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How to Build and Sell Software Effectively

· 4 min read

Building successful software requires both exceptional product development and strategic distribution. Here's a framework for achieving both.

Strategic Foundation

Vision & Mission

  • Vision: Define the future state you aim to create
  • Mission: Outline core actions driving toward that vision
  • Strategic Master Plan: Map key milestones from small wins to major goals

Build Process

Development Approach

  1. Start with PRFAQ (Press Release/FAQ) for customer alignment
  2. Leverage community feedback to identify pain points
  3. Set aggressive timeframes:
    • Features: 2 weeks max
    • Projects: 1 quarter max

Product Evaluation Framework

Track what we build and how they serve customers using a product map:

SolutionUse CaseJobs to Be DoneScore (Quality × Distribution)
[Feature grouping by audience or purpose][Specific feature][Scenario-driven task or goal][Impact assessment]

For example,

SolutionUse CaseJobs to Be DoneScore (Quality × Distribution)
Asset Mobility for Blockchain UsersBridgeFacilitate seamless transfer of assets across blockchain networks...
Transparency for Network ParticipantsCuckoo Scan (Mainnet)Provide users and developers with detailed mainnet transaction and block data...
Cuckoo Sepolia Scan (Testnet)Help developers explore and test in a sandbox environment...

Quality Assessment (Insanely Great Product Framework)

DimensionCore Question1 (Inadequate)3 (Good)5 (Insanely Great)
Magical ExperienceCreates delight?FrustratingPleasantUsers become evangelists
Aesthetic AppealThoughtful design?ClutteredCleanEssential, elegant
Technical ExcellenceSolves complex problems?BasicSolidMakes impossible effortless
Ecosystem FitSeamless integration?High frictionWorks wellOpens new possibilities
Market ImpactCategory transformation?Me-too productIncrementalCategory-defining

Distribution Assessment (Go-to-Market Framework)

DimensionCore Question1 (Inadequate)3 (Good)5 (Insanely Great)
Customer EngagementAttracts/retains?Poor retentionModerate loyaltyBrand evangelists
Brand PerceptionBrand strength?UnrecognizedTrustedIconic
Channel EffectivenessDistribution performance?Limited reachKey segments coveredWide, seamless reach
Marketing InnovationStrategy uniqueness?GenericSome uniquenessTrendsetter
Revenue GrowthSustainable growth?Minimal growthSteady growthMarket leader

Distribution Strategy

Early-Stage Tactics

  • Personalized outreach (cold DMs) - use strategically due to platform risks
  • Content-driven SEO (blogs + tools)
  • Carefully managed affiliate programs
  • Targeted lifecycle emails
  • Supplementary paid advertising

Best Practices

  1. Retention and Referral: Prioritize how to make the product sticky and easy to be recommended
  2. Continuous Feedback: Actively gather and incorporate user input
  3. Platform Selection: Use appropriate tools for each function

Measurement & Iteration

Continuously evaluate and adjust using tools above:

  1. Evaluate and score initiatives in the product master map
  2. Identify misalignments with vision/mission and user feedback
  3. Prioritize adjustments
  4. Update strategic plan as needed

With a centralized map detailing what, where, and how we serve customers—combined with metrics and market feedback—we can navigate iterations more confidently, ensuring every solution is well-managed and improvements are driven by clear, fact-backed insights.

Principles for Second 10 Years at Work

· 6 min read

Early career focuses on continuous learning, gaining specialized expertise, and building foundational leadership skills, while late career shifts toward creating strategic impact, mentoring the next generation, and leaving a meaningful legacy that shapes industries, communities, or personal networks.

1. Start with the customer

  • 1.1 Surface yourself to internal and external buyers and sellers through online and offline platforms
  • 1.2 Conduct customer interviews and gather feedback regularly
  • 1.3 Empathize with customer pain points and act as a proxy for customers
  • 1.4 Predicting and producing what the customer loves is hard, but we can always invent and simplify our product to a better state
  • 1.5 Prioritize features and initiatives that provide the most customer value
  • 1.6 Measure success with customer satisfaction metrics (e.g., NPS, CSAT)

2. Sharpen your communication skills

  • 2.1 Be genuinely interested in people and actively wonder what they are doing/needing/feeling
  • 2.2 Practice and rehearse clear, concise writing and speaking until you're fully prepared for interviews
  • 2.3 Adapt your communication style to suit your audience
  • 2.4 Continuously seek feedback to refine your communication skills
  • 2.5 Leverage storytelling to make complex ideas more relatable and engaging
  • 2.6 Use examples, metaphors, and narratives to simplify and humanize technical or abstract concepts
  • 2.7 Apply communication frameworks like Thank/Reflect/Wish, PREP (Point/Reason/Example/Point), AIDA (Attention/Interest/Desire/Action), and STAR (Situation/Task/Action/Result)

3. Focus on high-leverage, prioritized activities

  • 3.1 Score and identify tasks with the most significant impact on key objectives
  • 3.2 Use frameworks like Eisenhower Matrix or OKRs to prioritize tasks
  • 3.3 Automate or delegate low-impact tasks
  • 3.4 Review priorities regularly to ensure alignment with goals
  • 3.5 Build flexibility into your schedule by leaving space for unplanned activities, and compensate for intense periods with planned downtime

4. Accelerate learning through high-value channels, execution, and accumulation

  • 4.1 Learn by doing, sharing, and documenting: Take on new projects, challenges, and record key lessons
  • 4.2 Seek feedback from peers and mentors after each task, and incorporate it into a personal knowledge base
  • 4.3 Engage in inter-person communication to uncover hidden, tacit knowledge that is often only discovered through direct interaction
  • 4.4 Embrace failure as part of the learning process, fail fast, and capture insights to avoid repeating mistakes
  • 4.5 Continuously iterate on ideas and processes, building upon past successes and failures to compound learning over time

5. Ask high-value questions

  • 5.1 Challenge assumptions and conventional wisdom with first principles
  • 5.2 Guide strategic decisions by focusing on questions that reveal hidden insights and drive long-term impact
  • 5.3 Search for who is asking what questions globally to identify the most important questions
  • 5.4 Answers are cheap in the age of LLMs. Prioritize asking the right questions

6. Strategic thinking: from small wins to big wins

  • 6.0 Understand the history, status quo, and predict the future with long-term vision
  • 6.1 Break down large goals into smaller, actionable tasks
  • 6.2 Do not shoot for a moving target – maintain focus on clear, stable goals
  • 6.3 Collect data and establish benchmarks to evaluate success
  • 6.4 Identify areas where short-term wins can unlock long-term success
  • 6.5 Celebrate quick wins while keeping an eye on long-term goals
  • 6.6 Regularly review progress and adjust strategies as needed

7. Build allies

  • 7.1 Network widely to broaden your influence
  • 7.2 Help others succeed to build trust and reciprocity
  • 7.3 Collaborate across teams to expand your impact
  • 7.4 Stay in touch and offer support consistently
  • 7.5 Build trust through personal, in-person connections
  • 7.6 Exchange value in every interaction
  • 7.7 Stay active in key professional circles
  • 7.8 Nurture relationships for long-term mutual benefit

