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By: Douglas J. Pepe*
A current hot topic in the crypto space is whether particular networks, cryptocurrencies or
tokens constitute “securities” within the meaning of the Securities Act of 1933 (the “Securities
Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”).
The Ravencoin network (“Ravencoin”) is a decentralized communitybased blockchain
platform forked from the Bitcoin code and optimized for transferring blockchain assets from one
holder to another. This article sets forth the factual and legal basis to support the conclusion that
Ravencoins (“RVN”) are not securities under the United States securities laws.
Background
Ravencoin is a peertopeer electronic system for the creation and transfer of assets.[1]
The Ravencoin network is a direct fork of the Bitcoin codebase.[2] Transactions on the
Ravencoin blockchain are secured by the X16R proofofwork (“PoW”) algorithm.[3]
The concept for the Ravencoin project was first announced on October 31, 2017.[4] The
genesis block was released and mining began on January 3, 2018.[5] There was no initial coin
offering or sale of Ravencoin of any kind. Ravencoin has no central authority. It is a purely
decentralized network comprised of code and users. Changes to the protocol are adopted
through community consensus.
From the inception of the Ravencoin network, all RVN have been fairly issued and mined
publicly and transparently using a PoW consensus protocol. The Ravencoin genesis block
included a headline from the January 3, 2018, edition of The Times to verify and establish a fair
issuance and the absence of a premine.[6]
The Ravencoin roadmap contemplates six phases of development.[7]
● Phase 1 involved creation and launch of the network itself, and it is complete.
● Phase 2, which is in progress, contemplates a hard fork to facilitate asset creation,
issuance, reissuance and transfer on the Ravencoin network. Under the current
roadmap, the cost to create assets will be 500 RVN to create any quantity of an
asset. The RVN will be used by sending it to a burn address at the time of asset
issuance.
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● Subsequent phases (36) contemplate the creation of unique assets, messaging,
and voting capabilities, and the facilitation of the payment of rewards (paid in
RVN) by the originator of an asset token to holders of that token.[8]
Upon completion of Phase 1, Ravencoin became a fully operational, decentralized, PoW
blockchain in which RVN functions as the cryptocurrency. RVN will continue to serve that
function as later phases — adopted through community consensus — add more features to the
protocol, including the ability to use RVN to create assets on the Ravencoin blockchain.
RVN Is Not A Security
The conclusion that RVN is not a security under applicable U.S. securities laws is
relatively straightforward. The acquisition of RVN is not an investment in an enterprise.
Ravencoin is best described as simply an “idea expressed in code.”[9] It is free, open source
software that was released to the public and adopted by a broad and diverse base of users. There
was no ICO, premine or centralized sale of RVN to raise capital from the public for a business
or future development. Miners mine RVN — and purchasers acquire it — in order to use it, or to
sell it to others who value its use more. The defining feature of RVN is its use . This should be
the beginning and end of the question whether RVN is a security.
Legal Framework. Section 2(a)(1) of the Securities Act and Section 3(a)(1) of the
Exchange Act, in slightly different but essentially identical formulations, define a “security” to
include “any note, stock, treasury stock, security future, bond, debenture, ... investment contract,
... [or any] instrument commonly known as a ‘security.’” S.E.C. v. Edwards , 540 U.S. 389, 393
(2004).
Of these categories, only “investment contract” has potential applicability to analyzing
the question whether RVN is a security.[10] The Supreme Court has defined the term
“investment contract” to include “any contract, transaction or scheme whereby a person invests
his money in a common enterprise and is led to expect profits solely from the efforts of a
promoter or third party.” SEC v. W.J. Howey Co. , 328 U.S. 293, 301 (1966). RVN does not meet
this definition.
RVN Purchases Are Not Investments In a Common Enterprise. Acquisitions of RVN
do not involve investments, let alone investments in a common enterprise.
No Investment . RVN involves no “investment” within Howey for two principal reasons.
