Could tradable coupon tokens step-side security concerns?
Disclaimer: I am not a lawyer and I have no basis to give legal advice. In fact, I’m writing this post specifically so that lawyers can tell me where I’m wrong.
In the ICO boom of 2017 way too much brain power has been spent trying to figure out if a token with future utility is a “security” or not. Instead of limiting our thinking to “security” or “utility” tokens, we should investigate the concept of a coupon token that provides discounts on transaction or network fees, and can be bought or sold based on market expectations of what that discount may be worth in the future.
Imagine this setup: you have a decentralized file storage protocol that’s built on top of the Ethereum network. People using the network to store files pay a fee in ETH to the nodes hosting their files. Assume 1gb of storage currently costs 10 ETH. You then issue a coupon token called FileCoupon that gives a 50% discount on file storage costs such that you can pay 1 FileCoupon and 5 ETH (50% discount) for 1gb of storage.
So long as network usage is growing, this FileCoupon has a real value — 1 FileCoupon is worth 5 ETH to anyone that would otherwise pay the rack rate (of 10 ETH) to store files on this network. The nodes hosting files would receive 50% less ETH when accepting the discounted storage fee, but they would also receive FileCoupons. These FileCoupons could then be sold back to participants who want to store files at the discounted rate.
In a growing network, this creates a floor in the value of FileCoupon; it is worth at least 5 ETH to anyone who wants to store files. FileCoupons could cost more than 5 ETH too: if the market believes that file storage costs will go up, the value the 50% discount of FileCoupon would be worth more in the future. Participants would be incentivized to hodl their FileCoupons, sending prices above the 1 FileCoupon = 5 ETH floor.
In this structure, it seems difficult to argue that FileCoupons are securities (but again, not a lawyer!). The coupon structure does not represent an investment of money in a common enterprise; rather, the coupon token simply provides a discount on a product or service. Conveniently, these coupons can easily represent a discount on a future product or service, and they could be sold to help finance the development of that future product or service.
For many projects built on top of Ethereum, this coupon concept works particularly well: these projects can use ETH as their native currency for transaction or network fees, with an agreed upon reduction in these fees if a coupon is paid alongside these fees. These projects can then sell these coupon tokens (an Initial Coupon Offering?) to finance project development.
Lawyer friends — does any of this run foul of US security laws?
Thanks to Adam Kaufman, Colin Corgan, Kevin Chan and Noah Jessop for conversations and ideas that contributed to this post.