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Imagine this: It’s the year 2020 and it turns out there’s no “single stablecoin to rule them all.” Instead, all utility tokens are now designed to be price-stable. Centralized crypto exchanges have either closed shop or refashioned themselves as underground gambling platforms. Decentralized exchanges power seamless, instantaneous and often automatic conversions between the various protocol tokens. Each one is pegged to some real-world basket of goods, often essentials like the price of food, water or housing. Capital is allocated efficiently and instantaneously to the most promising new projects and innovations. Investors are indistinguishable from users and are handsomely rewarded for spotting promising protocols and allocating their computational resources and governance expertise to support them.
Sounds pretty good right?
I believe there is a good chance this will actually happen and that price-stable protocol tokens will be more secure and preferable to universal stablecoins.
Below is an idea for a protocol utility token with stablecoin qualities that will limit speculation and pave the way for mass adoption of decentralized technologies. This can be achieved by putting a cap on the price of the token, thereby removing any expectations of passive profit.
Disclaimer* — It will probably also pass the Howey test, however I’m not a lawyer so this by no means constitutes legal advice.
Background — The Howey Test
In the US, the Howey test is used to determine if something is considered a security or not. If you end up selling an unregistered security to non-accredited investors, you may end up in big trouble with the SEC and will possibly have to face fines and rescind the sale (this means returning ALL funds to buyers). Obviously this is a big problem if you’re trying to do a public sale of tokens to raise funds for your world-changing decentralized protocol.
For a vivid example of what a lawsuit might look like, checkout the class action suit against Ripple or read about it on Cointelegraph.
So here is the actual test — if you answer YES to all of the questions below, your token is most likely a security.
- It is an investment of money
- There is an expectation of profits from the investment
- The investment of money is in a common enterprise
Any profit comes from the efforts of a promoter or third party
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Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.