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First, from the inception of the Ravencoin network, every single RVN created has been
mined using the X16R PoW algorithm. Miners expend their own computational resources to
process transactions for others, and receive a protocollevel coinbase reward — consisting of
newlyissued RVN — for generating blocks (in addition to a de minimis transaction fee from
transaction participants). Miners therefore do not “invest” in RVN, they receive it as a reward
for working to process transactions and secure the Ravencoin blockchain. Those miners, and
subsequent purchasers from them, each make the individual economic decision (1) to hold RVN
for their own use; or (2) to sell RVN to someone else who places a higher value on its use.
Second , Ravencoin is not a business in which individuals are capable of investing.
Ravencoin is code that people use. Since the initial publication of the Ravencoin binaries, a
diverse and growing community of participants have used that code organically to build a
fullyfunctioning, decentralized network and PoW blockchain. RVN functions as the
blockchain’s currency, serving (1) as the means to reward miners for their computational effort,
and (2) as a medium of exchange, store of value and unit of account. In this respect, Ravencoin
is no different from Bitcoin, the classic (nonsecurity) cryptocurrency from which Ravencoin
was forked. Unlike Bitcoin, however, RVN is also expected to serve as the means for users to
pay to use additional functionality of the protocol itself. With Phase 2, for example, 500 RVN
will be used to create asset tokens. The Bitcoin protocol does not have this feature, and BTC
does not have this anticipated use.
Fundamentally, RVN exists to serve — and actually serves — a clear function. RVN
miners and purchasers acquire RVN so they, or someone in the future who buys it from them, can
use it. This is not an investment within the meaning of the securities laws. “When a purchaser is
motivated by a desire to use or consume the item purchased … the securities laws do not apply.”
United Hous. Found., Inc. v. Forman , 421 U.S. 837, 852–53 (1975).
No Common Enterprise . A “common enterprise” within the meaning of Howey can be
established by showing (1) “horizontal commonality,” in which “each individual investor’s
fortunes” are tied “to the fortunes of other investors by the pooling of assets, usually combined
with the prorata distribution of profits”; or (2) in some courts, “vertical commonality,” which
“focuses on the relationship between the promoter and the body of investors.” See, e.g., Revak v.
SEC Realty Corp. , 18 F.3d 81, 86 (2d Cir. 1994).
RVN does not meet either test.
“Horizontal commonality” is lacking. Ravencoin is a decentralized network protocol
with no central authority, pooling of assets or distribution of profits of any kind. Absent a
pooling arrangement, Horizontal commonality is lacking. Revak , 18 F.3d at 88.
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“Vertical commonality” is similarly absent. There is a split in authority over how
expansive a showing must be made to establish vertical commonality. Courts seeking “broad
vertical commonality” require that the fortunes of investors be linked to the efforts of the
promoter. See Long v. Schultz Cattle Co., Inc. , 881 F.2d 129 (5th Cir. 1989). Courts applying
“strict vertical commonality” require investor fortunes to be tied to the fortunes of the promoter.
See Brodt v. Bache & Co., Inc. 595 F.2d 459, 461 (9th Cir. 1978). Neither situation applies to
RVN. Ravencoin is a decentralized network that deploys open source code. There is no
profitgenerating promoter, and the fortunes of RVN miners and purchasers are not tied to — and
do not derive from — any person or group. The value of RVN derives from the usefulness of the
Ravencoin protocol itself. Ravencoin is code that people choose to use, it is not an “enterprise.”
Purchasers Are Not Led To Expect Profits From Others’ Managerial Efforts. The
Supreme Court has held that the “touchstone” for determining a security is “the presence of an
investment in a common venture premised on a reasonable expectation of profits derived from
the entrepreneurial or managerial efforts of others .” Forman , 421 U.S. at 85253 (emphasis
added). Miners and purchasers of RVN are not led to expect profits from the entrepreneurial or
managerial efforts of any person or group. No person or group controls Ravencoin. It is a
codebase and protocol that any network participant can contribute to, fork, modify or promote.
