“Waiting for Godot” is a play written by Samuel Beckett, in which two characters, Didi and Gogo, wait for the arrival of someone named Godot – who never arrives. In 1990 “Waiting for Godot” was named the “most significant English language play of the 20th century”.
Over the years, Beckett grew tired of the “endless misunderstanding” of his masterpiece’s deeper meaning. Later in life he confided to a friend, saying: “Everything is a game. Otherwise, everything becomes an imitation of reality. It should become clear and transparent, not dry. It is a game in order to survive.”
CEOs waiting on regulatory and exchange clearance to launch Security Token Offering “STO” know the feeling all too well, as basic survival – and interminable waiting – dominate the current landscape.
There are two major problems causing endless delays before STOs can be launched in full force in the United States and globally. In the U.S., the slowdown comes from uncertainty over what is a utility coin and what is a security coin.
Consider for a moment that Ethereum, the world’s second largest coin with a market cap of almost $60 billion, isn’t even sure of its own status in the eyes of the SEC and CFTC. ETH enthusiasts insist it’s a utility token and not a security token; experts disagree. SEC chief Jay Clayton left everyone guessing in a speech at Princeton earlier this year when he said: “Just because it’s a security today doesn’t mean it’ll be a security tomorrow, and vice-versa.”
Prudent, cautious technology execs who are launching coins have concluded that in their projects’ best interest (and in the interest of not going to jail or paying an excessively large fine), they prefer to err on the side of caution and list themselves as a security token.
There’s just one small problem with that approach: there’s hardly any exchange in the world equipped to list STOs and to allow them to trade – yet. While there is a global stampede to list security tokens, at the same time there is a real bottleneck holding everything up.
In December, Polymath wrote in a Medium post: “We see the next mega-trend in crypto as the emergence of securities tokens. These are tokens backed by real assets like equity, LP shares or commodities. Right now, there are only a few securities tokens in the world, because it’s just so hard to launch one. Soon, we expect there will be thousands in existence. But first, a platform needs to emerge that lowers the barriers to launch securities in the same way Ethereum made it easy to launch utility coins. This is what we are doing with Polymath.”
The Polymath team confidently declared in their December article: “Polymath will soon be unveiling a fully functional marketplace where Token Issuers and Token Investors can connect.”
Almost six months later, you sense the frustration in the crypto industry as “waiting” comes at a steep price – especially given the severe decline in the price of Bitcoin since December, which is only making matters worse.
Last week, one of the most influential crypto online influencers, Anthony Pompliano (AKA “Pomp”) wrote that in his view regulators would be forced to recognize that technology has shifted such that a rules paradigm shift is warranted. He wrote: “Essentially, technology mandates or forced adoption is a regulators response to new technology that side-steps current regulations, enhances the data accuracy & transparency for market participants, or creates a more efficient & compliant system. This framework leads me to believe that the SEC will eventually mandate the adoption of tokenized securities.”
What Pomp is really saying is the entire STO marketplace is waiting – just like Godot – on government bureaucrats to proactively do something – and to not screw it up, either. Put that in a Harvard Business School business plan and see what grade you get.
Still, the fog may clear – perhaps. One well-placed crypto compliance official mentioned to me this week that the SEC and CFTC “may in the next three months” put out a joint statement declaring that Ethereum is in fact a commodity and not a security. In theory, that could ease the logjam as countless coins would by proxy be on firmer legal footing.
But how does that help coins that have already made clear their intention to list as STOs? It doesn’t.
A top executive at a coin waiting to list as a security on the tZero security exchange told me earlier this month that he was “very concerned” about a rumored shakeup at the company, led by Overstock.com CEO Patrick Byrne. “They let everyone go, apparently. I don’t know what’s going on. Now, we’re talking to two other security-token exchanges that hopefully can list us in the fall.”
Outside the U.S., there is much more room to breathe as the rules are looser. But listing on a token exchange outside the U.S. carries its own risks as exchanges like Binance don’t exactly have the cleanest bill of health themselves and uncertainty persists about whether all the tokens listed on that exchange have been properly registered and filed with Japanese regulators, either.
New exchanges like Mercury Cash and Nauticus are poised to launch their exchanges later this year but they have hardly any volume yet because they’re so new.
My view, coming from Chicago, is this will all work itself out over time. When Leo Melamed launched financial derivatives on the Chicago Mercantile Exchange in the 1970s he was ridiculed by Wall St. as a farce; today, CME is the world’s most vital futures and options exchange as hundreds of new products have been listed in the intervening years in everything from orange juice and copper, to interest rates and natural gas. Melamed once said: “Our fundamental ideals, our way of life — one of a kind on the face of the Earth and unique to the history of mankind — produces an environment that invites thought.”
Right now, a lot of thought – and money – is going into solving the intractable STO dilemma. And despite the uncertainty, here’s the bottom line: investors continue to pour money into new ICOs, ITOs and STOs, anyways. It’s clear many investors recognize their securities may lack liquidity for a period of time, but the pace of investment is still ramping up.
Like traffic cops, regulators are saying “Slow Down” – but the investment community is biding its time and taking a different approach: Keep Calm and Carry On.
Alchemy Coin CEO Justin Jung isn’t fazed by delays outside of his control. Alchemy is creating a peer-to-peer lending platform in the developing world and aims to extend its first loans next year to Cambodian homebuyers.
“Rome wasn’t built in a day,” Mr. Jung notes. “When you consider the magnitude of the changes that blockchain technology will bring to human society and when you realize how much different the world will be in 3-5 years, let alone a decade, you stop worrying about short-term inconveniences. This will get sorted out; and the reality is the entire industry is marching forward in lockstep.”
Mr. Jung adds: “We’re not waiting around idly – and neither should anyone else.”