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Musings of a VC in NYC
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Fourth Feelings

July 4, 2018 - 4:51am

I’m sitting here on a park bench outside my favorite coffee shop, where I’ve been writing my daily posts for the last week and a half on my phone, and I’m staring at our flag.

Normally, a scene like this on the Fourth Of July fills me with pride. I love America, all that it has stood for, and what it has represented for me and for many others.

But today, I’m not feeling that pride. I am not proud of what America has been showing to the rest of the world and I’m not proud of the decisions we have made and the direction we have taken.

I am saddened. Deeply saddened.

Because this post is about my feelings and not meant to be about anything more, I have closed the comments.

I do care about how all of you are feeling today but I would prefer that you post those feelings on your own social media accounts and leave mine for me today.


Albert Wenger — July 11, 2018
Uncertainty Wednesday: Updating (Beta Distribution 2)

Categories: Blog articles

Keeping Your Blinders On

July 3, 2018 - 5:35am

Last night I picked up my phone after a long and fun dinner party and saw that the Golden State Warriors had signed Boogie Cousins (one of the most talented big men in the NBA) to a one year mid level contract of $5.3mm, an incredibly low number for a perennial all-star. Granted Boogie is coming off an achilles injury and won’t be available until mid season, but it just felt like the best getting better at the expense of every other team in the league. It annoys me.

Kind of like seeing a company renting electric scooters by the minute raising $400mm in a month when you can’t get anyone to put a dime into your company.

I’m not suggesting that the electric scooter companies should be dismissed. I don’t have a point of view on them other than as a user and I posted that here this past winter.

I am suggesting that the news cycle can make you depressed and jealous. My Knicks continue to struggle to put a decent team on the floor and the Warriors are assembling an all-star team that plays for them every fucking night.

It doesn’t feel fair. And it isn’t. Life isn’t fair. That’s how it is.

At times like this, I like to remind myself to keep my blinders on, ignore the news cycle, and focus on what I can control.

Most of us are not going to raise $400mm for our companies in a month. But we can all ship products, sell them, hire some good people, and find a few dimes to keep the lights on.

And that’s is what we must do. Lusting over what someone else has does us no good. Even it if is the best basketball team ever assembled.


Albert Wenger — July 11, 2018
Uncertainty Wednesday: Updating (Beta Distribution 2)

Bethany Crystal — July 11, 2018
Bringing Tech Industry Know-How to Emerging Developers in NYC

Categories: Blog articles

Hyper Social Not Anti Social

July 2, 2018 - 5:24am

This seems right to me:
“In post-industrial environments where foods are abundant and readily available, our cravings for fat and sugar sculpted by distant evolutionary pressures can easily go into insatiable overdrive and lead to obesity, diabetes, and heart disease (…) the pro-social needs and rewards [of smartphone use as a means to connect] can similarly be hijacked to produce a manic theatre of hyper-social monitoring,”


Bethany Crystal — July 11, 2018
Bringing Tech Industry Know-How to Emerging Developers in NYC

Dani Grant — July 10, 2018
An Overview of Blockchain-Based Universal Basic Income Projects

Categories: Blog articles

The Final Push

July 1, 2018 - 4:38am

We spent the last week getting a project we’ve been working on for two years over the finish line.

I find that the last 10% is so much harder than the first 90% of any project.

That is true whether it is software, an event, a construction project, or really anything that requires a lot of planning and then a lot of execution.

I also find that you have to have a “ship it” mentality and be willing to make hard decisions at the end in order to meet the “ship date.”

One time I asked a bunch of founders and CEOs whether they insisted that their teams meet “ship dates” and the answers were all over the map, but the ones I liked best were of the variety that ship dates are respected and met but features get pulled to meet them.

Pulling features is an example of the mess that happens at the end as you are trying to get something out the door.

I’ve also found that knowing that there will be bugs to get cleaned up and “punch list items” to be resolved is helpful to getting something out the door.

Perfection is not just the enemy of the good, it is the enemy of the ship date.

That is not to say that critical bugs (security, performance, etc) can be ignored in the effort to ship on time, but there are always clean up items to be dealt with after the fact.

Hitting dates is so important. And it takes someone, often more than one person, with the willpower and commitment, to get it done.

This relates to my post a few days ago on Heartbeat.

Hitting dates is important. Shipping is important. Getting stuff out the door is important. And the final push to do all of that is hard, often brutal. But you just have to gut it out and get it done.


