
| duskwuff wrote:
| Or, to put it in terms of the Howey test: eating lunch is not
| a _common enterprise_ , and not dying of hunger is not an
| _expectation of profit_.
| bigbillheck wrote:
| > you are expecting to increase your work income via the
| efforts of the cooks.
|
| Are you suggesting that retirees, the unemployed, students, and
| children never buy lunch?
|
| > since you pay for the lunch before you ate it.
|
| When was the last time you went to a restaurant that wasn't
| fast food?
| fulladder wrote:
| > since you pay for the lunch before you ate it
|
| Is that a post-pandemic thing? Like so many people are just
| walking out of the restaurant without paying these days that
| they charge you before you eat? This sounds like something that
| may be happening in SF, and maybe it will catch on in other
| places eventually, but right now it's not the norm anywhere
| I've been.
| _jal wrote:
| There should be a version of Nomic[1] specific to the sort of
| fantasy legal interpretation popular with NFT-enthusiasts, tax
| protestors, sovereign citizens, and other idiosyncratically
| motivated amateur legal practitioners.
|
| [1] https://en.wikipedia.org/wiki/Nomic
| jkingsman wrote:
| Indeed, I think this is actually a tricky issue, especially
| for technically-minded people. I, too, fell into the trap of
| thinking of the legal system as not a system of guidelines
| for human interaction, but instead an airtight system of
| interlocked regulations. Exploiting loopholes or finding odd
| emergent behavior was a feature and not a bug. It took some
| maturing for me to realize that law serves the people, not
| the other way around, and that hyper-compliance with the law
| such that your "legal" actions generate unexpected/unintended
| effects just collapse when they meet with the legal /system/,
| which is just people.
| Animats wrote:
| 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.
| dumbfounder wrote:
| 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.
| psychlops wrote:
| > if it is marketed, bought, sold, and held as a money-making
| thing, it's a security.
|
| At face value that definition would, of course, include
| commodities and futures, which it doesn't. There must be more
| to the definition.
| wpietri wrote:
| 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.
| IanCal wrote:
| > 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.
| IOT_Apprentice wrote:
| Finally addressing this other scammer portion of junk blockcoins
| et al. Long overdue.
| jermaustin1 wrote:
| 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?
| pdabbadabba wrote:
| > 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.
| RC_ITR wrote:
| 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?
| somenameforme wrote:
| 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.
| RC_ITR wrote:
| > 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.
|
| You're saying the new company makes a new game to support
| the skins?
|
| Other than "making those skins be worth money," why do we
| need to spend so much effort on proof of ownership then?
| Couldn't the new developer just make those skins available
| for free and improve everyone's lives?
| scyclow wrote:
| 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.
| tmpz22 wrote:
| Don't forget - what if the game publisher is acquired by
| private equity?
| djur wrote:
| You can address all of those issues regarding continuity
| equally as well with actual legal contracts as you can with
| crypto 'smart' contracts (and you need the legal contracts
| in either case).
| mattdesl wrote:
| 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.
| gmerc wrote:
| It's a completely made up problem for which crypto is
| supposedly the solution
|
| - We've known for 2 decades how to do skin or items
| exchange between games. It involves relational databases.
| Valve does it for their games or at least could do it at
| will. There's not one unsolved technical problem here
|
| - There is zero incentive for developers, publishers and
| licensors (you know the people that make up the game
| industry) to adopt any of it. My company dies, the licenses
| terminate and your items are toast. Technology does not at
| all change any of it because it's not a technology problem.
| It's a licensing problem. And if I paid for the license, by
| god no other developer else should get that value for free.
|
| - Developers don't want other developers to affect their
| own games, affecting visual design, polygon budgets,
| performance, power or any other aspect of the game. No
| benefit, only drawbacks.
|
| - No, we don't want you to bring your lightsaber or mickey
| mouse costume (you know assets that people actually find
| valuable) int our game because that's a straight visit from
| the lawyers at the house of mouse and probably makes our
| carefully crafted game look like ass.