While RVN miners or purchasers may have individual expectations that future Ravencoin
adoption will result in an increase (or decrease) in the value of the RVN, those expectations are
not derived from any centralized promoter’s management or entrepreneurship — they derive
from the ongoing usefulness and functionality of software that is (1) developed and published to
the world for free on an open source basis; and (2) adopted in a decentralized way through the
consensus of a diverse community of users. Howey has no application to these facts.
SEC Guidance Supports This Analysis
Recent SEC guidance supports the conclusion that RVN is not a security.
In its July 25, 2017, Report of Investigation Pursuant to Section 21(a) of The Securities
Exchange Act of 1934: The DAO (“DAO Report”), the SEC Division of Enforcement extensively
analyzed the question whether token interests in The DAO constituted securities within the
meaning of U.S. law.[11]
The DAO was a distributed autonomous organization “created by Slock.it and Slock.it’s
cofounders, with the objective of operating as a forprofit entity that would create and hold a
corpus of assets through the sale of DAO Tokens to investors, which assets would then be used
to fund ‘projects.’”[12] The DAO’s founders marketed and promoted DAO tokens to investors
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as investments in a decentralized enterprise.[13] Investors exchanged ETH, the token used to
perform transactions on the Ethereum blockchain, for DAO tokens. The ETH was pooled and
was to be used to fund blockchain projects. Investors in DAO tokens had ownership interests,
and possessed limited voting rights “akin to those of a corporate shareholder.”[14] “The holders
of DAO Tokens stood to share in the anticipated earnings from [DAO] projects as a return on
their investment in DAO Tokens. In addition, DAO Token holders could monetize their
investments in DAO Tokens by reselling DAO Tokens on a number of webbased
platforms...that supported secondary trading in the DAO Tokens.”[15]
Under these facts, the Division concluded that DAO tokens were “investment contracts”
under a Howey analysis, and that the public offer and sale of those securities to investors required
registration or an applicable exemption.[16]
The DAO Report makes two things plain: (1) the SEC will not hesitate to exercise its
regulatory jurisdiction to address the public offer and sale of blockchain instruments that meet
the structure and function of a “security”; and (2) RVN bears no resemblance to these kinds of
instruments. DAO tokens were investment interests in an organization, the express purpose of
which was to generate and distribute profits to investors through the deployment of capital raised
through the public marketing and sale of those investment interests.[17] Unlike The DAO,
Ravencoin is not an organization; it is a decentralized, open source network consisting of code
and users. Unlike The DAO, RVN was never issued or sold in a capital raising exercise; from
the genesis block, every RVN in existence has been fairly mined through proof of work. The
contrast between The DAO and RVN in both structure and function could not be more stark.
The SEC’s focus on capital raising is evident in enforcement actions and informal
guidance following the DAO report.
For example, on December 11, 2017, the SEC entered into a consent Cease and Desist
Order with Munchee, Inc. (“Munchee”).[18] Munchee was a California business that created an
iPhone application for users to review restaurant meals. To fund future development, operation
and marketing of the application, Munchee created and issued 500 million new tokens on the
Ethereum blockchain under they symbol MUN. Munchee then promoted and marketed the sale
of 225 million MUN to the general public in an initial coin offering in order to raise $15 million
in capital. The remaining 275 million MUN were to be held in reserve by the company and used
to pay employees and advisors, and to facilitate future marketing.[19] The SEC concluded that
the offering and sale of MUN was an unregistered offering of securities.
Even though Munchee called the tokens it sold to raise capital “utility tokens,” the SEC
concluded that this fact alone was not dispositive:
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Even if MUN tokens had a practical use at the time of the offering,
it would not preclude the token from becoming a security [when it
was sold in an ICO to raise capital]. Determining whether a
transaction involves a security does not turn on labeling — such as
characterizing an ICO as involving a ‘utility token’ — but instead
on an assessment of the underlying transaction.[20]
Munchee makes clear that use of the term “utility token” does not answer the question
whether a token is a security. The SEC will analyze and assess the facts and circumstances
surrounding the creation, marketing, offering and sale of the token — no matter what it is called
— to determine the “nature of the underlying transaction” in which it is sold. While Munchee
styled its token as a “utility token,” it actually deployed that token to raise capital from investors
in a public offering and sale. Ravencoin, by contrast, involved no capital raise of any kind.