Jacqueline Garavente — July 9, 2018
An In Depth Explanation Of Why I Am Leaving Union Square Ventures

Albert Wenger — July 9, 2018
World After Capital: Limits of Capitalism (Power Laws)

Categories: Blog articles

Video Of The Week: Patty McCord on Rethinking How We Manage People

June 30, 2018 - 4:03am

The Gotham Gal and I got to see Patty McCord give a talk a few months ago and I was blown away by her pragmatic, no-nonsense, calling out bullshit approach to managing people. Patty helped Netflix build their culture and left about six years ago to advise companies, small and large, how to manage people better.

She’s a breath of fresh air in a world of corporate speak. I think you’ll enjoy her as much as I do.

Categories: Blog articles

Funding Friday: Let’s Give Away Some Crypto

June 29, 2018 - 4:40am

As I mentioned yesterday, GiveCrypto.org is a non-profit that allows anyone to make a charitable donation of cryptoassets and get a charitable tax deduction (in the US).

If you want to join me in doing that, you can do so here.

Categories: Blog articles


June 28, 2018 - 4:20am

Yesterday, Brian Armstrong, the founder and CEO of our portfolio company Coinbase, announced the formation of a new non-profit called GiveCrypto.org.

Joanne and I are donating some of our Bitcoin to this charitable effort. Here is a list of the donors who have committed to give away some of their crypto assets to this effort.

So what is GiveCrypto.org all about?

Well it is basically an effort to take some of the crypto assets that folks like me bought a long time ago, that have appreciated a lot, and use them to address poverty around the world.

As Brian wrote in the announcement:

GiveCrypto.org is a nonprofit that will both hold and distribute crypto to those in need. It’s an evergreen structure, meaning it gives away less than the amount that the fund grows each year.


Cryptocurrency is unique in that it can be used to send small amounts of money anywhere in the world, in real-time directly to an individual in need — they just need a mobile device with an internet connection. With distribution of aid to foreign countries, high fees and corruption are unfortunately common; cryptocurrency is a way of circumventing both.


I believe three things will happen:

  • Cashout to local currency: Some will exchange it to their local currency to buy what they need most in that moment. This is a great outcome because our primarily goal is simply to help people in need. We’ll need to help people find and connect with local exchanges to make this easier.
  • Hold: The second thing they might do is hold onto the cryptocurrency. In this case they start to benefit from the future potential upside of this technology.
  • Crypto-to-crypto transfers: Finally, if there is enough density in certain regions, we may be able to spark local crypto economies, where people start to transact with crypto-to-crypto payments, especially in places around the world going through financial crisis.

If you would like to learn more about this effort, you can do that here.

If you would like to give some of your crypto to this organization, you can do so here.

Categories: Blog articles

The Heartbeat

June 27, 2018 - 5:35am

The best companies I work with have a heartbeat, they operate on a pace and a cadence and a rhythm that is perceptible to everyone in and around the company.

I am not talking about just product and engineering, although you can’t have a company with a heartbeat if you don’t have it in product and engineering. A company that doesn’t ship product regularly builds clogged arteries and that becomes pervasive in the culture and you end up with low morale, a lack of confidence, a revolving door, and a mess.

There are many ways to get this beat going and sustain it. There are techniques like agile product development, monthly and quarterly OKRs, weekly show and tells at the all-hands meeting, metrics meetings, etc, etc.

What it comes down to in my view is a mindset around getting stuff done on a regular cadence and then letting that rhythm become a wave and riding that wave.

And it starts with the CEO. They are the drummer in the band. They set the beat and keep the beat. And everyone plays around it.

If you have been in a company that has a heartbeat, you know what I am talking about.

If you haven’t, then you need to find one and join it and learn how it feels.

Becuase a heartbeat is what you want in your company.

Categories: Blog articles

a16z crypto

June 26, 2018 - 4:24am

I guess this is the week I am going to compliment our competitors in the VC business.

That meme started yesterday in my post on Benchmark and will continue today.

Yesterday afternoon my friend Chris Dixon announced a new VC fund called “a16z crypto” which he will lead with a team of great investors, many of which are also friends, including his new partner Katie Haun who I serve on the Coinbase board with. She is a very special person as Ben Horowitz described in this post.

Go read the blog post which Chris wrote to announce the fund. It is among the best articulations of the crypto opportunity that I have read.

Here are some of the concepts he explains which had me nodding my head:

Trust is a new software primitive from which other components can be constructed.