|
| - No middleman is only a problem if you need a middleman or
| the middleman fails to deliver value. Not if you can be the
| middleman. People attempt to muddle this down to a payments
| processor issue, but the last decade has shown crypto is
| just plain shit at that, from gas fees to security, lack of
| customer protection and any other dimension. And if it's
| not payment, well, we could just as well use a database to
| share games between developers at the same publisher or
| valve.
|
| - People bring up demand for external markets like Diablo's
| Auction house. But these demand economies are fractions of
| the overall game value systems and increasing the focus on
| the fraction very quickly erodes and destroys the main
| game.
|
| - IP licensors don't benefit if people carry their IP from
| game to game unless game and game pay the fee
|
| - Publishers don't want to give telemetry or data
| associated with the movement of players to others. Sorry,
| that's just not a good idea. And they want to sell you
| items again, not you hoarding older items.
|
| Even gamers ... don't want it. They understand that this is
| mostly crypto bro driven attempts of turning every game
| into a gacha / real world money affects escapism fantasy
| for people with less money when every rich brat is parading
| their instagram assets through town.
|
| The only people who think this is a great idea (including
| Boz) are in silicon valley with a long history of failing
| to understand games.
| mattdesl wrote:
| thank you for the rather long and opinionated soliloquy,
| which fails to actually address my comment or the
| projects I mentioned...
| gmerc wrote:
| You mean "There is lots of reasons why this would be
| interesting to game developers", goes on not mentioning a
| single one ?
| mattdesl wrote:
| Why do I even bother to reiterate the rest of the
| paragraph that you did not quote? Game developers and
| their users are regularly exploited by App Store and
| payment processor fees. Transfers of ERC721 and ERC20 on
| an L2 is negligible by comparison:
|
| https://l2fees.info/
| starttoaster wrote:
| I'm not even a crypto bro, but it's honestly more
| exhausting to listen to someone go on about how private
| backends with user facing storefronts and relational
| databases solve the same problems as blockchain, than it
| is to listen to a crypto bro explain why we can't trust
| companies to manage records in their own relational
| database.
| evilantnie wrote:
| 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.
| dcolkitt wrote:
| > 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.
| ...
| TylerE wrote:
| That's IP law, not investment.
| playday wrote:
| 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.
| post-it wrote:
| You'd best file an amicus brief with your analysis.
| playday wrote:
| Unfortunately the defendant settled, instead of fighting
| in court like they should have.
| yieldcrv wrote:
| Its also worth nothing that the SEC is losing in court,
| losing the support of Congress and losing the support of
| the White House
|
| specifically as more people, including judges, notice
| this lack of distinction and the SEC's unwillingness (and
| inability) to describe why there is a distinction
|
| there is either a way to issue crypto collections and
| collect money for them without being a security, or all
| other collections sold are securities with unregistered
| broker dealers operating illegally and fraudulently for
| the past 100 years
| potatototoo99 wrote:
| That's not true, just wishful thinking on your part.
|
| Not all collectibles are unregistered offerings,
| obviously. Being a collectible also doesn't mean it can't
| be an unregistered offering also. This one clearly was.
| gamblor956 wrote:
| _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._
|
| No, you don't. For starters, baseball cards are not sold or
| marketed by the MLB, the teams, or the players, and buying
| a card does not entail any ownership in either the MLB, the
| companies making the card, the store where you bought the
| card, the players, or the teams. They're not sold by the
| companies that make them as business opportunities, and in
| fact most cards aren't worth anything.
|
| But every NFT tells you that you should buy their NFT
| because their efforts to promote the NFT as a business will
| lead to it increasing in value. And legally, that makes all
| the difference.
| jxf wrote:
| That seems materially different from an expectation that
| you will make money on the card, or that the value of your
| card is determined by MLB's profitability and future
| earnings.
| playday wrote:
| MLB cannot promote baseball if MLB is unprofitable and
| enters bankruptcy. It's clearly connected.
