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ethereum-funding / blockrewardsfunding

Project Management is happening in this repo, see the Issues! This is a fork of ethereum/eips.
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Exploring Legal Behind Using a Loan paid back with Block Rewards #58

Open glauseWilde opened 5 years ago

glauseWilde commented 5 years ago

I have done some initial research. It would be great to have more feedback whether this is an available option under current securities laws.

The idea is to take a loan from existing Eth holders and pay back that loan using a portion of block rewards with fixed interest and payment schedule.

Strictly under securities law loans could be considered a security. But, there has been rulings from the supreme court now known as the "family resemblance test"

http://scholar.google.com/scholar_case?q=Reves+v.+Ernst+%26+Young&hl=en&as_sdt=2,43&as_vis=1&case=18068523124125938239&scilh=0

Under the family resemblance test, there is a rebuttable presumption that a note is a security, unless it resembles a type of note that commonly is not considered a security.

Here are the four points they consider.

  • The intentions of the company and the individual—if the company raised money for general use in a business enterprise, then the note is more likely to be a security; if the individual agreed to the loan primarily for the profit the note was expected to generate, the note is more likely to be a security.
    • The plan of distribution—the more widely the note is offered, the more likely it is to be found a security.
    • The expectations of the investing public—if the investors thought they were investing in a business to make a profit on their investment, the note is more likely to be found a security.
    • Other risk-reducing factor—if the note is collatoralized or otherwise less risky than common notes, the note is less likely to be found to be a security.

I have discussed privately with a few accountants and lawyers and advice they have given is.

Others I have found through research

  • Use private borrowing for specific rather than general business purposes.
  • Consider whether the company is in a position to offer meaningful collateral security for repayment of the loan (but watch out for covenants in existing financing that might prohibit or require permission for subordinate financing).
  • Minimize the number of private lenders, and do not publicly advertise for lenders.
  • Limit private lenders to institutions or “accredited” investors.

It looks like a fairly realistic option to me, but of course before pursuing official council would be required.

lrettig commented 5 years ago

I'm really worried about bumping up against securities regulations, and I worry that that fear, and the difficulty of getting it right in a bunch of different jurisdictions, could mean this is dead in the water, but thanks for looking into it - this does sound a bit promising and we should explore it further. I now understand why municipal bonds are a thing :)