There was no RVN initial coin offering or sale. There was no premine, founder’s reward or
development holdback. All RVN in existence have been mined, publicly and fairly, by miners
using open source and publicly reposited software and code. This critical distinction separates
RVN from any token sold in an initial coin offering or any other capital raising exercise, however
denominated.[21]
In more recent informal SEC guidance, representatives have continued to emphasize the
Commission’s focus on the manner in which a token is sold, and the purpose underlying that
sale. In a June 14, 2018, speech, William Hinman, the Director of the SEC’s Division of
Corporate Finance, noted:
I will begin by describing what I often see. Promoters, in order to
raise money to develop networks on which digital assets will
operate, often sell the tokens or coins rather than sell shares, issue
notes or obtain bank financing . But, in many cases, the economic
substance is the same as a conventional securities offering. Funds
are raised with the expectation that the promoters will build their
system and investors can earn a return on the instrument – usually
by selling their tokens in the secondary market once the promoters
create something of value with the proceeds and the value of the
digital enterprise increases.[22]
Unlike these kinds of tokens, no person, group or entity raised money for Ravencoin
through the issuance or sale of RVN. Thus, the illustrative questions identified by Mr. Hinman in
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his speech for determining when a token could constitute a security[23] have no application to
RVN:
1. “ Is there a person or group that has sponsored or promoted the creation and sale
of the digital asset, the efforts of whom play a significant role in the development
and maintenance of the asset and its potential increase in value? ”
● No. There was no sponsored or promoted sale of RVN.
2. “ Has this person or group retained a stake or other interest in the digital asset such
that it would be motivated to expend efforts to cause an increase in value in the
digital asset? Would purchasers reasonably believe such efforts will be undertaken
and may result in a return on their investment in the digital asset? ”
3. “ Has the promoter raised an amount of funds in excess of what may be needed to
establish a functional network, and, if so, has it indicated how those funds may be
used to support the value of the tokens or to increase the value of the enterprise?
Does the promoter continue to expend funds from proceeds or operations to
enhance the functionality and/or value of the system within which the tokens
operate? ”
● No. There is no promoter who raised funds through the sale of RVN.
4. “Are purchasers ‘investing,’ that is seeking a return? In that regard, is the
instrument marketed and sold to the general public instead of to potential users of
the network for a price that reasonably correlates with the market value of the
good or service in the network ?
● No. Purchasers of RVN may acquire it to use it themselves or hold and sell it
based on the belief that it will increase in value in the hands of a subsequent
purchaser. As discussed previously in this article, however, the value
proposition derives from its use — as a cryptocurrency and as the cost to
generate assets on the Ravencoin blockchain. There is not, and never has
been, a marketed “sale” of RVN to the general public.
5. “ Does application of the Securities Act protections make sense? Is there a person
or entity others are relying on that plays a key role in the profitmaking of the
enterprise such that disclosure of their activities and plans would be important to
investors? Do informational asymmetries exist between the promoters and
potential purchasers/investors in the digital asset? ”
● No. The Ravencoin codebase is open source and publicly reposited. Any
person can contribute to, or fork, the code. While individuals and groups of
individuals with varying degrees of expertise and funding may contribute more
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or less significantly to the codebase over time, RVN is analogous to Bitcoin in
this respect. Like Bitcoin, contributors and developers may have varying
degrees of importance to the development of the code. Some may receive
funding or assistance for their efforts. Ultimately, as with many truly
decentralized projects, network users determine which code to use, and those
individualized decisions determine which code is used.[24]
6. “ Do persons or entities other than the promoter exercise governance rights or
meaningful influence? ”
● Not applicable. There is no “promoter” and no person or entity exercises
“governance rights” over Ravencoin. Communitybased participants have
volunteered to create and develop code, features, functionality, social media
platforms, etc. These participants’ influence is as meaningful as the value of
their ideas and the usefulness of their contributions. New features are adopted
through community consensus, or rejected for lack of it.