The new primitive of trust also means that 3rd-party developers, entrepreneurs, and creators can build on top of crypto-powered platforms without worrying about whether the rules of the game will change later on. In an era in which the internet is increasingly controlled by a handful of large tech incumbents, it’s more important than ever to create the right economic conditions for developers, creators, and entrepreneurs. Trust also enables new kinds of governance where communities collectively make important decisions about how networks evolve, what behaviors are permitted, and how economic benefits are distributed.


We believe that just as the last three megatrends — mobile, social, and cloud — intersected and reinforced each other, so will the next three megatrends — next-gen computing devices, AI, and crypto.


crypto is purely a software movement and doesn’t depend on a hardware buildout, in contrast to, say, the internet, which required laying cables and building cell towers. Second, the space is developing extremely rapidly, partly because the code, data, and knowledge is largely open source, and partly because of the increasing inflow of talent.


Cryptogoods can unlock new experiences and business models for games and other forms of media.

I really like the term “cryptogoods” and plan to start using it as my default word for NFTs and related efforts.

Many of our crypto investments have been with Chris and his partners and I hope that will continue. They are fantastic to work with.


Albert Wenger — July 4, 2018
Happy 4th of July: Climate Edition

Categories: Blog articles

Slowing Down To Speed Up

June 25, 2018 - 5:19am

I saw this chart in Recode’s piece on Benchmark:

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It’s an interesting chart because it breaks out new investments and follow-on investments, both of which have been falling at Benchmark for going on five years now.

The Recode article, written by Teddy Schliefer, also states that Benchmark has not raised a new core fund in over four years.

Our numbers at USV are not as stark, we never took up our investing pace that much. We have always done around 6-10 new deals a year and while there is a fair bit of variability in that number year to year, over time it has stayed pretty constant.

But we last raised a new core fund in early 2016 and we are maybe 2/3  of the way through investing that so it should take us at least three years to put that fund to work. That is down from the two year period where we went from the 2012 fund to the 2014 fund to the 2016 fund.

So Benchmark is not the only leading VC firm that has slowed things down over the last three to four years.

Teddy makes an interesting point in his piece:

That long a dry spell between funds — at a time when rival firms are competing with one another to raise bigger and bigger war chests at a faster and faster clip, led by SoftBank’s $100 billion Vision Fund — is decidedly unusual.

Longtime readers know that I have a huge amount of respect for Benchmark. I think they are a firm that beats to its own drum and does what it thinks is right and doesn’t worry too much about what others think. That approach leads to better returns over the long run in my view.

But if there are diverging perspectives among the top-tier VC firms right now, who is right? Or maybe both are right. Slow down the pace of early-stage investing and step on the gas in later-stage/growth?

And then, of course, there is crypto, where a lot of the smart people and smart money is going. Chris Dixon at Andreessen is raising a dedicated crypto fund. Matt Huang leaves Sequoia to do a crypto fund with Fred Ehrsam. And those are just two high profile examples, but there is most definitely a discernable pattern of smart money and smart people moving to the crytpo sector over the last few years.

So times they are a changing in VC land right now. Which mirrors the broader tech sector which is maturing and consolidating while a next wave starts brewing. How to play this whole thing is challenging. The future of the VC business and its top firms are in flux and those who play it right stand to gain a lot and those who don’t stand to lose a lot. It is most definitely not a time for the status quo.


Albert Wenger — July 4, 2018
Happy 4th of July: Climate Edition

Categories: Blog articles

Airbnb and NYC

June 24, 2018 - 7:05am

There is a bill in front of the NYC City Council called Intro 981 that will impose reporting requirements on Airbnb and their hosts in NYC. There will be a public debate on that bill this coming week.

The backdrop here is the growing housing affordability crisis in NYC and the idea that Airbnb is a significant contributor to it.

While I am not an expert in the economics of housing, I have lived in NYC for the past thirty-five years (my entire adult life), and my wife and I are also landlords in several of the neighborhoods in Brooklyn where rents have been rising most quickly. I have a layman’s understanding of the issue and an on the ground feel for it.

It is my view that we have a fundamental supply and demand problem at work in the rapidly gentrifying outer boroughs of NYC (most acutely in Brooklyn, Queens, and the Bronx). NYC has added almost 500,000 residents this decade alone, a 5.5% increase in population from 2010 to 2017. This is driven by multiple factors but there are more people choosing to live in the five boroughs and less people choosing to leave them.

A major change in the last fifteen years is the emergence of the boroughs of Brooklyn, Queens, and the Bronx as the preferred place to live for many young professionals. They moved into these communities in their 20s to escape an increasingly unaffordable Manhattan and have stayed and are now raising their families in them.