8. Stay resilient, optimistic, and pragmatic

  • 8.1 Focus on identifying the right problem and finding effective solutions when challenges arise
  • 8.2 Maintain a positive mindset, especially during setbacks (Reframing, expressing gratitude, etc.)
  • 8.3 Balance optimism with a realistic view of the situation by synthesizing

9. Influence without authority

  • 9.1 Build credibility by demonstrating expertise and delivering results
  • 9.2 Persuade through data and clear reasoning
  • 9.3 Leverage relationships to gain support for your ideas
  • 9.4 Be collaborative, listen to others, and align their goals with yours

10. Be assertive and open-minded

  • 10.1 Speak up confidently in meetings and discussions
  • 10.2 Seek feedback and adjust your approach if needed
  • 10.3 Advocate for your ideas but be willing to change if presented with better information
  • 10.4 Actively listen to others by mirroring, mentalizing, and showing genuine care
  • 10.5 Recognize the role of emotions in interactions and continuously improve your emotional intelligence (EQ)

11. Compete with focus and advantages

  • 11.1 Build a strategy based on specific market needs or niches you can dominate
  • 11.2 Identify and leverage your unique advantages (skills, location, resources)
  • 11.3 Focus on areas where you can outperform others with specialized knowledge or capabilities
  • 11.4 Anticipate future trends and invest in building advantages ahead of time
  • 11.5 Stay focused on your strengths and avoid unnecessary distractions
  • 11.6 Realize people can be both allies and competitors at the same time

12. Mentor and grow others

  • 12.1 Share your knowledge and expertise to help others succeed
  • 12.2 Offer guidance and feedback to team members regularly
  • 12.3 Create opportunities for others to take on new challenges
  • 12.4 Foster a culture of learning and development in your teams
  • 12.5 Leverage media and public platforms to inspire and educate others at scale

13. Stay approachable and flexible

  • 13.1 Remain accessible and responsive to buyers and customers at all times
  • 13.2 Be open to feedback and discussions with colleagues, buyers, and customers at all levels
  • 13.3 Maintain a friendly, open demeanor that encourages collaboration
  • 13.4 Adapt to changing situations without becoming rigid in your approach
  • 13.5 Stay calm and open-minded when unexpected challenges arise
  • 13.6 Be proactive so that the schedule is more favorable to the initiator

14. Lean in but avoid burnout

  • 14.1 Take initiative, but know your limits and learn to manage expectations
  • 14.2 Set boundaries to protect your personal time
  • 14.3 Regularly evaluate your workload, delegate where possible, and schedule regular downtime

15. Physical and mental well-being fuel everything else

  • 15.1 Make a checklist to monitor personal status regularly
  • 15.2 Maintain a regular exercise routine for MIIT, HIIT, Strength, and Flexibility exercises
  • 15.3 Prioritize sleep and proper nutrition
  • 15.4 Practice mindfulness or meditation to manage stress
  • 15.5 Take regular breaks to recharge, both mentally and physically
  • 15.6 Foster an environment where people love to live and work
  • 15.7 Learn to navigate your brain willfully through Relaxed, Focused, and Overheated states, and avoid Overheated states

16. Be creative and stand out

  • 16.1 Seek inspiration from different fields and industries
  • 16.2 Challenge assumptions and ask "what if" questions
  • 16.3 Experiment with different methods and technologies

BlockEden.xyz High-Availability Delegated Blockchain Node Infrastructure

· 5 min read

Node operation made easy with a reliable infrastructure

BlockEden.xyz introduces an advanced blockchain node infrastructure, enhancing the reliability and performance of blockchain operations. This development empowers customers to manage blockchain nodes easily and efficiently, ensuring the high availability and robustness of their blockchain applications.

Blockchain node operation often encounters issues like network instability, uptime monitoring, complex setup processes, and high maintenance costs. These challenges pose significant hurdles for businesses and individuals seeking to leverage blockchain technology.

BlockEden.xyz's delegated staking infrastructure offers a state-of-the-art solution to these challenges. This high-availability blockchain node infrastructure simplifies node setup, reduces operational costs, and ensures stable and consistent network performance. This makes blockchain technology more accessible and practical for a broader range of users.

BlockEden.xyz has an impressive track record, starting with Aptos and maintaining 99.9% uptime since its mainnet launch. Our services have expanded to include Sui, Solana, and 12 EVM blockchains, demonstrating our adaptability and commitment to staying at the forefront of the industry. With over $45 million worth of tokens staked with us, our clients trust us to provide reliable and secure solutions for their web3 and blockchain needs.

What is BlockEden.xyz’s Offering of the Delegated Staking Infra?

  1. Integrating with new networks.
  2. Managed/delegated services to run blockchain nodes, including maintaining a service-level agreement, status monitoring, active on-call, and failover.
  3. Develop tools to improve efficiency, e.g., distributing rewards.

Internal FAQs

What are the OKRs for Delegated Staking Infra Trying to Achieve?

Goals:

  • Build a reliable, safe, extensible, and cost-efficient delegated staking infrastructure to sustainably generate revenue streams for BlockEden.xyz.
    • Reliable: the delegate node should have high availability.
    • Safe: the funds delegated to us should be safe.
    • Extensible: the infra should be reusable to expand to another blockchain network.
    • Cost-efficient: the infra machine cost should be covered by the delegate revenue.
ItemsKey Results
SLO server uptime99.9%
New network onboarding time<= 2 weeks for EVM chains

Why is Delegated Staking Infra Important to BlockEden.xyz?

  • It’s the revenue-generating program, bringing resources to do more strategic infra work.
  • It’s an essential infra component to serve chain RPCs, particularly for latency-sensitive use cases.

How Can Delegated Staking Infra Fail? Would it Cause Customer Dislikes?

  • Failures in delegated staking infrastructure primarily occur due to service disruptions and server downtime. These issues can prevent customers from staking tokens or lead to reduced rewards due to slashing penalties. Such disruptions often result in customer dissatisfaction due to unmet expectations of consistent earnings and reliable service.

What are the Dependencies?

  • Network Selection: The chosen blockchain network plays a critical role. Different networks may have varying protocols, reward structures, and security requirements.
  • Initial Funding: To participate as a validator in the staking process, an initial investment or fund is required. This amount varies depending on the network's criteria and serves as your stake in the network.

What are the Risks?

  • Fund Safety: Ideally, we should make a product that doesn’t bear the liability for the customer's fund. However, it largely depends on the blockchain's features, e.g., isolation of token owner and node operator permission.
  • Crypto Market Volatility: In a sudden crypto price crash or bearish market, the token rewards might be short to cover the machine cost. A liquidation plan should be in place to ensure funds are secured to operate the infra.

How to Use this Staking Infra?

