In today’s hearing, Congressman Emmer (R-MN) had an excellent line of questioning for the Director of the SEC’s Division of Corporation Finance, William Hinman, on the subject of open blockchain tokens and regulation.
Hinman responded that the initial sale of a token is difficult to have without it being security issuance. But he also said that “it is certainly possible that there are tokens that would not have the hallmarks of a security.” He went on to specify what a token that doesn’t have those hallmarks might look like: “a token where the holder is buying it for its utility rather than investment, especially if it's a decentralized network in which it’s used with no central actors.”
This is exactly the right approach. As we just wrote yesterday and have been stressing since 2015:
- A decentralized token may not be a security even if the token’s initial pre-sale did fit the test for securities issuance, and
- The factors that distinguish a non-security token from a security are
- usefulness and
It’s awesome to hear the SEC’s Director of Corporation Finance testify that they are looking at these issues with a similar perspective.
It was also a treat to hear Rep. Emmer standing up for open blockchain innovation during the hearing, suggesting that the assumption—from regulators and elected officials—that decentralized networks are only used for fraud or crime is as misguided as assuming, back in the time of Columbus, that the world is flat.
As Emmer said, “People tend to fear what they don’t know. If people sailing the oceans at the time of Columbus had believed the world is flat we wouldn’t have had the great discoveries of the New World.”