I Share YOU Not!— Legal, Philosophical and Business reasons why a Shared Masternode service cannot be launched yet into mainstream adoption
Terminology:
Dedicated masternode: dedicated server type of structure — one masternode per server, owning its own IP.
Cloud masternode: masternodes hosted alongside other masternodes on the same server, sharing the same IP.
Shared masternode: separate coin holders pool together their coins in order to fill in the collateral requirement for a specific masternode. The service provider that helps and monitors the masternode rewards has the custody of the collateral and distributes the rewards in proportion to each coinholder share of the collateral.
Executive Summary
GIN Platform envisaged an automatic Shared Masternodes solution for its users. We explored ways to build such a product in a technical, business and legally compliant way. However, the technical solutions available today cannot satisfy the current regulatory framework in relation to pooling of assets and custody.
Moreover, business and risk management considerations intertwine with philosophical considerations. Shared Masternodes as of today could take its providers and backers onto a downwards slippery slope whereas the final consumer, the crypto enthusiast can lose it all.
On the regulatory side, there are a couple of no-gos:
- currently there are no trustless solutions that can solve the custody and security of funds responsibility of a Shared Masternodes operator for its customers;
- The operator needs to build business contingency for custody of funds;
- The operator needs to build business contingency for security of funds;
- The Shared MN mechanism can be deemed a collective investment scheme under the vast majority of jurisdictions, including but not limited to Germany, Canada, US, Estonia, Russia, Hong Kong, Lithuania.
- Obtaining a license for operating a pooling of funds (the Shared Masternode) requires heavy investments in consulting and legal fees. It require a heavy investment in time, as the process can entail more than 15 regulatory steps. Financing such a project would require more costs that preparing an ICO (for comparison purposes);
- Current users face legal, security, custody and lack of legal recourse (due to anonymous operators, lack of clear and enforceable contracts with such operators).
- Most operators have not undertaken any measures to be legally complaint in order to secure the risks related to a Shared Masternode service.
On the business side:
- Operational RISKS must be assessed, documented, prevented and, if possible, insured. This is not the case for current Shared MN services. This is likely to make a legit operator into a financial service provider or becoming a kind of a bank. We do not want as of today to be in that position.
- We got to the conclusion that the Shared MN service could only slightly marginally increase GIN’s utility. The market for Shared Masternodes as of today is less than 10% of the current masternode world. It does not make economic sense to grow with baby steps while there is so much more potential in other promising areas in the blockchain space.
On the philosophical side:
- The Shared MN service does not help the conceptual thinking behind masternodes. The idea behind the masternodes goes along with the governance and liquid democracy desiderates and beyond that into decentralized autonomous organizations. This means that the MN holder should participate to the strategic decision the coin blockchain undertakes.
2. Shared Masternodes services contribute to centralization which go against our core values as a blockchain infrastructure company.
Until new standards will emerge for ensuring good mechanisms for custody and a sound and less obscure legal path to obtain a CIS license for passive income¹, there is no financially & legally feasible way to provide a Shared-masternode platform for a wide span of cryptocurrencies in today’s market context.
We aim to continue the masternodes infrastructure innovation, but getting on the current path of Shared Masternodes service providers could only jeopardise our plans to grow and innovate in unexplored areas of the blockchain space, where higher rewards come with far less risks.
Abstract
1. I posit that current models for shared masternodes are from a philosophical perspective a centralization factor, putting in the hands of third party operators the power of voting and earning. Secondly, entrusting your funds to a third party without having real direct control over your funds is the chronicle of an announced disaster from a security and custody point of view. Third, from a legal standpoint, the pooling of funds falls in most jurisdictions under a collective investment scheme. A third party operator must provide not only his credentials but also be able to prove that client funds are safely stored and the identity of the operator is known. The fact that the huge majority of the Shared MN services do not provide for a meaningful identification and a financial license for such services shows that the market is still in its infancy and, to be frank — composed of mostly illegal operators.