  • BlockEden.xyz offers comprehensive documentation for getting started with our staking infrastructure, including step-by-step guides for both manual staking processes

Why does staking infra matter to me?

  • Ease of Access: You can easily participate in staking and enjoy its benefits without needing deep technical knowledge or extensive resources.
  • Flexibility for Future Growth: We provide the capability for future technical integrations with your needs, ensuring that as your staking needs evolve, our infrastructure can accommodate them.

How to use this staking infra?

  • To get started with our staking infrastructure, BlockEden.xyz offers comprehensive documentation. This includes step-by-step guides for both manual staking processes and technical integrations.
  • We're committed to supporting your journey, addressing concerns and fulfilling requirements as they arise, ensuring a smooth and effective staking experience.

How do I know if this staking infra is the right solution to my problem?

  • To assess if our staking infrastructure suits your requirements, we recommend a phased approach. Start by trialing our service with selected networks. Monitor performance and stability over a set period. Based on this experience and the proven results obtained, you can then evaluate the effectiveness of our solution. This data-driven approach allows for informed decision-making and helps forecast potential future revenues, ensuring alignment with your business objectives.

Exploring CES 2024: Software Innovations, Trends, and Insights

· 6 min read

CES 2024 was bustling with excitement, drawing a massive crowd and featuring a wide range of exhibitors covering everything from consumer electronics products and services that cater to both the general public and professionals, permeating all aspects of work and life.

For those hoping to discover groundbreaking new products, you might be left wanting. The real buzz in recent years seems to center around Open AI's announcements, with their innovations having the potential to disrupt entire industries. The multitude of products on display here leverage less glamorous technology in new combinations to address existing or potential problems more efficiently, more powerfully, lighter, and sleeker. If you have something new that can help consumers, this is the place to showcase it.

I'm not an avid electronics enthusiast, but rather an early majority pragmatist on the Technology Adopt Lifecycle who cares about solutions that genuinely solve problems. I casually observed categories like cars, TVs/monitors, speakers and headphones, fitness bands, and medical devices, enjoying the fair-like atmosphere—your car can fly and dig, your robotic arm can make latte art, but what does that have to do with me? However, appreciating the design of electronic products, the sheer excitement and fun of sound and light, and understanding what electronic machinery can achieve at certain costs and price points is enlightening.

I found the startup and AI areas most intriguing and paid them the most attention. Software, FinTech, Web & Mobile Apps, and productivity tools for personal and corporate use were interspersed among the various hardware solutions.

AI

Rabbit R1 appears to be the only notable portable LLM hardware, lacking a booth but generating significant interest. It's puzzling why one would need a dedicated hardware for AI apps when a smartphone can perform the same functions, and possibly even better. Insights from experts are welcome.

booth.ai employs generative AI to assist e-commerce in photo editing: upload product photos and input text descriptions to generate images, such as adding backgrounds, changing people, or altering poses.

AiD / Cream creates detailed comic images and colors based on artists' sketches. A demo I tried showed impressive results, although the comics weren't overly complex.

Plaud Note, a card attached to the back of a phone for real-time recording, addresses the iPhone's inability to record and uses AI to quickly generate summaries. The product is well-made but not cheap.

vcat.ai generates marketing videos from the details of your product webpage. Although it sounds fancy, the URL merely imports materials from the web page, requiring manual template selection and adjustments in their system afterward.

Keeneat.com offers background music generation for creative professionals, along with a marketplace. This seems marketable, given the increasing number of video creators and the limited, expensive stock music available.

Blovo ChatGPT for animals allows you to inquire about anything pet-related.

FinTech & Enterprise

FinTech's visibility at CES was surprisingly low, with only five companies present, one of which was absent. The largest booth belonged to South Korea's Shinhan Bank, proud of their many years at CES. Their interest in CES stems from showcasing cashier machines as human teller replacements, aligning with the trend towards banking digitization and automation. The biggest challenge mentioned was adapting the UI/UX for older users, as high-net-worth VIP customers are not their primary target.

Woongjin is Korea's leading rental and subscription management system, integrating finance, payment, and insurance solutions, serving many large Korean conglomerates.

Blockchain

veintree (press release) offers identity verification through vein patterns on hands, claiming advantages over iris recognition in terms of anonymity and not requiring specialized equipment. It's being explored as a factor in multi-factor authentication, similar to Windows Hello and Face ID, and is seeking blockchain partnerships, like with Solana, to create a hand-based Worldcoin.

Fog Hashing sells Bitcoin mining machines for home use and professional data center solutions. Due to high electricity costs in California, they recommend mining in other states.

Flux token, an L1 PoW blockchain, supports distributed data centers running data storage, CMS, docker droplets, etc., serving as a platform for censorship-resistant DApps.

Pay.cool is an open-source decentralized crypto payment network from China, enabling consumers to pay merchants with cryptocurrencies. The app's design and their unclear offerings were noted during a conversation, though they are seeking mining partners.

DeluPay from France offers crypto payment solutions. Only their business card was seen, with their website in French, indicating incomplete internationalization.

Health

There were numerous Sleep Tech products, such as motionsleep's snore-control pillows, bokuk's temperature-regulating duvets, frenz's brainwave-monitoring and bone-conduction music headbands, and Lumos tech's sleep masks.

eclypia introduced a non-invasive glucose-monitoring watch.

aqara uses AI and spatial technology to improve elderly care.

Maintaining good physical health and sleep habits is an effortless way to save money. Good health is invaluable.

Tips for Exhibitors

Exhibit location matters: Avoid corners, small meeting rooms, and dead-ends with low foot traffic. Being in the main hall with popular exhibitors is more effective.

Pre-scheduling meetings and using hotel suites for product displays or business discussions can be a cost-effective strategy.

Hardware is easier to exhibit, especially with performance aspects, unlike software, which relies on engaging taglines, flyers, and demos to attract attention. Descriptive scenes and explanations are essential for less obvious hardware.

Exhibitors engrossed in their phones or in private conversations deter visitor engagement.

Sharing a booth among similar businesses, though unofficial, can help manage budgets.

Booking CES space early is crucial; arrangements can usually be made if plans change.

Branding should be visible to assist visitors with note-taking and photos.

If your demo is impressive, include your booth location on materials to attract more visitors through secondary sharing.

Tips for Attendees

Keep an open mind: Exhibitors are seeking industry connections. Criticism should be reserved as many are there to find or offer solutions within the industry.

The Innovation Awards can help narrow down interests amid the overwhelming variety of products.

Evening events and after-parties offer leisure and networking opportunities distinct from the more formal daytime exhibitions.

Protect your CES badge; replacements are costly.

General Observations

South Korea's presence was notably strong, driven by their need for international markets. Their broad category representation and the dedication of individual exhibitors, including non-English speakers, were impressive.

Apple's absence makes sense, given their ecosystem could overshadow many smaller exhibits.

SQPV glass presents solar panels as glass, though the appearance is somewhat grey, potentially fitting for skyscrapers with lower light transmission requirements.

ProtoHologram impressively projects holograms into a display box.