| Guvante wrote:
| Did MLB promote baseball cards saying that their
| profitability would lead to increased value?
|
| Because in this case the company did exactly that.
|
| While they didn't call them securities they marketed them
| as securities.
| misnome wrote:
| Do they promise you when buying them that they will gain in
| value if the sport does well?
| alasdair_ wrote:
| There are companies that use the cards of specific
| players as a way of investing in that player - they
| better the player does, the more their cards are worth.
| [deleted]
| burnerz27M wrote:
| Wouldn't the inverse be true - baseball cards become much
| more rare if Baseball itself ceases to exist as a going
| concern.
| taeric wrote:
| Rare things are not automatically valuable. I still have
| "dragon dice" and an original deck of cards from an old
| lord of the rings game. Basically worthless.
| boringg wrote:
| Yes, baseball cards would become incredibly valuable (at
| least the rare ones).
| unyttigfjelltol wrote:
| This only would be the case if people continued to care
| about baseball. In reality, fewer people would care less
| and less over time. For example, there is not great value
| in jousting paraphenelia.
| freejazz wrote:
| No, you don't.
| peyton wrote:
| You must not be buying baseball cards in 2023. It's gotten
| crazy.
| gamblor956 wrote:
| Does buying a baseball card in 2023 now entail ownership in
| Fanatics or Panini?
|
| If not, then it's not even remotely the same thing as what
| goes on with non-fungible tokens like the one here.
| peyton wrote:
| I don't think these NFTs give ownership rights either.
| Reading the SEC order, it sounds like the reasonable
| expectation of a profit was the issue.
| gamblor956 wrote:
| The NFTs did purport to give ownership rights in the
| _business profits_ of the NFT, as represented by the
| value of the NFT increasing specifically because of the
| labor of others acting to increase the value of the NFT.
|
| And that is part of what makes them completely different
| from baseball cards. Even if the value of the cards are
| dependent on the labors of others, with the baseball
| cards, the laborers (i.e., players) are not performing
| that labor with the intent of increasing the value of the
| cards; the value of the increase in the cards, if any, is
| wholly coincidental.
| vikramkr wrote:
| That's still just the value of what the collectors market
| will pay. You down own a share in MLB with the card
| pizzalife wrote:
| >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.
| bonestamp2 wrote:
| 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.
| cscheid wrote:
| > 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.
| plorkyeran wrote:
| 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.
| vkou wrote:
| Is there any chance you, or someone else with knowledge of
| this could elaborate?
| jurynulifcation wrote:
| 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).
| namdnay wrote:
| 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
| solardev wrote:
| The two dissenting commissioners (linked in the OP) have the
| same questions.
| ramijames wrote:
| 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.
|
| It's kind of bonkers.
| idiotsecant wrote:
| 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./
| DonHopkins wrote:
| 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.
|
| 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
| zztop44 wrote:
| I don't have a horse in this race and I'm not a gamer
| (although I used to be) and I also find it strange that
| gamers don't prefer NFTs over the standard skins/cosmetics
| market. I can totally understand why developers and
| publishers prefer to keep digital assets in their own
| databases, but from a users perspective having it on a
| public blockchain seems like exactly the same product but
| better in terms of more options?
|
| I could understand if the aversion was around the impacts
| of monetising play on the culture, but many of these games
| already have high volume third party resale markets for
| digital assets so I feel like that shit has sailed?
|
| For what it's worth, I have watched Line Goes Up and
| thought it was a good and fair analysis of the NFT market.
| DonHopkins wrote:
| > from a users perspective having it on a public
| blockchain seems like exactly the same product but better
| in terms of more options
|
| What options? What advantages are there? Better for who,
| the scammers pulling the rug?
|
| Keep in mind, the oft-repeated promise of being able to
| move assets from one game to another is a bald faced lie,
| and that's pretty obvious to developers and even players,
| just not crypto bros and NFT shills who have never
| developed or played games, apparently.
| jncfhnb wrote:
| You ever go buy a shirt and have the counter guy ask you if
| you'd like to register the shirt in a marketplace?