I. Theoretical Concept and Current Shared Masternode setup
2. Masternodes (MN) are actually servers on a decentralized network through which transactions are being performed. They fulfill various services for the network for which they receive rewards regularly. These rewards are the source of passive income for the MN holder, in a nutshell².
3. Setting up a MN requires collateral, an allocation of one’s crypto assets being locked for the deployment of a MN. The committed amount for the collateral needed for deploying the MN is held and blocked in a virtual “wallet” owned by the individual and any management of the collateral is solely under the control of the individual.
4. The Shared Masternode concept proposes the possibility for various coin owners to pool together the collateral in a joint MN for the expectation of profit in the form of MN rewards. The rewards would be split in accordance with the percentage of the collateral each coin holder has contributed with to the pool.
5. The theoretical concept operates with the following assumptions: (i) the coin holders have their interests aligned in obtaining their share of profit at the same point in time, once rewards are issued by the blockchain; (ii) no coin holder will withdraw its part of the collateral unless they all agree as no reward for any of the co-owners should be jeopardized; (iii) there is complete trust or a trustless environment for the custody and access to the collateral from each co-owner OR each co-owner has direct access to its collateral share.
6. The current practice³ operates with a fundamentally different concept: the as-is Shared MN, whereas a third party (the operator) has a role in ensuring the interests of the co-owners are aligned. In return, the operator receives a managing fee. Moreover, the theoretical model functions under the presumption that there is enough marketplace for shares on a specific shared MN. It follows that if many holders will ask for withdrawal, that Shared MN will unlock the collateral and terminate unless there will be others who would want to jump onboard and buy seats in that Shared Masternode. In practice, the market on a specific platform for a specific Shared MN is finite. Thus, there is also the risk of losing your awaited rewards at any time. No one can guarantee these rewards in case of mass withdrawals.
7. The essential difference between the conceptual situation and the current model lies at the forefront of what blockchain tries to solve: transactions in a trustless environment.
8. In checking public information available⁴ from more than 17 Shared MN service providers, I included within my scope of research Shared MN services that had in offer at least 3 coins for which consumers could take a share/seat in the Shared MN.
9. Let me share a couple of points from this analysis:
i. Formal Identity of Shared MN operators : (i) Most of the service providers are anonymous, providing the service as individuals, with no clear trace to any identification method apart from an email and a website; (ii) Teams that allegedly revealed individual identity: 4 teams from Russia, Estonia, US, and or the jurisdiction from where they perform activities (teams not identified): Canada, Germany, Hong Kong; (iii) Apart from the individuals presented with their Linkedin account, there is only one company which shares public information that they provide such investment pool service;
ii. Pooling Agreements between users and service providers: (i) Most of such Terms and Conditions are simply non-enforceable. The consumer is simply agreeing for a service with an unknown provider, agreeing to the terms set by a website, and not a company or an individual person.; (ii) Where a company declares that it operates legally under the rules of the EU, this is ,at least, overly simplistic. In the field of financial instruments laws, most of EU legislation consists of Directives which are then transposed into national legislation. Thus, each jurisdiction has its own rules, although similar in terms of principles and mechanisms.
iii. Transparency and risk arrangements for custody and access to funds: are simply non-existent. The only remarks I’ve seen are related to 2FA and instant withdrawals. But this is by far a best practice in the area of custody and investment funds management.
iv. Discontinued Services: During the last couple of months, I’ve seen at least 2 Shared MNproviders closing doors: Stake United and NodeHost).
II. The regular investor⁵’s risks related to participating to current Shared Masternodes service: Custody and Security of Funds
10. Custodian related regulatory best practices recognize that: “the provision of custody, custody-related and ancillary services is subject to operational risks resulting from — among other things — inadequate internal processes, human error, and system failure. If a custodian commits an operational error, such as failing to process a corporate action or settle a securities transaction for a client, the client is at risk of losing all or a portion of the value of its investment or expected profit from the investment or transaction”⁶.