Elon Musk's Boring Company has a loop under LVCC, offering a unique but ordinary tunnel ride experience, only made notable upon realization of its significance.

Conclusion

For consumers, CES 2024 is a haven for electronic enthusiasts to experience and purchase products at discounted rates. It may not cater well to those already familiar with the market and looking for niche advancements.

For businesses, it's an ideal venue for hardware manufacturers and e-commerce to build supply chains and find collaborations, less so for pure software companies.

How to be an illuminator?

· 3 min read

An Illuminator is someone who has a significant and positive impact on the people around them through their interactions and communication style. Key characteristics of an illuminator include:

  1. Persistent Curiosity about Others: Illuminators are genuinely interested in other people. They continuously seek to understand others more deeply.
  2. Skilled in Understanding People: They have either innate talent or have developed the skill to understand others. This involves knowing what to look for in conversations and how to ask the right questions at the right time.
  3. Making Others Feel Valued and Seen: Illuminators have the ability to shine their attention and care on people, making them feel respected, acknowledged, and important.
  4. Bringing Out the Best in Others: Through their interactions, illuminators help people become better versions of themselves. They encourage others to be more honest, sharp, and to realize aspects of themselves they might not have articulated before.
  5. Creating a Sense of Empowerment: Islluminators have the ability to make others feel clever and important. This contrasts with diminishers, who make people feel small and unseen.
  6. Enhancing Productivity and Creativity: Illuminators can significantly boost the productivity and creativity of those around them, simply by being good listeners and engaging thoughtfully in conversations.

A Diminisher, in contrast to an Illuminator, is a person who negatively impacts those around them through their interactions and behaviors. They tend to make others feel small, unimportant, or unseen, often focusing self-centeredly on their own needs and interests.

How do illuminators have great conversations?

To be an effective conversationalist or an "illuminator," one must focus on deeply engaging and understanding others. Here are key takeaways:

  1. Mutual Engagement
    • Engagement is Key: Deep engagement in understanding others' thoughts and perspectives.
    • The Art of Conversation: Fostering two-way exchanges for mutual exploration and understanding. Being present and actively participating in conversations.
  2. Active Listening and Seeking Depth
    • Developing listening skills like full attention and physical engagement (nodding, eye contact).
    • Encouraging free expression and supporting the sharing of stories and experiences.
    • Specificity and Depth: Good conversations involve asking specific questions that encourage others to share detailed stories and personal experiences, helping them articulate their feelings and thoughts more vividly.
  3. Empathy and Understanding
    • Handling Pauses: Embracing pauses for thoughtful reflection and deeper understanding.
    • Looping for Clarity: Repeating or paraphrasing for clarity and confirmation of understanding.
    • Finding common ground in disagreements and prioritizing empathy over being right.
    • Keep the gem statement at the center, even though there are disagreements.
    • Don't be a Topper: Avoiding overshadowing others' experiences with your own.
  4. Facilitating Self-Discovery and Expression
    • Midwife Model: Assisting in others' process of self-discovery and expression.
    • The Importance of Being Listened To: Ensuring interactions make individuals feel heard, understood, and valued.

Being a good conversationalist is about creating a mutual journey of exploration, understanding, and deep listening, where both parties feel heard and valued.

Conducting User Interview

· 3 min read

User interview is a comprehensive process to find out and understand users, their problems, and potential areas for product improvement.

  • Objectives of User Interviews:
    • Refine hypotheses about the user: Understand their profile, motivations, and relationship with the product.
    • Clarify the user's problem: Grasp the problem in the user's words, its severity, and their current solutions or workarounds.
    • Identify potentially more valuable problems: Explore if other issues might be more critical to address.
  • Focus of Interviews:
    • Interviews should center on understanding problems from the user's perspective.
    • Avoid exploring potential solutions to prevent bias and leading the user.
  • Common Pitfalls:
    • Insufficient warm-up, leading to missed insights.
    • Leading questions that bias towards preconceived hypotheses.
    • Strict adherence to a script, missing new and valuable information.
  • Interview Trail Guide Framework:
    • Warm-up Phase: Build rapport and foundational understanding of the user. Small talks to introduce the team and the research. Ask for approval for recording. Emphasize that there are no right or wrong answers.
    • Build Phase: Gradually approach the problem hypothesis, allowing users to express their views, from general experiences to specific experiences.
    • Peak Phase (2/3 of the time): Deep dive into specific problem-related questions. Are we disucssing the right problem? Are users approaching the problem with any alternative ways? How painful is the problem?
  • Conducting the Interview:
    • Start with rapport-building questions.
    • Gradually narrow down to the specific problem.
    • Allow space for unexpected insights and follow up on them.
    • Spend substantial interview time in the peak phase, focusing on the hypothesized problem.
  • Final Steps:
    • Prioritize emerging problems during the interview.
    • Structure interviews to adapt to new insights and user feedback.

Examples

  1. Doordash:

    • Warm-up Phase: Questions might start broadly, touching on general lifestyle and habits, such as weekend routines and eating habits.
    • Build Phase: Narrowing down to food delivery experiences, with questions like why and how users order food delivery, their typical order times, and their general experience with food delivery.
    • Peak Phase: Specific questions about Doordash’s service, such as frequency of use, user experience with Doordash’s delivery time, and alternatives they resort to when delivery times are long. The goal is to assess whether their hypothesis about delivery time being a pain point is accurate.
  2. Rippling Employee Onboarding:

    • Build Phase: Questions might start with general feelings about onboarding new employees, tools or systems currently used, and issues faced with these tools.
    • Peak Phase: Focus on specific problems identified, like steps taken to onboard a new employee, tracking various requirements and deadlines, and the impact of current practices on the onboarding experience.

The Art of Empathy

· 11 min read

Recognition is Humanity's Primary Pursuit

The "still-face experiment" is a psychological experiment in which a caregiver (usually a mother) and her infant engage in normal face-to-face interactions, such as smiling, talking, and making eye contact. Then, the caregiver suddenly changes her behavior, maintaining a still, expressionless face (the "still-face"), and stops responding to the infant's actions. This change typically leads to noticeable stress responses in the infant, such as anxiety, agitation, or crying. After a period, when the caregiver resumes normal interaction, the infant usually gradually returns to the behavior exhibited at the beginning of the experiment.

Infants who are long neglected by their caregivers may develop a crisis of existence, which can cause lasting emotional and psychological harm.

Cold Family Relationships Build Emotional Walls

The quality of relationships determines the quality of life, and childhood relationships can have a lasting impact on one's quality of life.

