The Peculiar Case of Howey Test Jockeying and the Limping Entrepreneurship.
In late 2016 the whitepaper titled “A Securities Law Framework for Blockchain Tokens” was published. The authors of the paper did more than just bringing the inconvenient issues of tokens sales as investment contracts and the resulting purview of Securities and Exchange Commission into the realm of crypto currencies.
They gave a measuring stick to assess the likelihood that a particular ICO will be deemed an investment contract under regulatory scrutiny. Named the Howey Test, it came conveniently packaged into google spreadsheet with simple to follow instructions of the likes below:
Click here to access the framework (google sheet). Save a copy in order to use it, or follow the manual instructions below
Step 1: Access the google sheet or refer to the copy of the framework in the Appendix.
Step 2: Review each characteristic and determine whether or not it applies to the token.
Step 2: For the criteria that apply, add or subtract the corresponding points to get a total for each element.
Step 3: You now have three point scores, one for each element. Your lowest point score represents your overall risk score.
The guideline (being a product of good intentions) inadvertently started a trend. All of a sudden, the developers and the wider community became fixed with the Howey Test score. The trend evolved into great jockeying to claim the lowest score possible as means to gain legitimacy.
The result? ICOs being sterilised of anything financial. Go ahead and examine any recent ICO and you will see big visionary words plastered all around, lengthy credentials of the development team and promises of innovations that would revolutionise whole industries. All impeccably presented on immaculately designed websites with built-in zendesk live chats. But no numbers, no financial projections, no estimates of the future payoff.
The cost? Lack of systemic and documented thought process on market potential, value to prospective client, assessment of risk and returns of (in the form of tokens price appreciation) and returns on (in the form of dividends) capital invested and resources needed to execute on the idea, building blocks that pave the Entrepreneurial road to success.
That is of course, if we accept the definition of Entrepreneurship as the capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit.
Or we can still chase low Howey Test scores and wrap it around the marketing glitz at the expense of financial vision of the ICO…