|
| I don't want to think of my shirt as a sellable asset.
| [deleted]
| nradov wrote:
| 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.
| duskwuff wrote:
| > They want to completely own the market for skins and
| other virtual assets. Why would they ever share their
| revenue with you guys?
|
| Or, even worse: why would a game publisher share some of
| the revenue for in-game purchases with customers who have
| lost interest in the game and are selling off their items?
| throwaway1777 wrote:
| 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.
| tmpz22 wrote:
| 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.
| edent wrote:
| 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.
| acdha wrote:
| Just to expand on your last point, I read their ad copy and
| once you strip out all of the meaningless filler text you
| have this key quote: "with the permission of the
| developer". If they weren't going to do it before, this
| can't force them and if they were, they don't need it.
|
| As a game buyer, that sounds like doubling the number of
| companies who need to be paid and whose business decisions
| or failure will break things, add additional fees, etc.
| "Our incredible journey" is another way to say "you're
| going to get server errors if you try to use your
| purchases".
|
| As a game developer, that sounds like I still have to do
| almost all of the work but now I'm locking in payments and
| giving up some control of my business to another party
| whose interests only partially correlate with mine or my
| partner developers'.
|
| In both cases, there doesn't seem to be enough value to
| support a sustainable business. Any two game developers are
| going to need to collaborate to share anything between
| games, and there's a really upper bound on how much money
| they'll pay before cutting out the middleman starts to look
| really compelling. Similarly, many gamers don't like pay to
| win and won't pay anything for cosmetic items so you're
| chasing the percentage of people who both do and are
| willing to pay more upfront and more later despite not even
| knowing what future games would offer that option or how
| much they'll charge.
| TylerE wrote:
| Total rent seeking.
| wonderwonder wrote:
| I think the issue in this case was the marketing. They seemed
| to be pitching a guaranteed increase in price. Which you just
| cant do.
| carabiner wrote:
| NFT was just all fake volume... Sell an NFT to yourself for $1m,
| boom, you now own a $1m asset. Then list it for $100k for the
| next sucker.
| throwitaway156 wrote:
| 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.
| not2b wrote:
| 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.
| capableweb wrote:
| How do you sell yourself a NFT to yourself if you don't already
| have $1,000,000? Something is clearly missing from your line of
| thinking here.
| andy81 wrote:
| The normal method is to generate a collection of a 10k NFTs
| and sell back and forth between your own accounts for $100
| each.
|
| The hope is that some sucker will buy them for $10, thinking
| that it's a bargain.
| AnthonyMouse wrote:
| > How do you sell yourself a NFT to yourself if you don't
| already have $1,000,000?
|
| Installment plan.
| IanCal wrote:
| Many people with a million dollars would like to have a
| million dollars and another hundred thousand dollars.
| vagab0nd wrote:
| You use a flashloan.
| furyofantares wrote:
| Some people do have a million dollars.
| mmastrac wrote:
| Bitcoin loans? You just need it long enough to make a wash
| trade.
| wpietri wrote:
| 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.
| swalsh wrote:
| In real life, it doesn't work that way.
| TacticalCoder wrote:
| > NFT was just all fake volume... Sell an NFT to yourself for
| $1m, boom, you now own a $1m asset.
|
| aka "wash trading" (which predates NFT and crypto):
|
| https://en.wikipedia.org/wiki/Wash_trade
| peyton wrote:
| How does that work for larger collections? If there's a market,
| won't the market find a price?
| endianswap wrote:
| Here's a link to the actual SEC press release, not the dissent
| over the action by two of the commissioners:
|
| https://www.sec.gov/news/press-release/2023-163
| dang wrote:
| Ok, we've changed the URL to that from
| https://www.sec.gov/news/statement/peirce-uyeda-statement-
| nf.... Thanks!
| slapshot wrote:
| @dang
| dang wrote:
| That doesn't work. I only found out about this because a user
| helpfully emailed hn@ycombinator.com.