This sea change in demand for housing has not yet been met with an equal increase in supply. There are cranes all over Brooklyn and Queens so I am optimistic that we will see the increases in supply that we need, but there is a lag in the supply of housing coming to market. And we need two kinds of supply, market-rate housing for those that can afford it, and subsidized housing for the displaced families that no longer can afford market rate housing.

And so where does Airbnb fit into this picture? It’s a reducer of supply to some extent as landlords take rental units off the market and list them on Airbnb instead. But having looked at multiple studies on this issue, I believe that Airbnb is a marginal player in this story, not the root cause of the problem. If Airbnb decided to stop operating in NYC (a terrible outcome in my view), I do not believe we would see a material change in the affordability issues that plague NYC.

And yet, elected officials in NYC and NY State have chosen to make Airbnb the poster child of the problem and impose restrictions and constraints on their operation. And, of course, the industry that Airbnb most threatens, the hotel industry and its labor unions, have fought back aggressively and effectively. It is hard to know what is good policy and what is good politics. I suspect we are seeing a lot of the latter and not enough of the former.

I am for reporting of listings as required by Intro 981. But I am not for the city using that data to come after hosts and harass them. Similar reporting requirements that have been enacted in SF, Chicago, and Seattle have included those protections for hosts. Intro 981 should too.

But more than that, I am for a comprehensive solution to the issues that short-term rentals raise. I am in favor of requiring a mechanism for neighbors to register complaints. And I am in favor of requiring Airbnb to collect taxes on short-term rentals in NYC and NY State, which is estimated to produce $100mm of incremental revenues for the City and State. A comprehensive bill that would legitimize the short-term rental market in NY State and NYC would unlock those revenues but the forces at work against Airbnb are fighting it. That makes no sense to me.

It is time to accept that Airbnb is here to stay in NYC and NY State. It is time to legitimize the practice of short-term rentals. It is time to put sensible complaint mechanisms and reporting requirements in place. And it is time to start collecting the taxes on this activity and using those revenues to solve other pressing issues like transportation, schools, and most importantly, our ability to house those who can’t afford to pay market rents.

I would encourage our elected officials to do all of that.


Albert Wenger — July 2, 2018
World After Capital: Limits of Capitalism (Intro & Missing Prices)

Nick Grossman — July 2, 2018
The path to decentralization: self-destructing companies

Categories: Blog articles

Video Of The Week: Consensus 2018 Discussion

June 23, 2018 - 7:14am

Last month, at the Consensus 2018 Conference, Paul Vigna of the WSJ, Coinbase CTO Balaji Srinivasan, and I had a 30min discussion of all things crypto.

Here is a video of that discussion:


Albert Wenger — July 2, 2018
World After Capital: Limits of Capitalism (Intro & Missing Prices)

Nick Grossman — July 2, 2018
The path to decentralization: self-destructing companies

Categories: Blog articles

Funding Friday: Ai’s Poems

June 22, 2018 - 3:52am

I hit the play button and heard her voice say “My poems are harsh, but they are meant to show the truth, which a lot of people are afraid to face.”

That sold me. I made a significant contribution to this project to bring Ai’s Killing Floor back into print.

Maybe you will join me.

Categories: Blog articles

Some Words Of Wisdom

June 21, 2018 - 10:28am

I saw this tweetstorm today from Suhail Doshi, founder of Mixpanel.

1/ Getting my first 100 customers always felt like a puzzle. The next 1000 seemed unreachable. Besides, how can you get feedback to make the product better w/o users? After many years, we ended up w/ 6,000+ paying customers. It was a grind to get there.

Categories: Blog articles

Thirty One Years

June 20, 2018 - 1:05am

Today is our thirty-first wedding anniversary. We got married on a hot steamy June night in the Washington DC area. During the official part of the event, the skies opened up and it poured. After that, the heat and humidity dissipated and we had a really fun party.

It has been a productive partnership. We have three fantastic children and an array of business and personal interests that we have pursued, often and increasingly together. We plan to spend the day together and not work. So other than this brief public celebration of matrimony and love, this is all you are going to get from me today.

But if you are interested in the crypto/blockchain/token sector, you may want to check out something I wrote on USV.com and posted overnight. It is about our dual strategy of investing directly in companies and projects and also in token funds. You can read that here.


