Vision for Steem-Engine.com and some legal challenges along the way for tokens
Let me share with you a vision of where Steem-engine.com is heading. We want it so that when you create a token it has instant liquidity on the steem-engine.com dex that's currently in a testing phase, but also on exchanges the world over that already offer Steem! Can you see what that could do for your business? Imagine getting instant access for your token on the major exchanges like Bittrex, Kraken, and Binance!?! Talk about liquidity.
Anyway, that's what we're working towards. We've barely started, but we should have the Dex out sometime in February. But that also brings up some legal concerns. We're not legal experts and certainly not agents of the bar association. So, take the following as something to consider as you complete your actual legal due diligence.
(Though I should also note, because this stuff is complicated and the consequences can be massive fines or jail time we're planning on partnering with a law firm that has some expertise in cryptocurrency to offer legal services. So, watch out for that this month as well, but for now let's just get started with some token basics.)
USA regulatory body - the Security and Exchange Commission (SEC)
I was born in new england. I have to worry about American laws and the SEC. They have rules regarding selling securities that often involve a ton of reporting, which is difficult for small companies to do. There are exceptions and when our team begins offering legal services it'll be around these exceptions that make it vastly easier for small companies to issue securities LEGALLY! (looking at you eth for your vast array of illegal security tokens)
Security Tokens
Selling unlicensed securities is no bueno. That can land you in serious legal trouble with fiat based regulatory bodies that have a way of taking your money or locking you away. So, for your sake we don't want you to do that. That said not all tokens are automatically securities, and there are of course legal ways to make your security legal. **It's complicated and that's why we suggest working with a legal team.
Meet the Howey test
To determine if your token is a security the Supreme Court came up with what's known as the Howey test, which is essentially the litmus test that the legal and financial system uses to determine if what you're offering is a security.
They ask themselves does this token represent "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 party."
That might still be too much legalize for folks, so let me try to break that down into English a little more-
Did you invest money?
Was it in a common enterprise, like you expect to own a part of a company vs owning a product?
Do you have an expectation of profits?
Are your profits coming from the work of other people?
If the answers to those questions are "yes" then you're very likely buying/creating/issuing a security. If it's a security you're going to have to figure out a pathway with regulatory bodies.
This however is just a guideline that they use. Ultimately it doesn't matter what you think the token is and only matters what the SEC thinks the token is. If they call it a security token, or you don't get them to weigh in on it initially and they later determine it's a security token then life may get pretty hard for you and potentially anyone that bought the token.
That's why we are working to get a legal firm involved and I keep repeating you should be seeking legal advice before you get yourself in hot water with a tool that you didn't weigh completely.
Be safe as a token creator or a token buyer
If you're looking to issue a token do some more research or partner with a legal firm (preferrably thorugh us starting later this month) to make sure what you're doing is legal.
If you're looking to purchase tokens either for products and services or as an investment make sure you do your due diligence on companies to verify if they are acting within the law they are governed by.
The dex protocol is open to everyone who creates a token and we're not offering any guarantees or issuing any advice on the tokens that come out. We're expecting third parties to come through and start talking about and rating the various tokens and possibly categorizing them as securities.
This is for information purposes only, and at this very moment we're not currently offering legal advice or services. Since we know many people are going to be interested in raising millions of dollars through steem we're going to start offering those services soon. For now, issue tokens with care and thought, and if you're going to treat them as company/dapp ownership be careful and be sure that you're acting within the laws of the country you operate in.
Will the DEX operating on every computer that is hosting a Steem Engine node?
Will it be possible for the Token creator to limit the location of nodes able to trade their token.
I ask because the @jpbliberty litigation funding token is issued by an Australian company and litigation funding is completely exempt from all Australian securities law.
Thus it is fully compliant with Australian law and I can even operate an exchange for the purposes of litigation funding.
I'd prefer to have the DEX for my token only operating on servers outside the USA.
Is that possible?
Well, it's a dex. So like the steem blockchain it can be used anywhere in teh world, but like the steem blockchain you can have different front ends for this stuff. So, no you can't remove it from the blockchain, but you can run the open source code to have your own dex that's only accessible by whatever conditions you put there.
While this first go round is only starting with public coins maybe we can add functionality down the road for more private ones too.
!gif brain explosion
I wanted to see that
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Hi @aggroed, huge fun of your work :) do you guys have a discord where I can ask some questions? Cheers! !tip 10 hide
https://discord.gg/sSSfjDb
Can't wait for the launch! Already have a couple ideas for coins and their uses :)
Excellent vision that you share. It is very important to know all that information. regards @aggroed
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When discussing with the law firm, remember to ensure that you review the latest Jobs Act passed here in the US a couple of years ago as it provided some clear exemptions for certain entitiies and crowdfunding initiatives that fall under a monetary threshold (it is a an amount in the millions). Given the market caps we are seeing these days, I would say that there would be ways to pull then off using these frameworks created to raise capital more efficiently. I wish you the best on this exciting project!
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Love your work guys. I am no legal expert either, but as long as Steem Engine is not selling tokens or offering any means for selling tokens, then I would think that you're absolved of any legal implication in the use of user-created tokens. You're providing a means, but not an end (that's for the end user).
I don't see how the challenges you're facing are going to be any different than they will for Steemit Inc. I think in the case of Smart Media Tokens because STINC is a privately run company, they might have a little more legal tape to navigate in regards to token issuance.
Getting legal advice is smart, but I think you're fine as long as you have clearly defined terms of service and do not encourage the creation of potential securities (being sold or traded for any measurement of currency).
I really want to create a Steem Engine token myself, once I can scrounge up the 100 STEEM required to do so. I have a few dApps I am working on, one of which would really benefit from a custom token.
I am going to be writing up a "white paper" for my FOOD token issuance and a legal disclaimer at the bottom will say something along the line of "I'm just a dude playing around on the internet and these are nothing but a digital sticker, it's like me saying 'wow thanks for entering the @steemfoodtours contest, have some digital stickers'"... but ultimately it's up to the market to decide how much people want to trade those stickers for :)
I certainly won't be selling anything or promising any returns!