[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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