Children coping with a harsh upbringing may unconsciously develop these four defense mechanisms:

  1. Avoidance: This is a defense mechanism born out of fear. Individuals choose to minimize emotions and relationships due to the harm caused by emotional and interpersonal connections. Such individuals feel most comfortable in superficial exchanges, tend to over-rationalize life, escape into work, strive for self-sufficiency, and pretend they have no needs. They often lack close relationships in childhood and hold low expectations for future interpersonal connections. These individuals may constantly be on the move, unwilling to settle down or be tied down; sometimes they may be overly proactive to avoid showing vulnerability; they manage to make themselves the strong ones others depend on but never seek help from others.
  2. Deprivation: Some children grow up around self-centered adults whose needs are ignored. Such children naturally learn the lesson that "my needs will not be met," which can easily transform into "I do not deserve to have." Those troubled by a deprivation model may feel worthless even after achieving remarkable success. They often carry the belief that there is some defect deep within them that, if known by others, would cause them to be abandoned. When treated poorly, they tend to blame themselves.
  3. Overreactivity: Children who grow up in dangerous environments often have an overactive threat detection system deep within their nervous systems. Such individuals interpret ambiguous situations as threats and perceive neutral faces as angry ones. They are trapped in an overactive mental theater, feeling that the world is full of danger. They overreact to situations without understanding why they do so.
  4. Passive Aggression: Passive aggression is an indirect expression of anger. It is a way for someone who fears conflict and struggles to handle negative emotions to avoid direct communication. Such individuals may grow up in a family where anger is frightening, emotions are unresolved, or love is conditional, learning that direct communication leads to withdrawal of love. Thus, passive aggression becomes a form of emotional manipulation, a subtle power game to extract guilt and love. For example, a husband with passive-aggressive tendencies might encourage his wife to go out with friends for the weekend, seeing himself as a selfless martyr, but becomes angry with her days before the outing and throughout the weekend. He will use various withdrawal and self-pitying behaviors to make her feel like a selfish person while portraying himself as the innocent victim.

The Dual Nature of Defense Mechanisms

These defense mechanisms do not always have negative impacts; they can be a form of overcompensation that leads individuals to extremes, and those who go to extremes may find it easier to achieve worldly success—many successful politicians, for instance, learn from childhood that life is a battle against injustice. Darkness gives them status, power, self-esteem, and resilience.

However, these benefits do not mask the problems caused by these defense mechanisms:

  1. Irrational hostility. They may believe that "all criticism and opponents are not only wrong but also evil."
  2. Individuals can be ensnared by their mechanisms. They may find themselves unable to control irrational actions.
  3. Old mechanisms become outdated. Old habits cannot adapt to the new era (conceptual blindness), such as fighting a modern war with the mindset of cold weapon warfare from World War I, leading to heavy casualties.

Repairing Issues? Communication is More Effective than Introspection

For various reasons, trying to repair the defense mechanisms stemming from a dark childhood through self-reflection often yields poor results. Communication with an external perspective is a more effective choice.

This is where empathy shines. Empathy is crucial at every stage of "knowing a person," and it is especially necessary when accompanying someone through trauma.

Empathy Sounds Easy but is Hard to Practice

If empathy is merely "I feel for you," it indeed sounds easy. However, empathy is a combination of a series of social and emotional skills. Some people are naturally good at these skills, but everyone can improve through practice.

Empathy involves at least three related skills:

  1. Mirroring
  2. Mentalizing
  3. Caring

Mirroring Emotions

People experience emotions in every moment of wakefulness through interactions with the external world. These emotions can be pronounced or subtle. The generation of emotions begins with sensations from every part of the body, transmitted through nerves to the brain, where they are monitored and recognized.

Historically, emotions were once considered a bad thing. For thousands of years, philosophers believed that reason was separate from emotion—reason was the cold, prudent driver, while emotion was the uncontrollable wild horse. This understanding is flawed.

In reality, emotions carry information. When not out of control, emotions are flexible mental abilities that help you navigate life. Emotions assign value to things: they tell you what you want and what you do not want. You pursue out of love and distance yourself out of disdain. Emotions help you adapt to different situations: when you find yourself in a threatening situation, you feel anxious, prompting you to quickly seek danger. Emotions also inform you whether you are moving toward your goals or away from them.

Thus, to understand a person, we should not only understand what they are thinking but also how they feel. These feelings are reflected in the other person's face, eyes, demeanor, and other parts of their body.

Masters of emotional mirroring can quickly experience the emotions of the person in front of them and can rapidly reproduce those emotions in their own bodies. Those skilled in emotional mirroring respond to smiles with smiles, yawns with yawns, and frowns with frowns. They unconsciously adjust their breathing patterns, heart rates, speaking speeds, postures, gestures, and even vocabulary levels to align with the other person. They do this because a good way to understand what another person feels in their body is to experience that emotion in your own body to some extent. Those who have received Botox injections and cannot frown may find it more difficult to perceive others' concerns because they cannot physically reproduce that emotion.

Masters of emotional mirroring have higher emotional granularity, allowing them to finely distinguish different emotional states and experience the world more precisely. They can accurately classify similar emotions: for example, anger, frustration, stress, anxiety, worry, and agitation.

Masters of emotional mirroring build a broad emotional vocabulary through reading literature, listening to music, and reflecting on relationships, enabling them to draw upon it skillfully in life, much like a painter having a wider palette of colors.

Mentalizing Emotions

Most primates can more or less mirror each other's emotions, but only humans can explain why the other person is experiencing their current emotions. This is also known as "projective empathy." When we connect our own memories with another person's current situation, we see more than just "this woman is crying"; we see "a woman who has suffered professional setbacks and public humiliation."

More advanced mentalizing helps us recognize the complexity of emotional states—people can experience multiple emotions simultaneously, and this complexity allows us to detach from empathy and make judgments.

Caring for Emotions

Many con artists are skilled at interpreting people's emotions, but we wouldn't say they are empathetic because they do not genuinely care for others. A child might see you crying and hand you a Band-Aid, but they cannot mentalize that you are crying because you had a tough day, nor can they know what you truly need at that moment.

Effective caring involves stepping outside of one's own experience and realizing that what you need in the same situation may be completely different from what I need. This is challenging; the world is full of "good people," but there are far fewer "effectively kind people." For instance, while some may need alcohol to cope with anxiety, others may need a hug.

Using the skill of caring for emotions, when you receive a gift from someone, write a thank-you note that focuses not on how you will use the gift but on the giver's intentions—what drove you to think this gift was suitable for me, and what you were thinking.

Similarly, cancer patients prefer "those who hug you, praise you, but do not make you feel like you are attending a funeral. Those who give you gifts unrelated to cancer. Those who just want to make you happy, rather than trying to fix you, reminding you that this is just another beautiful day with many interesting things to do."

Levels of Empathy

People with low empathy may think:

  • I find it difficult to know what to do in social situations.
  • If I am late to meet a friend, it usually does not bother me too much.
  • People often tell me that I overdo it when I am making a point in discussions.

People with high empathy may think:

  • Even if it does not involve me, interpersonal conflict is a physical pain for me.
  • I often unconsciously mimic the gestures, accents, and body language of others.
  • When I make a social mistake, I feel extremely uncomfortable.

