June 13, 2023
Crypto is a new asset class that the existing laws do not address well. Most crypto tokens and chains cannot be securities because there is no central organization issuing them, no business to produce the required reports and they do not operate like any conventional security in existence. Give me an example of an existing security which uses its own supply as a transaction fee to perform work and increases supply by awarding participants for performing the work. How about one where shares from a user are held in proxy and the shareholder is periodically awarded more shares in exchange for their participation in a consensus-based cooperative work network with other shareholders. How in the world does this even pass the Howey test? Just because you aren't the one physically performing the accounting in this case doesn't mean there isn't software doing work on your behalf because you are an owner and therefor a participant. Staking in crypto systems is effectively defined by putting your ownership to work via a participation pool that algorithmically you can only be in if you have the stake in - and it's functional, not an investment, because the algorithm is specific to value being at stake via a guarantee of work being performed. This is undefined in regulatory systems and the SEC is not the correct organization to handle it. At worst these are commodities with new functionality. Potentially specific crypto assets could be used as securities and therefor require classification as a security, sure, but I strongly disagree with all broad expansions of definition of exchanges to include crypto.