Albert Wenger — June 27, 2018
Uncertainty Wednesday: Updating (Beta Distribution)

Categories: Blog articles

The Royal Academy Summer Exhibition

June 19, 2018 - 12:29pm

Two hundred and fifty years ago, in 1768, The Royal Academy in London decided to hold an annual exhibition of “paintings, sculpture, and design” that would be “open to all artists of distinguished merit” and so began the summer exhibition.

We’ve been attending the summer exhibition on and off for something like ten years and I really love it. We went today, which is the 250th annual event.

As you can see in the photo above, which is from maybe 150 years ago, they pack the walls with art. You can barely see the walls there is so much art on them.

But the thing I love most is the way they hang an unknown twenty-year-old painter next to a Hockney. It really speaks to me and represents an egalitarian approach that is rare in the art world and the worlds beyond art.

You can buy many of the works at the summer exhibition and we have done that a few times over the years. Not today, as many of the works we liked had been sold or were not for sale. But I like that it is a place you can collect and many of the works are not particularly expensive.

If you live in London or the UK, you have likely gone. If not, you should. And if you are not from the UK but find yourself in London this summer, you should go.


Albert Wenger — June 27, 2018
Uncertainty Wednesday: Updating (Beta Distribution)

Categories: Blog articles

Rapid Experimentation

June 18, 2018 - 10:12am

It can be exhausting to try and stay caught up on every new tech company being started. The Gotham Gal said me to yesterday, “everyone is an entrepreneur these days.” She’s right about that directionally although most companies have employees who are not founders so it is not exactly correct.

The rapid expansion of tech startups and the entrepreneurs who create them has been building for fifteen years, or possibly twenty-five years if you include the early Internet exuberance and the period of disillusionment that followed.

But over the last ten years, in particular, we have seen a number of factors come together to make for an environment where “everyone” can do a tech startup.

We have more and more software engineers and related skillsets around the world as education systems are starting to respond to the market demand for this talent. This is particularly true in Asia and other parts of the rapidly developing world. But it is also increasingly true in the developed world. Our portfolio company Stack Overflow, which serves software engineers almost exclusively, sees 31 million people a month now, up from 22 million five years ago. That likely overestimates the number of globally employed software engineers but it is indicative of the vast number of people solving problems in software right now.

The explosion of open source software, transparent code repositories, and open source tools and languages like MongoDB (we own Mongo stock), React, JavaScript, Python, Ruby, Go, TensorFlow, and so many more, has made it easier to build things in software than ever before. And popular services delivered via APIs (like Twilio and Stripe, both USV portfolio companies) make building software applications even easier.

We also have more support systems for entrepreneurs than we did ten years ago. Paul Graham and Y Combinator were the innovators and first mover in the market for entrepreneurship support systems that are market-based and for profit. That model has been copied and evolved on all around the world and it is powerful, important, and its impacts are far-reaching. We have learned how to best support entrepreneurs early on in the life of a company which leads more people to try it and also leads to more projects graduating from these programs and getting seed funding.

Which takes me to capital. We now have more angel and seed and venture capital being invested in startups every year than ever before. It took a long time, almost twenty years, to pass the go-go years of 1999 and 2000, but pass it we have and even though many see that as a sign that we are in bubble territory again, I am not one of them. Technology innovation is happening in all sectors of our economy and all parts of the world. I think the expansion of capital being deployed into startups can continue for some time to come.

So there are more skilled people to help an entrepreneur build the thing they want to build, more support systems to help them avoid the big mistakes, and more capital to allow them to invest in the business ahead of revenues and profits.

And so, we are in a golden era of tech entrepreneurship where anyone with an idea can make a go of it.

That does not mean that all of these efforts will succeed. They won’t. Think of this golden age as a time of rapid experimentation in which every problem will be attempted to be solved in many ways. Most will fail. Some will succeed. And we will see multiple successful approaches to solving the same challenges.

The good news is that all of the systems that feed these startup efforts, the talent market, the accelerator programs, the capital markets, and the entrepreneurs themselves, understand that these are experiments and that most will not succeed. For the most part, the market has evolved to a point where the economics of each input system has built the loss ratios and likely payouts when you win into their pricing structures. It is not perfect by any means. We may, for example, need to do more for the very early employees. And the rapid inflation in financing valuations may need a pullback if those new economics don’t work long-term for the capital markets.

But if we are thinking about society, and I mean our global society, not just the US, the result of this era of rapid experimentation is likely to be progress on important, and also mundane, human needs.

