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The author of this article is turning inches into miles. SAFTs aren't dead. The SEC is alleging Telegram has failed to deliver the promises it has made, so the

The author of this article is turning inches into miles. SAFTs aren't dead. The SEC is alleging Telegram has failed to deliver the promises it has made, so the SEC is pre-emptively stating they need to halt delivery. Presumably, once they complete their promises they'll be able to deliver Grams. From the SEC Complaint: The Whitepaper spoke of potential future products and services that investors could use in connection with Grams, but also made clear that these products were not available at the time the Offering began and would not be available by the time Defendants delivered Grams to Initial Purchasers. Telegram, however, does seem to be in a pickle regarding the PoS consensus model. The SEC seems to be alleging that in order for the network to be sufficiently decentralized, having only qualified investors staking is not enough. Also from the SEC complaint: Defendants knew, however, that to actually implement the TON Blockchain in the real world, the project would require “numerosity”: a widespread distribution and use of Grams across the globe. Indeed, by definition, the TON Blockchain can only become truly decentralized (as contemplated and promoted in the Offering Documents) if Grams holders other than the original Grams purchasers actually stake Grams and, thereby, act as “validators” of transactions on the TON Blockchain. Stated differently, if the original Grams purchasers alone all immediately staked their holdings, the TON Blockchain would be centralized rather than decentralized and, therefore, subject to misuse and majority attacks. This fundamental need for additional Grams holders demonstrates that the TON Blockchain was designed from inception to require the Initial Purchasers to immediately distribute their holdings to the public.

H8crilA 7y ago
Indeed what they want is an S-1 or an F-1 form filling. A security registration. That's it. The SEC has no opinion on the offering other than they think it's a security (this claim itself could also be challenged), and as such has to be registered under the 1933 act.
- cwyers 7y ago
  What are the odds that Telegram, despite believing they didn't need to do an S-1 or F-1 form filing, complied with the letter of everything that the form filing is intended to determine? They would likely have to materially change the offering so that the form filing didn't invite another action.
davidgerard 7y ago
(author here) nah, pretty sure SAFTs are dead. The whole point of the SAFT rigmarole was to sell tokens as securities but not have them be securities on delivery, pretty much as Telegram was planning to do here - the point was not to be considered securities by the SEC. This complaint demonstrates what the SEC think of the idea, i.e. they don't care and will look at how your token actually works and whether this is an investment contract under the Howey test. But as I said - maybe Telegram will prevail in court! Do you feel lucky?
- rjknight 7y ago
  I think the argument could be a bit clearer here. A SAFT allows a party to offer the delivery of tokens at some point in the future. This offering is a securities offering under US law, and therefore has to comply with the relevant regulations. In practical terms, that means filing some forms with the SEC, ranging from fairly lightweight forms if you're offering the SAFT privately without marketing, to increasingly heavy burdens if you want to market it, and the "mini-IPO" leavels of bureaucracy that would attach to a Reg A+ offering. So, it's perfectly possible to offer a compliant SAFT if you do it right. The problem comes when the tokens are to be delivered (which was imminent, in Telegram's case). The SEC argues that not only was the SAFT contract a security, but the rights offered to Gram holders are themselves constitutive of a security, despite not being registered as such. The SAFT is a security, but one for which Telegram appears to have been mostly compliant. The tokens themselves, which are set to be delivered to those original investors, are not registered as securities, and this is the problem, because the plan is to distribute those widely to the public, or "retail investors" as they would be regarded in the context of a securities offering. If the Gram token were not a security, designed in such a way as to avoid triggering the Howey test, then there would be no problem (aside from Telegram's other problems, but I'm keeping the scope narrow here). So the "SAFT is dead" argument isn't that the SAFT is automatically non-compliant, or that nobody can do a compliant SAFT offering, but instead is this: that some people in the blockchain community erroneously encouraged the belief that whilst a SAFT offering is a securities offering, the tokens that result from the investment are somehow prevented from becoming securities because the "security-ness" stuck to the SAFT itself, and that this view was wrong. This gets tricky to discuss because the SAFT contract is basically fine, but the mistaken understanding of what a SAFT can do in practice is what allowed people to believe that selling Grams to the general public was likely to be a non-regulated activity. So, that interpretation of what SAFTs can do is dead, yes. For my part, it's not something that I ever believed, so it doesn't register as being the real news here.

H8crilA 7y ago

Indeed what they want is an S-1 or an F-1 form filling. A security registration. That's it. The SEC has no opinion on the offering other than they think it's a security (this claim itself could also be challenged), and as such has to be registered under the 1933 act.

cwyers 7y ago
What are the odds that Telegram, despite believing they didn't need to do an S-1 or F-1 form filing, complied with the letter of everything that the form filing is intended to determine? They would likely have to materially change the offering so that the form filing didn't invite another action.

davidgerard 7y ago

(author here) nah, pretty sure SAFTs are dead. The whole point of the SAFT rigmarole was to sell tokens as securities but not have them be securities on delivery, pretty much as Telegram was planning to do here - the point was not to be considered securities by the SEC. This complaint demonstrates what the SEC think of the idea, i.e. they don't care and will look at how your token actually works and whether this is an investment contract under the Howey test. But as I said - maybe Telegram will prevail in court! Do you feel lucky?

rjknight 7y ago
I think the argument could be a bit clearer here. A SAFT allows a party to offer the delivery of tokens at some point in the future. This offering is a securities offering under US law, and therefore has to comply with the relevant regulations. In practical terms, that means filing some forms with the SEC, ranging from fairly lightweight forms if you're offering the SAFT privately without marketing, to increasingly heavy burdens if you want to market it, and the "mini-IPO" leavels of bureaucracy that would attach to a Reg A+ offering. So, it's perfectly possible to offer a compliant SAFT if you do it right. The problem comes when the tokens are to be delivered (which was imminent, in Telegram's case). The SEC argues that not only was the SAFT contract a security, but the rights offered to Gram holders are themselves constitutive of a security, despite not being registered as such. The SAFT is a security, but one for which Telegram appears to have been mostly compliant. The tokens themselves, which are set to be delivered to those original investors, are not registered as securities, and this is the problem, because the plan is to distribute those widely to the public, or "retail investors" as they would be regarded in the context of a securities offering. If the Gram token were not a security, designed in such a way as to avoid triggering the Howey test, then there would be no problem (aside from Telegram's other problems, but I'm keeping the scope narrow here). So the "SAFT is dead" argument isn't that the SAFT is automatically non-compliant, or that nobody can do a compliant SAFT offering, but instead is this: that some people in the blockchain community erroneously encouraged the belief that whilst a SAFT offering is a securities offering, the tokens that result from the investment are somehow prevented from becoming securities because the "security-ness" stuck to the SAFT itself, and that this view was wrong. This gets tricky to discuss because the SAFT contract is basically fine, but the mistaken understanding of what a SAFT can do in practice is what allowed people to believe that selling Grams to the general public was likely to be a non-regulated activity. So, that interpretation of what SAFTs can do is dead, yes. For my part, it's not something that I ever believed, so it doesn't register as being the real news here.