Building a Token-Powered Ecosystem
On June 14, 2018, William Hinman, Director of the Division of Corporation Finance at the SEC gave a speech in which he analyzed whether or not Ether should be classified as a security under U.S. securities laws. His speech also provided interesting insight to the market on how to analyze whether a token is a consumer token or a security. You can read the full transcript of his speech here.
To date, much public and media attention has been focused on whether or not Bitcoin and Ether should be classified as securities. At Token Foundry, we are particularly interested in Director Hinman’s comments on decentralized networks, and more specifically, those surrounding selling tokens "so they function more like a consumer item and less like a security.”
The Brooklyn Project has focused much of its attention on the sale of “consumer” tokens to actual users of the networks they power, rather than to speculators or investors. In light of Director Hinman's Comments, and leveraging the work of The Brooklyn Project, Token Foundry has formulated an initial set of standards for selling consumer tokens. This framework represents a first step and is only the beginning of an evolving conversation on creating decentralized networks and digital consumer items that are usable, fair and secure.
Properly designed tokens incentivize specific behaviors and allow those who own the token to perform specific functions within these decentralized networks. When executed properly, this can lead to building even stronger networks (when compared to centralized networks), and results in the value created from the network being distributed more fairly among those adding the value to the network (so not just a centralized organization like facebook capturing the majority of the value from the network). The main goal of the Token Foundry framework is to sell consumer tokens in a way that we feel is respectful to regulation, protective of consumers and best for innovation.
The full breakdown of our standards can be viewed here. But below are a few important aspects:
- Registration for token sales is open to everyone
- All tokens are sold at the same price (no pre-sales or bonuses or discounts)
- Tokens can’t be sold until there’s at least a working testnet version of the product (not just a whitepaper)
- Tokens are only sold to real “qualified” consumers -- i.e., people who actually plan to use them (not speculators), and who understand the technology and token sufficiently to follow through
- Token buyers must answer questions to prove they understand what they are purchasing and that they actually intend to use the token for its intended purpose
- Tokens are not able to be resold until (1) they are usable and functional on Mainnet; (2) buyers “Prove Use” of their tokens; and (3) certain resale restrictions have been lifted
The specifics of our framework are subject to change as we work with innovators, advisors and regulators to to continue to solidify best practices. All consumer tokens on Token Foundry will follow these standards, and our hope is that other groups and ecosystem participants will begin adopting these standards as well.
The Tokenized Future
Token-powered networks offer an unprecedented opportunity for consumers around the world to play a critical role in the development of entirely new global networks, marketplaces, ecosystems and economies. At Token Foundry, we want to bring standards and legitimacy to consumer tokens and consumer token sales, to empower this new generation of decentralized networks.
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