11. Closing the eyes and hoping such event could never happen does not make the risk disappear. Let’s take such risks one at the time.
A. Risks related to custodial mechanisms for the MN Collateral
12. From a legal perspective, a Shared MN co-owner will pass the legal custody (the possession) of her share of collateral to a third party by sending the coins to the shared MN related crypto wallet. This is much like sending one’s funds to a financial manager (operator) to invest your funds in crypto. The financial manager will thus provide you more than a tech solution. The entrustment of your funds to a third party in a business relationship equates to a financial service that would require a custody license and custody procedures to be put in place.
13. Simple advertisements such as “instant withdrawals”, “your funds and rewards received are transparently reported to you” are mere words. The lack of custody arrangements is prevalent in the current Shared MN market. A simple negligent act of your assets’ operator can definitively shatter your trust and your funds…held in trust.
14. In broad lines, whoever holds in custody sums related to a high number of non-accredited persons, for investment purposes, where such holding is made in the form of a business — needs to be approved and licensed. A business involved in the custody of assets must get a license within the realm of regulated financial services.
15. For example, the FCA Principles for Businesses⁷ discuss among others about integrity, management and control (“an operator should take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems” [going beyond a simple 2FA authentication for collateral wallet access]), the relationship of trust (whereas the client is entitled to rely upon the judgement of the operator and where such operator must arrange adequate measures for its client assets when it is responsible for them).
16. Similar rules are covered at EU level. Thus, in general terms the MIFID I and MIFID II contain specific rules as ancillary activities related to “safekeeping and administration of financial instruments for the account of clients, including custodianship, as well as services related to the management of cash and collateral”. At EU level, the financial instrument definition scope is quite broad and includes: “units in collective investment schemes”.
17. In the by-now famous SEC Blass Letter, the SEC’ Director Division of Investment Management stated that: “The 1940 Act [Investment Company Act of 1940] imposes safeguards to ensure that registered funds maintain custody of their holdings. These safeguards include standards regarding who may act as a custodian and when funds must verify their holdings.” As of 2018, the Director stated in the context of crypto-related derivatives custody that SEC was not “aware of a custodian currently providing fund custodial services for cryptocurrencies”.⁸
18. Switzerland’s FINMA would not consider the safekeeping of virtual currencies in account deposits or a wallet as an activity requiring a banking license, if the private keys are deemed severable in a bankruptcy of the custodian. But in the Shared MN current setup, keys are not severable. Under art. 2 para. 3 of the Swiss Anti Money Laundering Act, businesses or individuals will be considered ‘financial intermediaries’ if they “professionally accept or keep as a custodian foreign asset or help to invest or transfer them”.
19. Let’s take a common crypto friendly jurisdiction, such as Malta. The Virtual Financial Assets (VFE) Act of 2018 requires licensing for “acting as custodian or nominee holder of a virtual financial asset and, or private cryptographic key” OR for any company “Holding a virtual financial asset and, or private cryptographic key as nominee, where the person acting as nominee is so doing on behalf of another person […].
20. The Russian authorities have proposed specific regulations⁹ whereas a license and registration of operators of investment platforms are strongly required by the Bank of Russia. Moreover, such investment platform operating from Russia would need to be operated solely by Russian companies included by the Bank of Russia as operators in a special register¹⁰.
21. It follows from the factual information gathered that current platforms operating in Russia as EU companies do not currently stand the test set out by Russian regulators.
22. What is also common as best practice in the US, Canada, EU and most of Asia financial hubs regulation is that managers/operators owe a fiduciary¹¹ duty to the persons that entrusted them with the funds. The fiduciary duty entails a high degree of protectorship of the co-owner funds.
23. Based on the above, a Shared MN participant has little room to enforce the custody related fiduciary duty when as it can’t even know the identity of the pool operators out there. This is the first and foremost step for enforcing one’s right (to hold someone responsible for one’s right).
B. From a business management perspective, operational RISKS must be assessed, documented, prevented and, if possible, insured. This is not the case for current Shared MN services.
