So a bit of Bitcoin history... Back in the early days, there were some online platforms that enabled people to buy/sell shares in online businesses (primarily Bitcoin-related businesses). Those platforms even had dividend systems.

Those platforms shut down for various reasons but primarily because regulators weren't happy about their existence and they were easy to shut down (e.g. the shares were stored in centralized databases).

Then Ethereum came along and its ERC20 tokens. Entrepreneurs were now able to use those decentralized shares that couldn't be confiscated or shut down. They were able to easily crowdfund their projects and buy/sell shares. No one could stop them, or so they thought...

In late 2017, the U.S. Securities and Exchange Commission (SEC) announced that it considered tokens used for that purpose just like regular securities, and so they were bound by the same rules and regulations. The cost of compliance made crowdfunding prohibitively expensive, difficult, and time-consuming for small-time entrepreneurs and businesses. So they had to stop using tokens for that purpose.

Despite the SEC's inability to seize the shares or shut them down, they were able to coerce entrepreneurs into abandoning their use. The only remaining option was to stay anonymous and illegal (but that's not always easy when running a business). Or was it really?

The SEC had carved out an exception for tokens that they considered "utility tokens", as opposed to "equity tokens". In order to be categorized as a "utility token", a token had to have utility outside representing ownership in a business. For example, tokens that represent tickets for a concert or event. Or virtual tokens used in a game.

In order to fall under the "utility token" category, entrepreneurs went to great lengths to design complex, and sometimes confusing, systems that somehow required a token.

For example, instead of building an app that would normally have accepted ETH/BTC as payment, they were now building apps that only accepted their token as payment. This was thought to be sufficient for a token to have utility and not be considered equity.

Imagine if McDonald's issued a limited amount of McDonaldTokens and only accepted McDonaldTokens as payment from now on. The value of McDonaldTokens would be tied to the demand for Big Macs. If McDonald's sales went up, McDonaldToken holders would see a return on their investment. The tokens would essentially behave a bit like company shares.

In other words, every crypto project having its own "token" was largely an unintended consequence of that SEC decision. Really, it incentivized entrepreneurs to build tokens that behaved like equities, without being classified as such. The tokens were often given utility in very convoluted and questionable ways. As they were not able to pay dividends directly to token holders, they also had to find all sorts of ways to achieve the equivalent (e.g. burning tokens).

This made it really hard to evaluate the real actual economic value of projects. So yeah, a lot of tokens with questionable utility started popping up everywhere. Many investors incorrectly evaluated those tokens as money instead of as equity. Money doesn't need fundamentals (e.g. income generation) to succeed but equity does.

In my opinion, if it had not been for that SEC decision, there would have been a lot less token speculation and more focus on creating real products and services. Personally, I hope investors will become more sophisticated, and start going back to analyzing fundamentals.

Thanks for coming to my TED talk.