TLDR: The purpose behind the instrument determines the type of security it is. 1933 Securities Act outlines every type of security in the first paragraph. We provide concise descriptions for each term that means "a security".
Eventually, everyone gets to the point where they want to protect their investments. The purpose of registering an investment as a security is to provide the purchaser with an assurance that they're not being defrauded. Also that the instrument being sold does not misrepresent the facts, and to help the purchaser and the government make an informed decision.
On the first page of the 1933 Securities Act, every type of security is outlined.
A "note", which is a debt security with a specified repayment period, usually short-term.
A "stock", which represents partial ownership in a corporation, allowing shareholders to claim a portion of its assets and earnings.
A "treasury stock", which is a company's own stock that has been repurchased and held in the company's treasury.
A "security future", which is a standardized contract to buy or sell a specific security at a predetermined price on a specified future date.
A "security-based swap", which is a financial contract where two parties exchange cash flows based on underlying securities or indices.
A "bond", which is a long-term debt security issued by governments or corporations that pays periodic interest and returns the principal (i.e. amount borrowed) at maturity (i.e. when it's due).
A "debenture", which is an unsecured debt instrument backed by the issuer's creditworthiness rather than physical assets.
"Evidence of indebtedness", which is any document that indicates a borrower's obligation to repay a debt.
A "certificate of interest or participation in any profit-sharing agreement", which represents an investor's ownership stake in a profit-sharing arrangement with a company or venture.
A "collateral-trust certificate", which is a debt security backed by collateral, typically in the form of stocks or bonds held in trust.
A "preorganization certificate or subscription", which is a commitment to purchase shares in a company prior to its formal organization.
A "transferable share", which is a unit of ownership in a corporation that can be easily bought, sold, or transferred between parties.
An "investment contract", which is a financial agreement between parties where one invests money with the expectation of profit from the efforts of others.
A "voting-trust certificate", which represents the transfer of a shareholder's voting rights to a trustee.
A "certificate of deposit for a security", which is a document indicating ownership of a security held by a financial institution.
A "fractional undivided interest in oil, gas, or other mineral rights", which is a partial ownership stake in the rights to explore, extract, and sell natural resources.
A "put", which is a financial contract that grants the owner the right, but not the obligation, to sell a security at a specific price before a certain date.
A "call", which is a similar contract that grants the right to buy a security at a specific price before a certain date.
A "straddle", which is an options strategy involving the simultaneous purchase of a put and a call option on the same security with the same expiration date and strike price.
An "option", which is a financial contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
A "privilege", which refers to a special right granted to a particular investor, such as preferred stockholders.
A "group or index of securities", which represents a collection of securities, often used to track the performance of a specific market segment. When applied to foreign currency on a national securities exchange, the terms refer to financial contracts that grant rights or privileges to buy or sell foreign currency at specified prices or under specific conditions.
A "warrant", which is a financial instrument that grants the holder the right, but not the obligation, to purchase a company's stock at a specific price before a certain date.
A "right to subscribe to or purchase", which refers to an investor's entitlement to acquire additional securities, often at a predetermined price, within a specified period. Both terms relate to all securities and financial instruments written describe here.
Alex Palmer
I feel that Farcaster is pretty ideologically homogenous. What's an opinion you think most other people on Farcaster would disagree with?
*an opinion that you have
LinkedIn is worth building an audience on
Some might say, the bar is low for fun there! 😆
Haha you can have fun there just can’t be truely unhinged I thinn
Only because it’s so niche: Base12 is better than Base10
Delet
But muh fingers!
The federal reserve is dope Dollars being deflationary is by design and is a good thing Crypto’s main use case (after 13 years) is multiplying the net worth of double digit IQ havers, middle and lower classes. Fast Food is good CO2 monitors are a scam for triple digit IQ havers ETH mafia is bad for every1
ux and onboarding friction are overrated in crypto. you can optimize all the wallet/ onramp flows but need to solve practical use cases that users care about
The only hope we have of “preserving Earth” is by sending at least 30% of humanity into space 🫡
plot twist: cam wants to depopulate the planet by getting rid of 30% of people by shooting them off into the abyss with no means to survive
this is true that's why i joined @cassie's hunger game to practice
The Warpcast Farcaster client should remove the "trending" filter on the home feed and avoid algorithmic curation of content. cc /hottakes
don’t build most times
the physical world is way more interesting than the digital realm/metaverse, and always will be
Curious what this channel's consensus is on the legal risks of projects that have a token but can't be easily defined as a security. Ex: A token-gated app that only has value when a broad % of members are actively contributing, but there is no onchain governance and the project relies on a centrally-controlled server.
@jrf any thoughts? :)
does the token only serve as membership credentials in this instance?
It would also represent a claim on a % of the treasury. Early token holders would have a higher claim.
anything that looks like "a claim on a % of the treasury" would very likely be defined as a security under howey happy to chat in detail if you want. i went through all this shit with LBRY
TLDR: only launch a token *after* the product fully works, never to build the product. These might help. https://paragraph.xyz/@thatalexpalmer/what-makes-token-security https://paragraph.xyz/@thatalexpalmer/when-token-is-not-security
Yep that's my plan. I want to have an initial cohort of users before I create the token. Thanks for the links!
Would you say tokens that aren’t securities are almost like digital Chuck E. Cheese tokens?
Had to look those up, but yes, good analogy. Also: - AWS or Azure credits - AMEX, Visa, any credit card points - Starbucks points Essentially, “company native currency that only works inside that company”. Can’t be exchangeable for USD under any circumstances (through a mechanism the company built themselves).
@cojo.eth
Depends on what the token looks like. Does it satisfy the Howey test? If so - and you become large enough to notice - then it could be troublesome. The devil is in the details a bit. But basic rule is if you market something as a way for people to make money, you should be careful.
Thanks - based on the feedback here I'm simplifying what I had in mind, which will also be much easier to build and easier to explain to users. :D
NLA, but when I have reasoned about stuff like this w a few different lawyers, the principle they applied after HOWEY test – to be conservative – was "Could your team technically drain the funds?" Im sure there are approaches to get around that even with central server, but def something to check into
Was part of one of these. You're better off offering an NFT that has rights and privileges built into it over a token. Less headache than a token if architected properly.