The undercurrent in the DAO Report, Munchee and recent informal guidance is that the
SEC is targeting its regulatory efforts on cryptocurrency projects involving centralized
promotion and capital raising, as distinct from decentralized protocols with utility like Bitcoin.
Ravencoin is a direct fork of the open source Bitcoin codebase, with minor modifications
relating to changes in the issuance rate and a change in the PoW algorithm from ASICfriendly
SHA256 algorithm to the X16R algorithm.[25] Mr. Hinman’s conclusion — that “[a] pplying
the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem
to add little value”[26] — applies with equal force to RVN.
Conclusion
Ravencoin is a communitybased protocol consisting of code and users. No person or
entity controls, promotes or marketed it in a capitalraising exercise. It was created without any
fundraising, premine or ICO. RVN purchasers do not invest in an enterprise; they acquire RVN
so they, or someone else in the future, can use it. It is a direct fork of the Bitcoin codebase and is
modeled after Bitcoin, which SEC representatives have made clear does not meet the Howey test.
RVN bears none of the hallmarks of a security.[27]
________________________
* Douglas J. Pepe is a partner with Joseph Hage Aaronson LLC in New York. He practices
in the field of complex commercial litigation (including securities litigation). He also speaks and
writes on blockchain technology and legal issues. Biographical and contact information can be
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found here: http://www.jha.com/us/attorney/?douglas_j_pepe . He has written this article, and
provides the information in it, solely in his capacity as a user of a decentralized network, with no
authority from any person or central Ravencoinrelated authority or entity (no such authority or
entity exists). This article is for informational purposes only and does not contain legal advice.
No attorneyclient relationship is created with any person or entity by or through this article or
the information in it. Any person or entity reviewing this article should rely on their own
research, analysis, judgment and information — and the research, analysis, judgment and advice
of their own counsel — in exercising any right or making any decision, and no person or entity
may rely on this article or the information set forth in it for any purpose.
[1] B. Fenton and T. Black, Ravencoin: A Peer to Peer Electronic System for the Creation
and Transfer of Assets , available at
https://github.com/RavenProject/Ravencoin/blob/master/whitepaper/README.md .
[2] https://github.com/RavenProject/Ravencoin .
[3] T. Black and J. Wright, X16R ASIC Resistant by Design , available at
https://ravencoin.org /wpcontent/uploads/2018/03/X16RWhitepaper.pdf .
[4] https://medium.com/@ravencoin/ravencoin4683cd00f83c .
[5] See https://twitter.com/Ravencoin/status/948682040400019456 . See generally
Ravencoin Timeline, available at https://ravencoin.org/projecttimeline/ .
[6] https://twitter.com/Ravencoin/status/948678038266568704 .
[7] https://github.com/RavenProject/Ravencoin/blob/master/roadmap/README.md .
[8] Notably, these payments are not made to holders of RVN; they are paid by the creator of
a token on the Ravencoin network to holders of that token. Section 6 of the Ravencoin white
paper provides a clear example of this distinction. It describes a child who creates 10,000
LEMONADE tokens using the Ravencoin protocol. The child sells the LEMONADE tokens to
raise funds. After the project becomes successful, the child has the option to make a payment in
RVN to holders of LEMONADE token. RVN in this example is used as the currency for token
originators to make payments to token holders. The Ravencoin white paper does not
contemplate a mechanism for rewards or other payments to be made to holders of RVN.
[9] Bruce Fenton Tweet (May 10, 2018), available at https://twitter.com/brucefenton/status
/994594238833676288 .