None of this makes it any easier to try and stay on top of all of this. It seems to me that the only way to do that is to pick a subset of the tech sector and focus just on that and let others take on the challenge of doing the same on another sector. It has gotten way too big for anyone to be able to stay on top of it all.

But when you feel overwhelmed and wonder what will come of all of this entrepreneurship mania, I would urge you to think of all the good that will come of it. Lord knows we need it.


Albert Wenger — June 25, 2018
World After Capital: Getting Past Capital (Attention Cont’d)

Categories: Blog articles

The Parent Child Relationship

June 17, 2018 - 12:02am

It is fathers day today. And I thought I’d write a bit about something that is really bothering me.

I’ve come to terms with a lot of what is going on in the US federal government and our political system. I see it as a natural swinging of the pendulum. Many on the right think we went too far left under Obama. Many on the left think we have gone too far right under Trump. In time, Trump will be history and we will undo all of this nonsense he is putting in place. So is the way of politics and government and every time something happens in DC that bugs me, I think “this too shall pass.”

But, this policy of separating children from their parents at the border really bugs me. The NY Times has a good report up on their homepage right now about how we got to this place.

The Federal Government has been debating this issue of separating children from their parents at the border as a deterrent for more than a decade. From that Times piece:

Yet for George W. Bush and Barack Obama, the idea of crying children torn from their parents’ arms was simply too inhumane — and too politically perilous — to embrace as policy, and Mr. Trump, though he had made an immigration crackdown one of the central issues of his campaign, succumbed to the same reality, publicly dropping the idea after Mr. Kelly’s comments touched off a swift backlash.

I understand the need and the desire to protect our borders and enforce our immigration system, even though I believe we are being way too restrictive in terms of who we let into our country right now. But the law is the law and until we have a new law, we need to enforce the existing law. I get that.

But the children are not the ones making the decisions to violate the laws. And yet they are being punished just as much, possibly even more so, than their parents.

Kelly says “The children will be taken care of — put into foster care or whatever” as if it is no big deal to forcibly separate a child from his or her parents.

It is a big deal, a traumatic event with long-term implications for that child.

Many of us in this community are parents who have cared for and nurtured our children, loved them, supported them, and made them feel safe. We know what that bond is between parent and child, and we know that ripping it apart is an awful horrible thing to do and that we should not be doing it.

On this Fathers Day, let us all say to our government “no more.” We must end this immoral and unjustifiable policy and we must end it now. Ideally today. There is no better day, other than Mothers Day, to do that.


Albert Wenger — June 25, 2018
World After Capital: Getting Past Capital (Attention Cont’d)

Albert Wenger — June 24, 2018
Personal Responsibility in the Age of Trump

Categories: Blog articles

Audio Of The Week: Ether’s Big Day

June 16, 2018 - 12:59am

I wrote about Ether’s big day yesterday. In this podcast, Laura Shin and Coinbase’s Adam White, who runs the institutional business there, talk about the Ether news and Coinbase’s institutional business. It’s a quick 20min listen.


Albert Wenger — June 24, 2018
Personal Responsibility in the Age of Trump

Categories: Blog articles

Ether Is Not A Security

June 14, 2018 - 11:57pm

Yesterday, a top official from the SEC said what many of us in crypto land had been wanting to hear from the SEC for the last year:

According to Bloomberg:

“Putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions,” William Hinman, who heads the Securities and Exchange Commission’s division of corporation finance, said in remarks prepared for a Yahoo Finance conference in San Francisco. “And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.”

For me, this is not about Ether, but about the fact that a token can be used to raise capital (the “fundraising that accompanied the creation of Ether”) and at some point no longer resemble a security in the eyes of the SEC.

I particularly like this language that Hinman used in his remarks:

But this also points the way to when a digital asset transaction may no longer represent a security offering. If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.

And this part:

Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required.

That last point is super important because as my colleague Nick tweeted out last night, we don’t want Bitcoin and Ether to have the advantage of being the only tokens that are not deemed to be securities. We want a hyper-competitive market where the best protocols win on the merits, not because some regulator likes them better.

This is a concern, and a reason why the SEC must now define a path for the development of new tokens, which may start out sponsor-controlled but become decentralized over time https://t.co/JKvMHUciCA

— Nick Grossman (@nickgrossman) June 14, 2018

But all in all, it was a good speech and a good day for crypto. It is clear that the SEC is trying to define some clear lines in the sand under which the decentralized world we all want to see happen can happen. And they are also trying to make sure that bad actors can’t skirt securities laws by simply claiming they are doing a token offering.

Categories: Blog articles