In any field, truly creative thinking is simply this: a naturally exceptionally sensitive human being. For them, a touch is a blow, a sound is noise, a misfortune is a tragedy, a hint of joy is ecstasy, a friend is a lover, a lover is a god, and failure is death. Add to this fragile being a strong necessity for creation, constantly creating, creating, creating... Due to some strange, unknown inner urgency, they only truly live when they create.

-- Pearl S. Buck

High empathy sounds exhausting, but isn't it also moving? :)

How to Train Yourself to Increase Empathy?

  1. Contact Theory: Organize a group of people to do things together to build bonds and promote mutual understanding. A community is a group of people with shared projects.

  2. Observation and Performance: When people closely observe those around them, they become more empathetic. Actors are particularly good at observing and mimicking people; if you want your child to be more empathetic, encourage them to take drama classes at school.

  3. Literature: Plot-driven books like thrillers and detective stories are less effective; what works are complex, character-driven novels like "Beloved" or "Macbeth."

  4. Discovering and Labeling Emotions: Occasionally pause to use Marc Brackett's mood map and the RULER (Recognize, Understand, Label, Express, and Regulate their emotions) method to identify, understand, label, express, and regulate emotions. Teams led by emotionally intelligent bosses report feeling inspired 75% of the time, while teams with lower emotional intelligence report only 25%.

  5. Experiencing Suffering. Many truly empathetic people have experienced suffering but have not been crushed by it; they do not develop excessive defense mechanisms but instead expose their vulnerabilities to life and speak openly like heroes.

Conclusion

In summary, emotions are embodied, and empathy is not an intellectual activity but training your body to respond in an open and interactive way. The "rational brain" cannot persuade the "emotional body" to escape its own reality; thus, the body must personally experience different realities. Those with empathy can provide this physical presence.

Perception influences emotion, and emotion also affects perception. For example, when feeling afraid, our ears focus on high and low frequencies—the frequencies of screams or roars—rather than the medium frequencies of normal human speech. Anxiety narrows our attention and reduces our peripheral vision; happiness expands our peripheral vision.

Those who feel safe due to the reliability and empathy of others see the world as a broader, more open, and happier place.

And suffering is the badge of honor for practitioners of empathy. Playwright Thornton Wilder once described such a person's remarkable presence in the world: "Without your wounds, where would your power be? It is your regrets that make your low voice tremble into people's hearts. Even angels cannot persuade those suffering and clumsy children on earth, but those crushed by the wheels of life can. Only wounded soldiers can serve love."

Money20/20 Takeaways

· 3 min read

1. Technology Trends and Observations:

  • Shift from "blockchain-powered" to "AI-powered" company claims.

  • Emphasis on AI, machine learning, and blockchain as tools, not business models. Their value depends on their application in products and economic models.

    • Ramp & Finix's AI application on analytics, reporting, and expense automation.
  • Generative AI's potential in reducing labor costs and the challenge to differentiate genuine AI usage from PR hype.

    • Publicly available large models cannot satisfy the specific and refined needs of fintech institutions.
    • The financial sector resists the "black box" nature of previous AI generations and hasn't fully embraced them with the arrival of Gen AI.
    • Institutions should build their own mid-sized models using their data.
    • They should adopt Gen AI's interactive patterns to enhance the experience of existing products.
    • The current goal is to improve products rather than inventing new Gen AI products from nothing.

2. Industry Insights:

  • Insights from Cannabis Banking Summit: Challenges and opportunities in cannabis banking. Engagement with cannabis leading banks and credit unions to enhance risk management and compliance.

    • "Too much cash in our community is a problem", which is inconvenient, expensive, and often dangerous.
    • Working in the challenging realm of cannabis banking fosters the development of robust compliance, governance, and risk management systems, a point underscored by several bankers who have leveraged this expertise to branch into similar high-risk sectors like online gaming and crypto.
  • Pay-by-bank has emerged as a popular payment method that offers a convenient and secure way for customers to make online purchases directly from their bank accounts.

3. Political and Regulatory Influence:

  • Regulatory processes in the U.S. are slow, with a prediction of a 3-5 year adjustment period for banks heavily involved in "banking as a service."
  • The regulatory focus is mainly on the Bank Secrecy Act (BSA) and anti-money laundering (AML) concerns.
  • The increasing cost of compliance in the "banking as a service" space and the challenged promise of middleware platforms to reduce these costs.
  • Banks are signing up for FedNow, but they're mostly only signing up to receive payments, not to send them.

4. Banking as a Service (BaaS) and Open Banking:

  • Rise in "banking as a service" discussions with a perception of it being problematic rather than positive.
  • Open banking's proactive approach in educating policymakers contrasts with the lack of momentum for "banking as a service."
  • Skepticism around the extent and impact of open banking, especially its ability to facilitate account switching.
  • Debate around standard-setting bodies and the belief that Fintech companies haven't been involved enough in shaping these standards.

5. Compliance, Compliance, Compliance. Dodd-Frank Act Section 1033 – Consumer Access to Financial Records

  • Financial Data Exchange (FDX) will become the standard-setting organization for open banking.
  • Big tech firms like Apple face challenges with rules requiring data sharing for companies with over $10 billion in annual revenue.
  • Anticipation of bi-directional data sharing between banks and fintechs leading to further debates.

How Does QuickNode Make Money?

· 6 min read

In the bustling world of blockchain and decentralized applications, QuickNode has established a strong position. This document will comprehensively explore QuickNode's business model, competitive landscape, potential drawbacks, and key strategies for facing off against this blockchain player.

QuickNode's Business Model - The Secret to Success

QuickNode offers outstanding performance, with speeds 2.5 times faster than competitors. This speed is not just a claim; it is backed by actual performance metrics that you can check on their comparison page.

With the flexibility to handle over 15 chains and an incredible 99.99% uptime—along with SLA guarantees—QuickNode provides unparalleled reliability in this field. Additionally, they have successfully attracted major companies like Google, Visa, Adidas, and Coinbase. They have also drawn long-term internet investors, including 776 Ventures, Tiger Global, and Softbank.

Four Pillars of Revenue

Node Management

QuickNode's node management platform is the company's flagship product and primary source of revenue. Utilizing a dual-layer model, it offers options for developers and businesses seeking self-service, while also providing enterprise-level solutions for larger companies. This approach caters to a wide range of customer needs, from small startups to industry giants.

  • Self-Service Options: This is an ideal choice for developers or small organizations that need immediate access to blockchain networks. It provides flexibility and control, allowing them to deploy nodes and manage their applications as needed.

  • Enterprise-Level Solutions: For larger companies with more complex requirements, QuickNode offers tailored solutions. This package includes advanced analytics, priority support, and guaranteed uptime. The personalized nature of this solution allows enterprises to focus on building their products without worrying about node management.

Icy Tools - NFT Development

Icy Tools, as the next pillar of QuickNode, provides unique tools for NFT development. With the explosive growth of the NFT market, the demand for tools that simplify the creation, management, and trading of NFTs has surged. QuickNode's Icy Tools offer developers an efficient and intuitive way to enter this thriving market, generating significant revenue for the company.

