[HN Gopher] SEC charges Impact Theory for unregistered offering ... ___________________________________________________________________ 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 ___________________________________________________________________ (page generated 2023-08-28 23:00 UTC)