[10] For example, RVN is not a “stock” or “note” (or similar equity or debt instrument) and
bears none of the characteristics of those instruments. See, e.g., Landreth Timber Co. v.
Landreth , 471 U.S. 681 (1985) (instrument bearing the name “stock” that was negotiable, offered
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potential for capital appreciation, and carried dividend right contingent on business profits was a
security); Reves v. Ernst & Young , 494 U.S. 56 (1990) (adopting “family resemblance” test to
determine whether presumption that instruments denominated as “notes” is to be rebutted).
[11] https://www.sec.gov/litigation/investreport/3481207.pdf .
[12] Id. at 1.
[13] Id. at 45.
[14] Id. at 5, 15.
[15] Id. at 1.
[16] Id. at 1116.
[17] The DAO Report itself emphasized the Commission’s focus on tokens sold as part of a
capital raising exercise. The stated purpose of the DAO Report itself was “to advise those who
would use a Decentralized Autonomous Organization…, or other distributed ledger or
blockchainenabled means for capital raising , to take appropriate steps to ensure compliance with
U.S. federal securities laws.” See id. at 2 (emphasis added); see also id. at 11 (“Foundational
Principles of the Securities Laws Apply to Virtual Organizations or Capital Raising Entities
Making Use of Distributed Ledger Technology.”) (emphasis added).
[18] SEC Order, In re: Munchee, Inc. , File No. 318304 (Dec. 11, 2017), available at
https://www.sec.gov/litigation/admin/2017/ 3310445.pdf .
[19] Id. at ¶¶1, 4, 57.
[20] Id. ¶35 (emphasis added).
[21] Munchee also involved tokens issued on the Ethereum blockchain. Ravencoin, by
contrast, is itself a fully operational blockchain, in which RVN serves as the cryptocurrency.
Unlike the MUN tokens at issue in Munchee , RVN is functionally indistinguishable from Bitcoin
in this respect.
[22] William Hinman, Digital Asset Transactions: When Howey Met Gary (Plastic) (June 14,
2018), available at https://www.sec.gov/news/speech/speechhinman061418 (emphasis added).
[23] See id.
[24] For example, the coauthors of the Ravencoin white paper, Bruce Fenton and Tron Black,
are affiliated with Medici Ventures Inc. Mr. Fenton was appointed to Medici’s board of directors
on May 17, 2017, and Mr. Black lists himself as the company’s principal software developer.
See Medici Ventures Press Release (May 18, 2017), available at
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https://www.mediciventures.com/news/2017/5/18/mediciventuresnamesboardofdirectors (B.
Fenton appointment); https://www.linkedin.com/in/tronblack90287/ (T. Black Linkedin profile
listing current employment as Medici’s “Principal Software Developer”). It has been reported
that other contributors to the Ravencoin codebase have received support from Medici. See
https://raven.wiki/wiki/Ravencoin_Wiki (“At the time of launch, the core team is funded by
Medici Ventures who are owned by Overstock.com.”). This is not unlike historical institutional
funding of Bitcoin “core” developers, including the lead maintainer of the Bitcoin repository on
GitHub. See, e.g, P. Rizzo, Bitcoin Core Developers Join MIT Digital Currency Initiative
(CoinDesk Apr. 22, 2015), available at
https://www.coindesk.com/bitcoincoredevelopersjoinmitdigitalcurrencyinitiative/ ; MIT
Digital Currency Initiative Website, available at https://dci.mit.edu/community/ (listing Bitcoin
repository lead maintainer Wladimir van der Laan and core developer Cory Fields). Other
corporate interests play a significant role in Bitcoin’s development. See, e.g., CCN.com,
Blockstream’s Lightning Network Implementation Nears Beta, Includes TOR Support (Jun. 27,
2018), available at
https://www.ccn.com/blockstreamslightningnetworkimplementationentersbetaincludestors
upport/ . Despite this institutional involvement in the ongoing development and maintenance of
Bitcoin, Mr. Hinman had no difficulty concluding in his June 14, 2018, speech that Bitcoin was
not a security. See Hinman, supra note 16. As with Bitcoin, the ultimate test of the contributors’
merit is the usefulness of their ideas and code. Network users determine whether to use those
ideas and code through adoption and mining consensus, or through a fork. Ravencoin’s
decentralized governance model is based directly on the Bitcoin model, and it is an important
factor to be considered in the analysis of the question whether RVN is a security.