App Marketplace

QuickNode's app marketplace is another key source of revenue. It hosts a variety of applications built on QuickNode's infrastructure, providing a platform for other businesses and developers to sell their products. QuickNode earns revenue through commissions and listing fees. This marketplace not only provides QuickNode with a vibrant ecosystem but also offers value-added services to their node management customers.

Network Integration Fees

Finally, QuickNode generates revenue from network integration fees. Given the continuous expansion of blockchain protocols, integrating new networks is an ongoing process. QuickNode charges businesses and developers for this service, granting them seamless access to emerging protocols.

Each pillar plays a crucial role in QuickNode's revenue model, leveraging different aspects of the blockchain landscape to ensure the company's ongoing financial health. Their diversified revenue streams help them maintain resilience and adaptability, ready to face the dynamic challenges of the industry.

Rapid Business Growth

QuickNode showcases strong growth metrics, highlighting its increasingly prominent position in the market. In 2022 alone, the company witnessed a quarterly growth of over 40% in enterprise revenue, demonstrating sustained demand for its products.

Platform usage, a key indicator of product adoption, grew by 550% over the past year. Net revenue also increased, showcasing a year-over-year growth of 370%.

Furthermore, QuickNode's user base is expanding, with new account registrations up 177% year-over-year. Additionally, endpoint deployments saw a year-over-year increase of 264%, proving the company’s growing operational scale and efficiency.

Competitive Landscape - Real-World Challenges

Now, let’s delve into the heart of the matter. While QuickNode leads the node creation/connection market, it is not without competition. Rivals like Amazon, Microsoft Azure, and IBM are eyeing this space, posing potential threats to QuickNode's dominance. However, due to its industry-leading speed and flexibility, QuickNode has managed to maintain its position and has earned high praise from customers. But is that enough to keep it ahead in this high-stakes game?

The Alchemy Dilemma

Alchemy, with its Silicon Valley background and strong investor support, is an intriguing competitor. While it brings a lot to the market, it still falls short of QuickNode in terms of speed and product offerings. However, Alchemy's Silicon Valley connections and market buzz could play a role in the node battle. Its market valuation has reached $10.2 billion, and it is rumored to have a valuation and revenue multiple of 120x - 200x.

Infura - The Fading Star

Infura entered the arena as a pioneer focused on Ethereum node RPC. However, after being acquired by ConsenSys, it seems to have lost momentum. Despite supporting six chains, its speed still lags behind QuickNode.

Coinbase Cloud - The Dark Horse

The acquisition of Bison Trails put Coinbase Cloud on the map, but rumors suggest that Coinbase is dissatisfied with the results and may abandon the business. Additionally, the lack of publicly available speed data keeps it shrouded in mystery.

BlockDaemon - A Specialized Competitor

BlockDaemon distinguishes itself by focusing on one area—institutional-grade staking—making it less developer-friendly compared to QuickNode's primary focus.

Is QuickNode Underperforming?

Not at all. It’s more about the vast ocean of opportunities that its competitors might dive into. Just like saying, even with the best players, you can’t win every time. This field is large enough for many players to participate, each with its unique strategies. Don’t forget—blockchain is about decentralizing power, not centralizing it. Therefore, no single player can dominate this space.

The Team Behind QuickNode - The Wisdom of Operations

The QuickNode team brings a rich skill set to the table, thanks to their past experience in managing hosting and CDN scaling businesses. However, it’s important to note that their competitors also possess unique advantages, networks, and experiences.

Comparing BlockEden.xyz with QuickNode

BlockEden.xyz effectively competes with QuickNode using the following strategies.

  1. Offering Unique Services: First, BlockEden.xyz can provide unique APIs or blockchain services that QuickNode does not offer, such as Aptos and its indexer, Sui and its indexer. By identifying and filling the product gaps of QuickNode, BlockEden.xyz positions itself as a unique, comprehensive solution.
  2. Competitive Pricing: Another way to compete is through pricing. BlockEden.xyz offers a more competitive pricing model, making it more affordable for smaller businesses or developers. A flexible, scalable pricing model can attract a broader customer base, from startups to enterprise-level organizations.
  3. Exceptional Customer Service: Providing excellent customer service and technical support is another effective competitive strategy. Quick response times, helpful resources, and knowledgeable support staff are crucial for customer satisfaction and loyalty.
  4. Partnerships and Integrations: BlockEden.xyz seeks to establish partnerships with other blockchain platforms or services to create integrations, making it more appealing to customers. These partnerships can expand BlockEden.xyz's reach and functionality.
  5. Community Engagement and Developer Support: QuickNode has a strong developer community. BlockEden.xyz can compete by fostering a similar community and developer DAO 10x.pub, providing robust support and nurturing an ecosystem where developers and users can contribute to and improve the platform.

The key to our successful competition may not necessarily be about beating QuickNode at its own game, but rather providing unique value that QuickNode does not offer. We are looking for areas where BlockEden.xyz can excel and focusing on delivering unique APIs and exceptional services to this market.

Regulatory Storm: Dilemma and Opportunities in the Crypto Industry

· 40 min read

Author: Phoenix Capital Management

Translator: BlockEden.xyz Team and Payton Chat

📌 A deep dive into the regulatory disputes and legal issues the crypto industry faces in the past, now, and predictably in the future.

TL;DR

  • In the Ripple case, a partial victory was achieved in the programmatic sales, avoiding being recognized as securities sales. We have carefully analyzed the court's ruling logic and believe that there may be quite obvious errors in fact recognition, which has a high possibility of being overturned later.
  • We've examined the historical origins and basic connotations of securities law, and believe that tokens narrated as "the project team is doing their job" are close to the securities law definition. Thus, a reasonably high proportion of tokens may be recognized as securities in the future. However, the current SEC's regulatory demands further exceed the reasonable scope of securities law.
  • Staking/yield farming is more likely to be considered securities than token sales.
  • Compared to the regulation of CeFi, the regulation of DeFi is at an earlier stage. In addition to securities law, more uncontroversial regulatory issues like KYC/AML are yet to be resolved.
  • Even if a large number of altcoins are identified as securities, it would not signify the end of the industry. High market cap tokens are fully capable of seeking compliance in the form of securities; lower market cap tokens may exist in non-compliant markets for a long time but can still indirectly gain liquidity from compliant markets. As long as there is a clear regulatory framework, regardless of its nature, the industry can find new paths and models for long-term development.

Table of Contents

Long-Awaited (Temporary) Victory - An Interpretation of the Ripple Case

On July 13, 2023, Ripple Labs received a partial favorable ruling from the New York District Court, causing a significant surge in the crypto market. In addition to XRP itself, a series of tokens previously identified as securities by the SEC also experienced a substantial increase.

As we will discuss later, we are still far from the era when the crypto industry truly embraces clear regulation. However, without a doubt, this partial victory of Ripple Labs remains one of the most important events in the crypto industry in 2023.

Below are some of the major disputes between U.S. regulators and the crypto industry before the SEC vs. Ripple Labs case.