24. From a risk management point of view, custody related risks could be split between: (i) operator’s malevolent activity; (ii) operator’s negligent activity. Risk included in the first category are commonly related to exit scams, whereas the operator can act in bad faith, access and exit scam the investment scheme. Risks included in the second category describe situations where the operator’s negligence lead to loss of funds. In this case, security is a specific operational risk.
25. Security of funds relates to human negligence or IT faults that might cause security breaches or a combination of both. The CEO of a Canadian exchange could be deemed negligent for not transferring information on the private keys of the wallet which held more than USD 250 million of worth of customer funds.
26. Thus cold wallets held in trust by non-custodians do not provide the best solution in case of human errors (fatal events included). No procedures for such events are documented in any of the documentation I’ve reviewed from the current Shared MN’s operators.
27. Negligence for not ensuring IT contingency plans against hacking is still common in the crypto world. Big exchanges have been hacked, in spite of the colossal funds spent for security. Would it be wise to believe an unknown operator behind a fabulous website and “community led project” could possibly provide a sound security for one’s funds, whereas there is no described security process or risk management procedure in place? We’ve seen too many security breaches in past years to warrant a security bullet proof solution where human or external hazard could be excluded to a material extent.
C. From a technical and operational point of view, security risks embed the multi-signature or sole signature operational rules conundrum.
28. Trust-custody-control-security is like a snake that bites its tail. And tech cannot solve this yet in the context of current Shared MN services.
29. Let’s take, for example, the access to collateral through the multi-signature private key access to funds. In theory, there could be trustless shared-ownership and access to the collateral funds. Imagine a shared MN with 200 co-owners. Each Masternode blockchain uses a different technology, thus, to start with there is no Shared Masternode one fits all solution, even at conceptual stage. However, for demonstration purposes, let’s assume (just for a minute) that from a technical standpoint, one common concept becomes the standard. Such standard will contain the rules for access and control to the collateral, without the intervention of an individual shared MN operator. Are such rules able to solve the Shared-MN holder withdrawing with full control her collateral?
30. Let’s analyze 2 alternative scenarios:
(i) Scenario 1: A rule of 95% of co-owners must approve the access to the collateral. Everyone would be aware if one co-owner wants to withdraw his funds. But this means that from a multi-signature point of view, we would need at least 95 keys shared among co-owners. If one of the key holders loses her private key, then the collateral cannot be accessed. This brings again the issue of human & operational error in case one of key holders becomes unavailable;
(ii) Scenario 2: A rule stating that a 5% of co-owners can approve and access the collateral. Trust would be embedded in this case in the selection of such co-operators. There are a plethora of cases where due to their intermediation, human & operational risks could appear. The likelihood of a cartel among the 5 co-operators increases. Funds could be withdrawn through a secret co-decision of the 5. Also from a shared MN governance perspective, how would co-owners decide whom to vote the 5 co-operators? The 200 co-owners could be geographically dispersed and not known one to each other. No independent channel of communication would be setup, apart from the centralized channel provided by the operator.
31. The ideal investment purpose mechanism for crypto would provide the co-owner/investor a trust-free environment where she does not need to care about the qualities and trustworthy of the operator nor the access to the collateral by other co-owners. Receiving the right amount of profit from its share of collateral at the right moment with minimal risk involved is what matters. This is not to underestimate the role that the collateral plays at the meta level in a masternodable blockchain. The role of collateral is important and surpasses in its importance a mere staking of coins.
32. We are not there yet. If such problem could be solved today, the potential of such solution would be huge for traditional collective investment vehicles and bank services — the passive income model could radically shift. For now, crypto currencies based on MNs solve the trust issue for the transfer of information (financial among other types) from A to B and from B to C, have created governance model based on liquid democracy, transparency and immutability but has not solved yet the common creation of value through shared MNs. They might not even intend to do so, as collateral is intimately related to the trust a coin holder has in a specific coin, going beyond the sole immediate seeking of profits into being part of a community that builds an ecosystem for the future of economic relationships.
