Jun. 14, 2023
RE: File No. S7-02-22 See: https://www.sec.gov/comments/s7-02-22/s70222.htm RE: SEC Reopens Comment Period for Proposed Amendments to Exchange Act Rule 3b-16 and Provides Supplemental Information See: https://www.sec.gov/news/press-release/2023-77 See Also: https://www.federalregister.gov/documents/2023/05/05/2023-08544/supplemental-information-and-reopening-of-comment-period-for-amendments-regarding-the-definition-of See Also Also: https://www.sec.gov/files/34-97309-fact-sheet.pdf See Also Also Also: https://www.govinfo.gov/content/pkg/FR-2023-05-05/pdf/2023-08544.pdf June 13, 2023 To Whom It May Concern: Throughout the Commission’s proposed Rule text is one central unspoken and unanswered question: what is the definitive “Test” for the existence of a security, so that programmers can program the required (negative space) logic into our cryptoeconomic systems and thereby avoid ever needing to comply with any of your Rules and Regulations? https://insights.sei.cmu.edu/blog/requirements-in-model-based-systems-engineering-mbse/ UNFORTUNATELY … WE WILL NEVER HAVE SUCH A DEFINITIVE TEST FOR A SECURITY, BECAUSE THAT WOULD BE A TEST FOR PRURIENT INTEREST AND LUST FOR PROFIT, IT WOULD BE A TEST FOR FINANCIAL OBSCENITY. https://en.wikipedia.org/wiki/Patently_offensive It’s very difficult to define obscenity, but we know it when we see it. That’s the problem with all of the Commission’s work in crypto thus far, and it looks like your proposed Rule today is unworkable without addressing this core problem. I believe the Commission MUST promulgate a new Test, an objective Test for crypto developers to use to ensure that our new things are NOT securities, definitively, objectively, by defining the “negative space” around which legitimate cryptocurrency engineering is required to conform, a new crypto Safe Harbor. WE MUST HAVE A TEST TO USE TO OBJECTIVELY PROVE THAT TRANSACTIONS, OFFERS, SALES AND SCHEMES DO NOT CREATE OR ALLOW SECURITIES; A TEST APPLICABLE TO AUTOMATED SYSTEMS. You would not buy gold to satisfy your prurient interest in and lust for profit, you would buy gold for storage of wealth and for a hedge against inflation. Despite the fact that gold can be synthesized in a lab, people view it and other precious metals as forms of commodity value that originate from natural forces and obey natural law. Crypto assets are no different, they exist because of natural forces, including the force of political and economic power which many people throughout the world experience being weaponized and inflicted upon us, for which crypto assets are now a means of self-defense using the force of natural law. The Commission should be very careful to respect natural law when making new Rules about crypto assets, and I believe this is best accomplished by starting with an objective “negative space” Test for the things that are NOT securities when crypto developers build crypto assets into our automated decentralized systems. The Commission should take note of what the Internet Engineering Task Force says about centralization risk, recognizing that experts in cryptography, software engineering and global public digital network engineering have been building decentralization into our nation’s critical infrastructure for reasons and with purpose, and that peer-to-peer cryptoeconomic engineering has never had the criminality that the Commission would like to attribute to it for the political and legal tactical advantages your staff lawyers believe you get from fighting against the Internet. You are old men (and women) yelling at clouds. https://www.ietf.org/archive/id/draft-nottingham-avoiding-internet-centralization-05.html “Despite being designed and operated as a decentralized network-of-networks, the Internet is continuously subjected to forces that encourage centralization. This document offers a definition of centralization, explains why it is undesirable, identifies different types of it, catalogues limitations of common approaches to decentralization, and explores what Internet standards efforts can do to address it.” A side-note about “Extra-Territorial” crypto asset issuance, not subject to any sovereign jurisdiction: evidence points to Satoshi being outside the USA at all times, perhaps not subject to United States federal law because their actions occurred outside of US jurisdiction; same with Ethereum Foundation and its Founders. The Commission should take note of what the United States Treasury says about DeFi risk, regulatory compliance with FinCEN’s Rules for Anti-Money Laundering and Combating the Financing of Terrorism: https://home.treasury.gov/system/files/136/DeFi-Risk-Full-Review.pdf The Commission’s focus on Howey analysis for investment contracts has caused confusion instead of provided clarity. This proposed Rule marks a shift in the Commission’s communication with the public about what securities are, how they come into existence, how they are promoted and traded, and who is ultimately responsible for compliance when complex decentralized finance schemes are devised, developed, operated and sold to the public. What the Commission has failed to articulate, even with its many