Securities and other regulations in context of DEFI

  1. Securities regulation, are the DEFI products floating around securities /financial products
  2. Issues around AML KYC CTF

However there is a bigger preliminary question here, is something that is being offered a security/financial product or not?

  • Does the purchaser reasonably expect to rely on the efforts of an AP?
  • Are those efforts “the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise,” as opposed to efforts that are more ministerial in nature?
  1. This is clearly a sale of a physical asset only.
  2. The investors are reliant on Johns effort to generate a profit. Security.
  3. This is a grey area. Does a taxi driver make more money if he does a better job? Or is he simply reliant on demand of his services at the location and time? I tend to lean towards the latter assuming all taxi drivers conform to a certain standard. However since Ali’s outcomes are dependent on the maximum revenue he makes rather than a fixed fee model he is motivated to perform more (how he will do that, I dont know but Taxi drivers will often exhibit a disregard for safe driving procedures to get to the next pick up and make more money in the same period of time). Ali is not an automaton. He will react to incentives and hence this falls in securities territory because Jacks additional returns are now dependent on Ali’s efforts.
  4. The guys at Tesla are responsible for the performance of the automated taxi. But they dont get compensated (directly) more based on its revenues. Its performance is fire and forget. Neither is there a day to day reliance on Tesla employees for the performance of the taxi. While this asset generates money it is still property and not a security or financial product.
  5. Property, not security. Same reasons as above.
  6. Still property not security. Whether it is Jim or someone else rent is unlikely to change. Jim's actions are administrative and there is no reliance on Jim to make more money from the property. Jim could do a bad job and hence lose money for the owner, but doing an above any beyond job is unlikely to make more money for the owner. Note that there are circumstances where Jim tries to convince the owner to turn it to an AirBnB and offers a profit share for running it in a optimal manner, this could change it to a security offering.
  7. There is a reliance on Ali to make a profit. Security.
  8. There is no reliance on Ali. Same reasons as #6. It is a property not a security.




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Moresh Kokane

Moresh Kokane

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