Swarm Advised That Crowdsale Model Falls under Securities Laws, Seeks “Distributed Collaborative Organizations”

In a note to members, crypto crowdfunding platform Swarm said that the launch of its fully featured solution has been

In a note to members, crypto crowdfunding platform Swarm said that the launch of its fully featured solution has been impeded due to legal concerns.

Swarm launched five beta projects in November, but it says:

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“Unfortunately the full awesomeness of our November release was somewhat limited by lawyers telling projects they couldn’t sell what they wanted.”

After collaborating with legal resources including Harvard’s Berkman Center for Internet and Society, Coin Center and “some top legal firms” in a workshop, Swarm became aware that its current crowdsale model is likely to fall under US securities laws. These laws prohibit the public sale of securities, such as equity in a company, without appropriate licensing. Obtaining such licensing is a capital and time-intensive process, not an option for most startups.

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Indeed, there had been previous rumors of a Securities and Exchange (SEC) crackdown on Bitcoin 2.0 technologies for their potential to facilitate the issuance of “shares.” Representatives from several protocols have denied the rumors, which have yet to come to fruition.

Swarm says it had been planning on launching a fully automated self-serve solution by March.

It will now be ditching the “cryptoequity” terminology and instead focus on what it calls “Distributed Collaborative Organizations” (DCOs). The “appropriate and extremely innovative new model established is a new type of distributed organization with programmatic governance, much along the lines of Swarm’s original offering.”

It remains to be clarified what qualifies as a DCO and how the new model will help relieve the securities issue. DC Magnates has contacted Swarm for more information.

Update Feb 11 10:35 GMT: A working paper, summarizing the takeaways from the aforementioned workshop and published by CoinDesk, says that tokens for a DCO represent “membership” in it. Holders of such tokens are granted unique rights in the organization, and are effectively “managers and/or partners” in its success. The membership may or may not be financially incentivized. The paper concludes that such organizations are likely not to be considered securities.

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