Is the token a security

Graduate · enrolled learners

This lesson opens with Telegram and the TON blockchain, 2020.

What happened

Telegram raised about 1.7 billion dollars from investors by selling rights to a token, Gram, that it planned to launch on its TON blockchain, and it treated the sale as an ordinary technology fundraising rather than a securities offering. The US Securities and Exchange Commission disagreed. It sued, and in 2020 a federal court granted an injunction halting the distribution, holding that the Grams had been offered and sold as securities and that completing the planned launch would finish an unregistered securities offering. The court looked at the substance: investors had put in money expecting to profit from Telegram's efforts to build and launch the network, which is an investment contract regardless of the label on it. Telegram abandoned the project, returned more than 1.2 billion dollars to investors, and paid an 18.5 million dollar penalty. The token was a piece of technology, but the offering was a securities offering, and describing the raise as a technology sale did not change what the law saw when it examined the economic reality.

The decision point

Whether a token is a security is decided by the economic substance of how it was offered and sold, not by what it is called or what technology it runs on, and for a tokenized asset this is the first gate: if the answer is yes, the full weight of securities law applies to everything that follows. The test is the same one from earlier in the curriculum, whether there was an investment of money in a common enterprise with a reasonable expectation of profit from the efforts of others, and it reads the reality of the transaction. Telegram is the case that shows the stakes at scale: a 1.7 billion dollar raise framed as a technology sale was halted as an unregistered securities offering because investors had put in money expecting Telegram's work to make the token valuable, which is an investment contract whatever the token is. So the decision anyone tokenizing an asset makes is to answer the securities question honestly and first, from the substance of the offering rather than the framing, because a token that is a security carries registration, disclosure and the entire securities regime, and a structure built on the hope that calling it a technology avoids that is a structure that can be halted, unwound and penalized, as Telegram's 1.7 billion dollar one was.

Recorded loss

$18,500,000

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

It is free. We do not sell the list and there is nothing to buy at the end of it.