crypto and DeFi enforcement actions, is the fact that there are many forms of ownership and governance possible with a decentralized common enterprise, and that every such enterprise may issue many classes of securities with no need for contracts or investment contract analysis to determine that the economic reality of the scheme creates the equivalent of equity ownership bearer assets, and that the promoters, whomever they are and however they arrived at the decision to promote the shares of ownership to others, should understand that there is no difference between a decentralized common enterprise and a centralized one. Likewise, the Commission should understand that a decentralized common enterprise can legitimately create and issue non-securities in the form of commodity crypto assets, because doing so is a natural force that obeys natural law and cannot be removed by fiat. Centralized institutions, banks and other organizations create non-securities financial assets every day and nothing will ever be able to stop decentralized organizations from doing the same, so the Commission should be mindful not to attempt to do so because that would be highly prejudicial, irrational and counterproductive in the extreme. Furthermore, it is time for the Commission to formally acknowledge that every class of securities issued by a non-profit organization is, by statutory definition, exempt from federal securities law, and this is why you have not taken enforcement actions against Ethereum Foundation, Algorand Foundation, and others, despite those non-profits clearly formulating decentralized common enterprise investment schemes and issuing “non-profit” securities which have in fact produced enormous profits for the insiders and their early investors, including members of the general public who purchased their coins or tokens at low valuations in the global crypto secondary market. Here is a Draft of a possible “negative space” Test that would serve as a clarifying Safe Harbor when DeFi and crypto asset developers, issuers, promoters, and exchanges, engage in our engineering and business development activities in good faith and with the intent to comply with the spirit and the letter of every one of your silly Rule and Regulations: NEGATIVE SPACE TEST FOR “NOT A SECURITY” (ALL CONDITIONS MUST BE SATISFIED): Open-ended supply that grows with time, participation, or market demand; not algorithmically designed to decrease supply (e.g. in a deflationary economic policy like Ethereum adopted recently) nor to create artificial finite scarcity like a class of equity stock, or like Bitcoin does using a mathematical asymptote; See https://en.bitcoin.it/wiki/Controlled_supply Anyone can fork the cryptoeconomic system and/or its commodity crypto assets using open source or public domain data and source code; There was no difference in ownership or control between “insiders” including Founders, developers or seed investors, and “outsiders” from the moment the cryptoeconomic system became available to the public; no premine, no developer or Foundation airdrop or DAO Treasury or protocol features that allocate a percentage of new crypto asset generative supply to special groups such as developers; Anyone can participate in the cryptoeconomic system’s generative crypto asset supply creation, minting, mining, bridging, swapping, smart contract bonding curve or crowdsale, or other decentralized economic participation rewards scheme using only an average computer and average skill, without buying any specialized hardware, without staking a minimum ownership share as a proof-of-stake scheme; No “yield” is ever generated by protocol or provided externally to the automated system or its participants in order to reward HODLers; No “buybacks” are promised to investors, and no other scheme for the transmission of profit generated by sponsors, underwriters, promoters, or any issuer or developer of the cryptoeconomic system exists, nor is ever advertised, implied or communicated as part of any development Roadmap. I recognize that according to such an objective “negative space” Test for crypto assets that are NOT securities, there would need to be a formal exemption granted to Bitcoin and Ethereum, or else each would fail this Test. I would like to take this opportunity to remind the Commission that women are NOT for burning. See: https://www.newyorker.com/magazine/2023/06/19/how-dowries-are-fuelling-a-femicide-epidemic Also, that your independent agency of government, which is restricted in its actions at all times by the Administrative Procedure Act, has ZERO AUTHORITY to prohibit any registration filing from becoming effective pursuant to the 1933 Securities Act — as you know, your independent political Commission only has authority to review and provide comments when filers file registration statements. Maybe you should remind the public of this fact and invite crypto promoters, exchanges and developers to file registration statements, rescinding your implied threats of interference and persecution for doing so? See: https://www.sec.gov/divisions/corpfin/cffilingreview Regards, Jason Coombs ceo@forensics.org 831-241-4900