About five years ago, I was watching the first season of Silicon Valley and Elrich Bachman’s incubator model intrigued me. For those unfamiliar with the show, basically a character had a house where he gave software developers free rent in exchange for a 10% percent cut of their projects while in the incubator. So a few years later on, I had a house of my own and applied the same model, inviting my brother and friend to live there rent free for a percent of their development efforts (they had started their own venture after graduating university). Nothing ever came out of the incubator except for some fun memories and they eventually picked up ‘real’ jobs and paid rent. I never felt any regret for having lost out on about 16 months of rent. It was the thrill of supporting the creative mind, watching their efforts to try and be free from ‘working for the man’. If I went back in time, I’d do it all over again.
Years later, reflecting on my core values, I’ve determined that there are three fundamental areas I enjoy:
1) leveraging imagination to think up unique solutions to difficult problems
2) fostering other’s creative talent, drive, ability, and passion
3) challenging broken systems through specific pressure and string-pulling
As I gained a greater understanding of the digital blockchain transformation that mankind is in the early stages of right now, I began to see the potential of upcoming crypto projects and novel applications of these the blockchain. I wanted to understand the system to find areas to improve it. To understand a system, you generally need to gain experience with all of its parts, so I began doing that, eventually arriving at the genesis of blockchain projects, which encompasses Launchpads, Initial Coin Offerings/Initial DEX Offerings (ICO/IDO), and tokenomics. These are basically a way to support a project or initiative from the very beginning. The stock market has IPOs, and the crypto world has ICOs/IDOs, since they have coin/tokens instead of stock. Launchpads are places that vet and select ICOs to sponsor and help the average joe get in from the get-go.
Since I have a fondness for fostering creativity, I picked out this sector to become my niche. Since I enjoy researching and vetting ideas, I felt it would be an area that I would feel useful. As I tried to sign-up for my first Launchpad to support a project, I found ou that I was too late. The Central Scrutinizer had already struck. The SEC had made it illegal for average U.S. citizens to invest in ICOs/IDOs (and IPOs).
For reference here is the list of countries that do not allow average citizens to trade ICOs/IDO.
Cuba, North Korea, Iran, Libya, China, Sudan, Syria, Crimea, The United States of America, Venezuela
The land of the free…
Now ICOs can be extremely speculative and there are a lot of scam/pump-n-dump ICOs out there. The SEC’s reasoning is that they are protecting the average (read unintelligent) citizen. There are, however, other theories behind such a restriction of freedom, but first, lets flesh out and run logic stress tests against the current SEC reasoning.
- People are unintelligent. They will fall for scams, and they will lose their money.
- Celebrities were endorsing ICOs, causing lots of fans to lose money. https://www.sec.gov/news/press-release/2018-268
- An American cannot buy an ICO, but they can buy the token immediately post-ICO.
- Millionaire Americans are able to buy an ICO.
- Money is the defining line between who can and cannot purchase an ICO/IDO/IPO.
- The threshold is $1M, or to be an ‘accredited investor’ if you can prove your wealth/status by other means.
At many ICOs/IPOs, the price of the asset is much cheaper than it is post-IPO. For example, you could buy tokens at $0.02 for ICO price, but post-ICO, when an American has their first opportunity to get in on a project they believe in, they will likely have to pay 4-5x higher.
- On the holistic stage, this flaw grants advantage to all international players and significantly weakens the American profitability.
- Americans are being denied opportunity by their Government
Allowing millionaire Americans through the ‘accredited investor’ clause is blatant discrimination by the SEC to favoring the wealthy. This system allows rich investors a chance to buy cheap before the masses can get in and drive the price up even more as the wealthy then dumps their significant gains. A skilled researcher could probably learn a thing or two of interest about the type of people (and their investor status) who lobbied and pushed-through these laws.
The SEC desire to protect the average citizen from scams and financial losses is fine, the legislation portion taking away rights from citizens. Adapt or Die–that is the theme here. The SEC must think up an innovative way to tackle to the problem of ICO scams, not simply legislate their problems away. An example could be creating a free online test and education program that teaches new investors on how to spot bad investments and cover some of the red flags. Then afterwards, a viewer could receive a certificate that allows them to be an ‘accredited investor’ and then partake in ICOs and IPOs. Much more democratic.
Along the lines of Adapt or Die, it must also be said that we cannot ‘protect the unintelligent’ too much. If the fear is that the average joe is going to pour their live savings into a bad investment, then that should be their decision. Darwin has a say. The government should only introduce minor barriers, instead relying on creative means to help individuals avoid bad investments. One example here would be a database of vetted projects to improve awareness and educate of the risks. Never remove the choice from an individual. Systems work themselves out over time. They adapt and they evolve. If a bunch of people get burned on an ICO, news will get out, awareness will spread and the majority of people will stop investing in sketchy ICOs, while developers will build places that vet, sponsor, or insure new projects to evolve the community itself. If celebrities are running pump-n-dump schemes, the government can absolutely sue them, but don’t punish the citizen and the system for it. A celebrity also takes risk and Darwinism into their own hands if they spawn a couple thousand vindictive followers.
Bottom line: If the system is free to operate, it will adapt and overcome problems. That is the development cycle. Both the human mind and society will adapt.
One additional thought-point to consider is that Smart Contracts now exist–an example of an ever-adapting crypto ecosystem. Smart contracts will make it much harder for teams to launch ICOs, pump up the price, then exit. This is because reputable developers tie the ability to redeem or sell their portion of the initial token allocation for a set period of time (e.g. 18 months, 4 years, etc…). The longer the lockup period, the more time the company has to prove that they are building the program as envisioned and to show their progress. Smart Contracts can limit the amount of tokens one person can purchase, preventing Whales from taking over control of an initiative. Trustworthy ICOs will publish their smart contracts and also have them audited by independent organizations. Smart contracts change the game and open a much different playing field from the early 2016-2017 period when scams and schemes were rampant.
The SEC should recognize this adaptation and realize that they were wrong to sacrifice the average citizen’s freedom in the name of safety. The SEC should rescind their legislation… but they wont. The government requires either immense top-pressure or an incentive to itself for anything to change. Now that we have defined the problem, let’s apply imagination, specific pressure, and string-pulling to try and tackle the government restricting crypto efforts. It is a problem that is not going to go away.