III. Economic incentives for a legit Shared MN tech services provider are currently very scarce. Coin Utility.
33. Based on the cursory review of current Shared MN providers¹², the estimated total number of Shared MNs in the market (based only on publicly available information during the review) amount to around 3500 Shared MNs. There are at least two well-known service providers which do not provide public data on their Shared service, or there are gaps and inconsistencies in reporting their Shared MN numbers. I would personally estimate the biggest chunk of the current Shared MN market at less than 10,000 Shared MNs. I would take even the publicly available with caution; such data cannot be verified in-depth. Such service could be greatly enhanced through hype and marketing techniques (“If so many investors are getting into this market, I should do that as well!”).
34. As of February 17, 2019 the total number of Masternodes online amounts to 248,327¹³ MNs (individually ran or through dedicated platforms). Thus, I estimate that the Shared MN represents not more than 4% of the total of MNs. Given the high number of available services, one can argue that: (i) there are not so many to be Shared type of MNs; OR (ii) there is not a substantial need for Shared MN;
35. From a Business Financial perspective for an established masternode hosting provider, a Shared MN service is not currently feasible, given the sunk costs and liabilities attached to the regulatory Caudine Forks of custody and CIS¹⁴. From a business perspective, the Shared MN hosting experiences a “commoditization” effect, as there are no innovation spillovers. It has become a race for the optimization of hosting fees. Providing a variable management fee from the total gains in a specific Shared MN, (especially in a highly volatile and bearish environment) is also inconsistent with a company sound cash flow management.
36. Costs and process — time spent with lawyers, authorities, financial institutions would be very high in the current crypto climate. In a nascent crypto scene, where even simple crypto transactions are seen as compliance risk red-flags for most financial services providers (who do not understand or even try to understand blockchain), the idea of a CIS for the small and many consumers is likely to lead to an regulatory compliance utopia.
37. The costs incurred as regulatory burden are material to the business. Such costs are highly unlikely to be set-off by current market conditions and even by future expansion under an assumption of a 50% growths y-o-y.¹⁵
38. At GIN, we are looking for sustainable, mid-term growth of the utility of the coin and the business. We got to the conclusion that the Shared MN service could only slightly marginally increase GIN’s utility.
39. Service Provider Coin’s Utility will marginally increase but not in line with current stakeholders’ expectations. Let’s assume that a service provider could get a 30% market share out of the current market of 4000 Shared MN. Following the pricing model for shared MNs, we the service provider will be paid a hosting fee plus a management fee. The management fee is calculated as % from the rewards of that specific MN. The “industry practice” prescribes fees between 3% to 10%. This means that the operator will receive the reward in the non-native coin currency [if a DASH node, then the operator will receive a 4% in DASH.] It can then “artificially” increase the utility of such coin by selling the reward into native coin — and then pay costs related to the Shared MN service, thus selling again the native coin. From a personal point of view, it is unlikely that such mechanism can drastically improve the utility of a Shared MN operator’s coin given current market conditions and crypto adoption. This might change in time.
IV. From a philosophical perspective, the Shared MN services contribute to centralization.
40. The Shared MN service does not help the conceptual thinking behind masternodes. Currently, a Shared MN service is seen as the perfect way to make a quick buck. The idea behind the masternodes goes along with the governance and liquid democracy desiderates and beyond that into decentralized autonomous organizations. This means that the MN holder should participate to the strategic decision the coin blockchain undertakes. This would be highly difficult where the MN operator literally has the control and would not represent the many MN co-owners.
V. The Pooling of Assets raises a very hard and real regulatory requirement — the Collective Investment Scheme/ Trust concept
41. A share in a Shared MN can be equated to a unit in a collective investment scheme and custody arrangements must be very well defined. We will tackle broadly the specifics of collective investment schemes in this chapter.