[25] https://github.com/RavenProject/Ravencoin .
[26] Hinman, supra note 16. See also M.J. Zuckerman, SEC Chairman Jay Clayton Says
Bitcoin Not a Security, Most ICOs Likely Are , Cointelegraph (Jun. 6, 2018), available at
https://cointelegraph.com/news/secchairmanjayclaytonsaysbitcoinnotasecuritymosticosl
ikelyare .
[27] A related question is whether RVN is potentially subject to regulation under laws
applicable to the trading of commodities. In this respect, there is little difference between RVN
and other protocols deemed “cryptocurrencies,” such as Bitcoin. The Commodities Futures
Trading Commission (“CFTC”) has long asserted that cryptocurrencies like Bitcoin are
“commodities” within the meaning of the Commodities Exchange Act (the “CEA”). See, e.g., In
re BXFNA Inc., Dkt. No. 1619 (CFTC June 2, 2016) (“Bitcoin and other virtual currencies are
encompassed in [the] definition and properly defined as commodities, and are therefore subject
as a commodity to applicable provisions of the Act and Regulations”); CFTC Backgrounder on
Oversight of and Approach to Virtual Currency Futures Markets (Jan. 14, 2018), available at
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https://www.cftc.gov/sites/default/files/idc/groups/public/%40customerprotection/documents/file
/backgrounder_virtualcurrency01.pdf . On March 6, 2018, Judge Weinstein of the United States
District Court for the Eastern District of New York issued a published decision accepting CFTC’s
definitional interpretation. CFTC v. McDonnell , 287 F. Supp. 3d 213, 228 (2018) (virtual
currencies “fall wellwithin the common definition of ‘commodity’ as well as the CEA’s
definition of ‘commodities’….”). While this decision remains subject to appeal, it should be
assumed absent subsequent judicial refinement that virtual currencies like BTC, including forks
from the Bitcoin codebase like RVN, are “commodities” within the meaning of the CEA. This
implies, with respect to BTC and all similar cryptocurrencies and tokens, that CFTC possesses
jurisdiction to enforce both (1) the antifraud and antimanipulation provisions of the CEA on
both futures/swap and spot market platforms ( see McDonnell , 287 F. Supp. 3d at 229 (citing 7
U.S.C. § 9(1); 17 C.F.R. § 180.1); and (2) the provisions of the CEA relating to, inter alia ,
futures, options and swaps trading, along with retail transactions involving leverage or in which
“actual delivery” does not occur within 28 days ( see, e.g. , 7 U.S.C. § 2(a)(1)(A); 7 U.S.C. §
2(c)(2)(D)(ii)(III)(aa)). Notably, these rules are of general applicability to all cryptocurrencies;
their application to RVN is not unique. Cryptocurrency exchanges and their counsel should be
cognizant of these issues in ensuring their own compliance, and in structuring the trading and
delivery of cryptocurrencies and tokens on their platforms. This includes but is not limited to
CFTC’s recent proposed regulatory guidance on “actual delivery” in the cryptocurrency context.
See 82 Fed. Reg. 60335, 60340 (Dec. 20, 2017) (providing examples of delivery mechanisms
that satisfy, and do not satisfy, the 28day rule). These kinds of generalized exchange
compliance issues are a topic of frequent discussion and detailed guidance. See, e.g. ,
https://www.cftc.gov/Bitcoin/index.htm . They are applicable to all cryptocurrencies, and are
therefore beyond the scope of this article.
Last edited: August 2, 2018
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