| slapshot wrote:
| Thanks for letting me know! I'll do that next time.
| solardev wrote:
| FWIW both are worth reading. Can we make it a text post with
| both the main PR and the dissent?
| dang wrote:
| I think it's usually sufficient to include the previous URL
| in the comment explaining that we changed the URL.
|
| Eventually we're going to build something for aggregating
| related URLs.
| solardev wrote:
| Sounds good. Thanks!
| yieldcrv wrote:
| 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.
| jjtheblunt wrote:
| > it requires a Republican President to make that nomination,
| as she is Republican
|
| is that truly a requirement, or do you mean realistically it
| would not happen because of party politics?
| yieldcrv wrote:
| just realistically. yes, the latter.
| foota wrote:
| You're living in an alternate reality if you think the
| leadership of the SEC will move the needle on the election.
| jgilias wrote:
| Here's the dissent for anyone looking for it:
|
| https://www.sec.gov/news/statement/peirce-uyeda-statement-nf...
| lukev wrote:
| 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?
| yieldcrv wrote:
| The Federal Trade Commission is fully equipped to handle
| consumer fraud.
| jjtheblunt wrote:
| are unending robocall frauds under their jurisdiction?
| lukev wrote:
| But if it's not a security, is it fraud?
|
| If I sell you a hand drawn stick figure for $100, and you
| buy it because it's "art", then there's no rug to pull. You
| bought it, and it doesn't matter to the artist whether the
| resale value goes up or down. If it goes down, it's still
| not fraud.
|
| But if I sell you a hand drawn stick figure for $100, and
| you buy it with the mutual expectation that it will
| eventually be worth more because of the value of the
| brand/project, and the effort I put in to grow that
| value... isn't that a security, by definition?
| [deleted]
| yieldcrv wrote:
| that's where we are:
|
| its either go after _all_ collections with this
| outstanding low hanging and untenable application of
| Howey, or show the exact distinction that asset creators
| can follow to act solely as a consumer product _like_ the
| fine artists and watch collections
|
| it is also accurate that if following a consumer
| protection framework, most activities and behaviors would
| not be fraud.
|
| so for a creator or secondary market operator or
| promoter, not knowing which branch of theory to follow
| makes all of their behavior bifurcated and prosecutable
| under one framework, a securities framework, but not a
| consumer protection framework. and vice versa.
| alasdair_ wrote:
| >But if I sell you a hand drawn stick figure for $100,
| and you buy it with the mutual expectation that it will
| eventually be worth more because of the value of the
| brand/project, and the effort I put in to grow that
| value... isn't that a security, by definition?
|
| This seems equivalent to buying a baseball card of a
| specific player with the expectation that the player will
| put in effort into the game and thus increase the value
| of the card. People buy cards of specific players on the
| assumption that they can buy in cheap and sell when the
| value of the player's brand increases.
| lukev wrote:
| It's really not equivalent. The player does not issue the
| card.
| literalbatshit wrote:
| perhaps the player isn't the important bit really. It's
| the card manufacturer in fact. If I print a Nolan Ryan
| card no one cares. If a name brand does, and also
| promises to grow their brand and that will make it more
| valuable, maybe _that_ is more closely related?
| [deleted]
| cowl wrote:
| The player does not issue the card. The player does not
| profit from any "appreciation" of the cards. The amount
| of player cards sold is nowhere near that of NFTs so the
| potential damage is limited and the history of player
| cards has always been for "collector" value and not a
| real investment. The history of NFTs has been since day
| one for Investment.
| duskwuff wrote:
| > The history of NFTs has been since day one for
| Investment.
|
| I'd argue that there was a brief moment -- right at the
| start, when NFTs were a novelty and most of the ones
| being minted were one-offs which purportedly represented
| unique things created independently from the NFT, like a
| YouTube video or a tweet or a piece of art -- where one
| could _conceivably_ argue that NFTs could be collector 's
| items and not investments.
