The top five blockchain crowdsales bore out of the Bitcoin 2.0
movement have raised more than a quarter-of-a-billion dollars in
"initial coin offerings," "token sales" and the like. Participants
contend the blockchain tokens are going "to the moon." Others
argue, since they've never been registered, they run afoul of
The second largest crowdsale and best known, is Ethereum at
$18,439,086. Ethereum developers say their blockchain is a
distributed smart-contract platform "fueled" by a native digital
currency similar to Bitcoin. Ethereum's 2014 "
" preceded it's May 2016 crowdsale for the DAO, a so-called
"decentralized autonomous organization" managed via Ethereum smart
Ethereum and DAO developers currently face scrutiny in the wake
$55 million compromise of the DAO
by an attacker. They are deciding whether to intervene and undo the
damage done by the draining of funds.
DAO token holders, who purchased the tokens with Ether, vote on
"important decisions relating to the management of the DAO," the
project claims. The DAO had
raised Ethereum worth over $200 million
at the time of the attack.
The top five blockchain crowdsales: the DAO, Ethereum, WAVES,
Lisk, Digix and Augur, have raised approximately $200 million.
Nearly $170 million of that is Ethereum and the DAO.
Lisk, a cryptocurrency and decentralized application platform,
raised $5,880,089 in an "initial coin offering" in 2016. Lisk
founders worked on the code for three weeks before going
"In the following three weeks we built up enough momentum to
start our crowdfunding," Lisk co-founder, Max Kordek, told me. The
crowdfunding went on for one month and Lisk brought in more than
Kordek emphasizes the importance of marketing and calls Lisk's
"intensive marketing campaign" a "huge success."
Developers say they are providing access to software, not
securities. The literature is littered with finance and security
terms. Securities laws are broadly interpreted and designed to be
adaptable to the innovative ways people raise funds.
Congress developed federal securities law after the stock market
crash of 1929. The speculative frenzy ending in the October 1929
panic, called "Black Thursday,"led Congress to enact the Securities
Act of 1933 (the "Securities Act") and the Securities Exchange Act
of 1945 (the "Exchange Act").
State blue sky laws, Securities and Exchange Commission rules
and regulations, as well as regulations from the National
Association of Securities Dealers (NASD) combine to create
SEC v. W.J. Howey Co.
(1946) set the precedent that an investment contract entails the
giving of money to others who manage and control the funds with the
expectation of profit.
Blockchain crowdsales market that token holders and "community"
participants themselves, enjoy management and control of the
blockchain software. Indicating that they, themselves, help build
the blockchain platform over time. DAO participants, for instance,
use Ether toward the DAO projects they support. Lisk says that
Lisk for bug bounties.
If blockchain crowdsale participants enjoy management and
control, then it's arguably not an investment contract or security.
Still, developers generally lack management and control over an
enterprise in the real world.
Who would shareholders petition to obtain redress when something
goes awry? Core developers on Ethereum, etc. argue that "smart
contracts," that is, the distributed software itself, handles
Jason Seibert, a lawyer who serves on Bitcoin and securities
cases, described a typical blockchain crowdsale: "Hey, give us some
money and we are going to develop something. We are not quite sure
what it is yet but when we do, you'll be able to use this stuff for
it, even though we don't know what it is yet."
Even if the blockchain crowdsales are, in fact, crowdsales and
not securities offerings, they must still be
under the JOBS Act and regulation.
Illustrating the nuance of securities laws, Seibert evokes
"Nobody thinks baseball card manufacturers print baseball cards
with the intent of them being an investment," the Oregon-based
lawyer, who represented Trendon Shavers in
the first Bitcoin criminal fraud case in the
, said. "Come on, it's sold in a pack of gum! But everyone knows
that people can collect them and trade them and make money off of
Blockchain crowdsales come across much differently. They're not
bubble gum and pictures of athletes. "We're talking about an
investment opportunity," Seibert says.
Heretofore, blockchain crowdsales have enjoyed the unwritten
"good deal exception," wherein, since everybody is happy, nobody
files lawsuits or tips off relevant officials.
That the DAO smart contract platform was drained of $55 million
and core Ethereum developers are considering implementing a fork to
roll back the perceived heist, it remains to be seen if the "good
deal exception" will soon expire. An SEC official
June 20 that the $55 million attack against Ethereum underscores
concerns over blockchain systems.
Thanks to the DAOs code, Ethereum developers could intervene and
undo the $55 million drain. But that might be used in a court
against them as proof they held control over Ethereum and the DAO.
The DAO would not have truly been a "decentralized autonomous
organism," as advertised, and participants could then be seen as
"You'll generally hear an investor say, 'Had I know
this-or-that, perhaps I would not have invested," Seibert