42. The Shared MN mechanism can be deemed a collective investment scheme under the vast majority of jurisdictions, including but not limited to Germany, Canada, US, Estonia, Russia, Hong Kong, Lithuania.
From a multi-jurisdictional perspective, the Collective Incentive Scheme concept leads to three characteristics: (i) the pooling of assets; (ii) by a third party –manager, arranger, operator; (iii) with the expectation of contributors to participate in and receive profits; (iii) for which a license is required for the operator; (iv) and even so, such scheme could be provided only to qualified investors; (v) whereby their identity and financial capacity is known to the operator.
43. For example, under UK Section 235 of the Financial Services and Markets Act 2000 (UK), a “collective investment scheme” means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.
44. Similar mechanisms are covered by EU legislation under UCITS¹⁶ and AIFMD¹⁷ which regulate thoroughly how a cross-border CIS could be operated and the specific conditions a fund manager (operator) must comply with. At national countries level, regulators have transposed the Directives in national law.
45. Canadian and US regulators follow similar best practices, especially in relation to reporting and licensing requirements for operators of collective investment funds and trusts.
46. In Hong Kong, it is an offence to offer documents or to advertise to the public to invest in CIS, unless the Securities and Futures Commission authorizes or there is a specific exemption. I personally have not seen any such exemption or legal announcement made by any Shared MN operator from Hong Kong.
47. As discussed, the crypto custody tech solutions are not yet put in place and broadly adopted, at most a specialized commercial Bank would be needed as custodial agent. Let’s just simply imagine we can solve that issue.
48. Let’s just assess the steps required for a financial manager license for the funds of others and the recurrent reporting requirements: We will take the example of a UK Financial Conduct Authority license for regulated activities within the UK¹⁸:
49. Being regulatory compliant as Shared MN operator would entail 4 pillars of regulatory action:
(i) The Authorization Process, Threshold Conditions and Business Model Threshold Conditions¹⁹; The deadline prescribed by FCA for providing a response: between six months and 12 months only for this phase, as the pack would go from a case officer to a committee which can pin point any document missing, approving or rejecting the formal application. In addition, Business model requirements are being checked, and personally I do not expect that the capitalization and crypto running business will be seen by traditional bureaucrats with the utmost admiration.
(ii) Supervision Mechanisms including Specific Tools for Supervision — including Diagnostic, Monitoring , Preventative and Remedial tools; FCA can ask meetings, on-site inspections, analysis of periodic returns, transaction monitoring, auditor’s reports.
(iii) Approval Process for Persons deciding for the operator’s company will include a Fit and Proper test (based on specific financial qualifications, no conviction, any previous investigations or disciplinary proceedings, insolvent business experience, disqualifications), basically anything that might tilt to dishonest, negligent or fraud behavior in the past. No deadline is set here from FCA. In addition, the operator must prove specific competence and capability in financial industry and no bankruptcy or failed business whereas such behavior would indicate that a manager is unqualified to manage the funds of others.
(iv) FCA Required Functions just for the sake of running such operations.²⁰
50. Let me outline that this is a simplistic overview of the regulatory framework in the UK²¹. Additional conditions from AIMF and UCITS will be required for EU cross border sales plus specific arrangements for selling to US and other nationalities under a Shared MN type of mechanism.
51. As one reasonable person might reckon, obtaining a license for a startup is simply a regulatory adventure in itself. The pace of innovation in the crypto world would not wait for a company whose main focus would be to operate legally a Shared MN service for co-owners from a wide span of jurisdictions. It does not make strategic sense given the huge opportunities in the masternode space out there.
52. If one could still consider such FCA approval, it is my personal assessment that the legal advice and financial service compliance management costs would be higher than the costs required for a complex ICO or STO launched in 2018.²²
53. The lack of approval/authorization in case of an operator performing CIS type of activities OR dealing with securities (managing units of funds — such as shares in a Shared MN), OR not having the required approval to hold custody of funds of others likely constitute illegal activities. Authorities in most countries from Europe and North America will deem such activities as criminal offences and such operator’s management could be criminally pursued and convicted. There is a huge risk to take on the operator’s side as well as for any co-owner willingly entrusting its assets to non-qualified or anonymous or non-experienced managers of funds.