|
| The moment that groups like Larva Labs started minting
| runs of thousands of NFTs with images stamped out from a
| template, though, that argument became much harder to
| support. Nowadays, it's thoroughly dead.
| bonestamp2 wrote:
| If NFTs are not securities, then I believe it would fall on
| the FTC, like most other consumer protections.
| ok123456 wrote:
| How do NFTs fail to meet the Howey Test?
| IanCal wrote:
| Easy.
|
| Let's start by looking at what typical tokens are.
|
| A fungible token is simply a store of the following
| records:
|
| (public key, amount)
|
| There is a stored procedure that lets anyone with the
| private key to lower the "amount" value on their row and
| increase the "amount" value on another row by the same
| amount. There's no tracking of which part of the amount
| came from where, the "tokens" are fungible.
|
| Now let's look at what a non-fungible token is.
|
| It's a store of the following records:
|
| (public key, id)
|
| Whoever has the private key can change the public key
| field in the record.
|
| That's... it.
|
| You can add a table that has
|
| (id, metadata, url), that's common and what you see with
| most shown NFTs. There's some helper functions but really
| that's the essence of it.
|
| None of that necessitates it being sold as an investment
| in a common enterprise any more than selling bits of
| paper with a number and a signature on them does. Signed
| prints by an artist aren't securities, your place in the
| line in a queue isn't a security, a concert ticket isn't
| a security.
|
| You can obviously however treat the above data structure
| _as_ representing some kind of security. This is true
| with fungible tokens too, a list of shareholders is
| essentially the same structure. So it comes down to how
| it 's sold.
| lukev wrote:
| But what law is being broken, if NFTs aren't securities?
| yieldcrv wrote:
| crypto consumers should be far more discerning than they
| are
|
| even the term "rug-pull" is not discerning enough, it
| refers to a dozen distinct behaviors, of which a few
| would still be illegal while the other many behaviors are
| just a misalignment of expectations
|
| removing liquidity? thats not illegal under either
| consumer or securities framework and most commonly called
| a "rug pull". communities can provide their own liquidity
| as a feature of the crypto space, and in no space do
| purchasers have an expectation for liquidity
|
| ceasing to continue making press releases or taking down
| a website and community channels? also not illegal under
| the consumer or securities framework.
|
| taking other people's provided liquidity out of a staking
| contract without saying thats whats going to happen would
| be illegal under both frameworks. that kind of rug pull
| is theft.
|
| collecting funds and promising to do X and then not even
| attempting it, thats prosecutable under both the consumer
| and securities frameworks, in more ways under a
| securities framework
| lukev wrote:
| The only way to be discerning with respect to most*
| crypto is not to participate.
|
| Even "succeeding" at crypto just means you sold early
| enough to a greater fool.
|
| * jury still out on the couple major cryptocurrencies,
| though I hope they follow the same path.
| yieldcrv wrote:
| The SEC is not the arm of the government to help you feel
| validated, and I think thats the crux of your dissonance
| gumby wrote:
| Are SEC commissioner assignments explicitly partisan as are,
| for example, FCC commissioners, or are the less so like the
| Federal Reserve governors?
| yieldcrv wrote:
| 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.
| qeternity wrote:
| > "Buying a founders key is [l]ike investing in Disney, Call of
| Duty, and YouTube all at once."
|
| 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.
| yieldcrv wrote:
| 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
| m00dy wrote:
| what Impact Theory is this ? the youtube channel ?
| [deleted]
| tedivm wrote:
| The article doesn't really match the title. The SEC press release
| is much more informative: https://www.sec.gov/news/press-
| release/2023-163
|
| What this article is linked to is a dissent from two of the
| commissioners.
| dang wrote:
| Thanks. We've changed the URL from
| https://www.sec.gov/news/statement/peirce-uyeda-statement-nf...
| to that now.
|
| See also https://news.ycombinator.com/item?id=37300225 and
| https://news.ycombinator.com/item?id=37300237.
| Dowwie wrote:
| the title is literally the first sentence in the article
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