54. To conclude, as of today, while there are a series of Shared MN operators, it is my personal opinion that the vast majority of them undertake activities outside the legal borders of the jurisdictions where they perform their Shared MN activities. Thus such activities risk authorities operational cease and desist, whereas the funds can be blocked and the operators sanctioned as financial criminal offenders. This is the current state of play.
55. Moreover, co-owners face very scarce recourse to justice, in the absence of formal recognition provided by the authorities in a state where such operator undertakes the Shared MN activities. No matter if in Europe, North America or Asia the recourse to justice in case of loss of funds is likely limited and investigations in such complex situations can last longer than expected.
VI. Conclusion
56. Until new standards will emerge for ensuring good mechanisms for custody and a sound and less obscure legal path to obtain a CIS license for passive income²³, there is no financially & legally feasible way to provide a Shared-masternode platform for a wide span of cryptocurrencies. It is my own estimate that we will see this coming in a very few years ahead, when a cold wallet capability can be intertwined with full control of a mini-stake in a MN without the involvement of a Shared MN operator.
57. Blockchain and crypto are fascinating as they offered us the possibility of a trustless environment where one’s funds are safe without the interference of any specific third party. Until we take out of the equation the trust in a shared masternode operation, there will be no sound solution for shared master-nodes. We need to work on a technical sound solution for fixing the trust and control issues.
[1] Meaning a streamline licensing or no licensing for shared pools of mini-MN holders
[2] “The Bubbly World of Masternodes” — https://ncfacanada.org/pop-up-magazine-ncfa-blockchain-fintech-confidential-vol-1-issue-1/, at p.31
[3] Based on a cursory review of the so-called Shared Masternode Services available online.
[4] As of February 15, 2019
[5] The regular investor is a consumer with reasonable information and knowledge on the type of investment she wants to participate in. She is not an accredited or qualified investor.
[6] https://www.davispolk.com/files/20160728_tch_white_paper_the_custody_services_of_banks.pdf at p.30
[7] PRIN 1.1.2 (FCA), 1.1.7, 2.11 (FCA/PRA)] and COBS 2.1 all available at https://www.handbook.fca.org.uk/handbook/COBS/
[8] https://www.sec.gov/divisions/investment/noaction/2018/cryptocurrency-011818.htm
[9] Draft Law on “Attracting Investments with Use of Investment Platforms”, as of May 2018
[11] From the latin — fides — meaning trust.
[12] See also para 9 above.
[13] https://masternodes.online/
[14] See below an extent discussion on CIS
[15] See also paras 50 and 51
[16] Undertakings for Collective Investment in Transferable Securities
[17] Alternative Investment Fund Manager’s Directive
[18] Under UK’s Regulated Activities Order’s prescribed activities of managing investment AND establishing, operating and winding up a collective investment scheme.
[19] An application pack with core details, controllers, regulatory business plan, disclosure of significant events, approved persons, checklists and declarations for a whole set of declarations.
[20] Apportionment and oversight Function; Compliance Oversight Function; CASS operational Oversight Function, Money Laundering reporting Function; Customer Function.
[21] A detailed description of the steps to be taken can be found in the Work Book on UK Financial Regulation of the Chartered Institute for Securities & Investment, edition 25.
[22] See also para 36.
[23] Meaning a streamline licensing or no licensing for shared pools of mini-MN holders.
Written by Alexandru Stanescu, CLO @ GIN Platform LTD
February 2019
Disclaimer: This information is provided solely for education purposes and knowledge sharing with individuals interested in the masternode space. It is neither a legal interpretation nor a statement of policy. This information represents a personal view of specific facts and assumptions under a personal analysis that does not bind nor represents of any other person or company. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law in your jurisdiction.