CaseDate SettledHow it's Settled
SEC vs Block.one (EOS)2019/09Block.one Settles with SEC, Pays $24mn Fine
SEC vs Telegram2020/06Court Rules Telegram's Actions as Selling Unregistered Securities, Telegram Returns 1.2bntoInvestorsandPays1.2bn to Investors and Pays 18.5mn Fine
CFTC vs BitMEX2021/08Court Determines BitMEX Engaged in Illegal Derivative Trading (specific projects are too numerous to elaborate), BitMEX Pays $100mn Fine and Ceases Illegal Activities
SEC vs BlockFi2022/02BlockFi Settles with SEC, Seeks Business Compliance, and Pays $100mn Fine
SEC vs Nexo2023/01Nexo Settles with SEC, Shuts Down Lending Business, and Pays $45mn Fine
SEC vs Kraken2023/02Kraken Settles with SEC, Shuts Down Staking Business, and Pays $30mn Fine
CFTC vs Ooki DAO2023/06Court Determines Ooki DAO as an Illegal Futures Trading Platform, Orders to Shut Down All Business, and Pays a $644k Fine

It's not hard to see that nearly all the major disputes so far have ended in failure or compromise by crypto companies.

We still want to say, this represents the first meaningful victory for the crypto industry in its battles against U.S. regulators, even if it is only a partial victory.

There have been many detailed interpretations of the court's judgment, so we won't elaborate here. Those who are interested can read the long Twitter thread by Justin Slaughter, Paradigm Policy Director:

Justin Slaughter on Twitter:

You can also read the original text of the court's ruling in your leisure time:

Plaintiff vs. Ripple Labs, Inc.

Before further interpreting this ruling, let's briefly introduce the core standard for the definition of securities in the U.S. legal system that you often hear about, the Howey Test.

Howey Test, Orange Groves, and Cryptocurrency

Untitled

To understand the disputes surrounding all cryptocurrency regulations today, we must go back to sunny Florida in 1946, to the cornerstone case for today's securities law judgment, SEC vs. Howey.

(The following story outline was mainly written with the help of GPT-4)

📌 After World War II, in 1946, the company W.J. Howey owned a fertile orange grove in picturesque Florida.

To raise more investment, the Howey company launched an innovative plan that allowed investors to purchase land in the orange grove and lease it to the Howey company for management, from which investors could earn a portion of the profits. In that era, this proposition was undoubtedly very attractive to investors. After all, owning your own land was such a tempting thing.

However, the SEC did not agree. The SEC believed that the plan offered by Howey Company was essentially a security, but Howey Company had not registered with the SEC, which clearly violated the Securities Act of 1933. Therefore, the SEC decided to sue the Howey Company.

This lawsuit eventually ended up in the Supreme Court. In 1946, the Supreme Court made a historic judgment in the lawsuit of SEC vs. Howey. The court supported the SEC's stance, ruling that Howey Company's investment plan met the definition of securities, and therefore needed to be registered with the SEC.

The U.S. Supreme Court's judgment on Howey Company's investment plan was based on the four basic elements of the so-called "Howey Test". These four elements are: investment of money, expectation of profits, common enterprise, and the profits come from the efforts of the promoter or a third party. Howey Company's investment plan met these four elements, so the Supreme Court determined it was a security.

  1. First, investors invested money to purchase land in the orange grove, which met the first element of the "Howey Test"—investment of money.

  2. Secondly, the purpose of investors buying land and leasing it to the Howey Company was obviously to expect profits, which met the second element of the "Howey Test"—expectation of profits.

  3. Third, the relationship between investors and the Howey Company constituted a common enterprise. Investors invested, and the Howey Company operated the orange grove, both working towards earning profits. This met the third element of the "Howey Test"—common enterprise.

  4. Lastly, the profits in this investment plan mainly came from the efforts of the Howey Company. Investors only needed to invest money and could reap the benefits, which met the fourth element of the "Howey Test"—the profits come from the efforts of the promoter or a third party.

Therefore, according to these four elements, the Supreme Court judged that Howey Company's investment plan constituted a security and needed to be registered with the SEC.

This judgment had profound implications and formed the widely cited "Howey Test", defining the four basic elements of so-called "investment contracts": investment of money, expectation of profits, common enterprise, and profits come from the efforts of the promoter or a third party. These four elements are still used by the SEC to determine whether a financial product constitutes a security.

For purposes of the Securities Act, an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.

The above is an accurate interpretation of securities from the 1946 Supreme Court opinion, which can be broken down into the following commonly used criteria:

  1. An investment of money
  2. in a common enterprise
  3. to expect profits
  4. solely from the efforts of the promoter or a third party

The charm of law is truly remarkable. It often employs abstract yet straightforward principles to guide the ever-changing specificities in real-life scenarios, no matter it is a citrus grove or cryptocurrency.

Why Securities Law Exists

In fact, how securities are defined is not important. Labeling something as a security or not doesn't make any substantive difference. The key is to understand what legal responsibilities stem from the economic nature of securities, in other words, why something possessing the four attributes of the Howey Test needs a separate legal framework for supervision.

The Securities Act of 1933, which predates the Howey Test by over a decade, explicitly answers the question of why securities laws are needed.

Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives:

1) require that investors receive financial and other significant information concerning securities being offered for public sale; and

2) prohibit deceit, misrepresentations, and other fraud in the sale of securities.

"The fundamental starting point of securities law is simple - it's all about ensuring that investors have enough information about the securities they are investing in and are protected from deception. Conversely, the responsibilities imposed on the issuers of securities are straightforward, the essence of which is disclosure - they must provide complete, timely, and accurate disclosure of important information related to the securities.

The reason for such a goal of securities law is because securities, by their nature, rely on the efforts of third parties (active participants) for returns, which gives these third parties an asymmetric advantage over investors in terms of access to information and influence on securities prices. Therefore, there's a requirement for them to fulfill the duty of disclosure, to ensure that this asymmetry does not harm the investors.

There's no similar regulatory requirement in commodities markets because there are no such third parties, or in the crypto context, 'project teams'. Gold, oil, and sugar, for example, have no 'project teams'. The crypto market generally has a preference for the Commodity Futures Trading Commission (CFTC) over the Securities and Exchange Commission (SEC), but this is not due to personal preferences of the regulators that lead to differing attitudes towards crypto. The distinction between regulating commodities and regulating securities is based on the intrinsic differences between the two types of financial products. Because there are no 'project teams' with an asymmetric advantage, the regulatory framework for commodity law naturally tends to be more relaxed.

💡 The existence of a third party or 'Project Team' with an information and influence advantage is the fundamental reason for the existence of securities law; to curb the infringement of investors' interests by the third party/'Project Team' is the fundamental purpose of securities law; and requiring the 'Project Team' to provide complete, timely, accurate information disclosure is the main means of implementing securities law."

Project team is doing their job = Securities?

During my study of the history of U.S. securities law, a phrase often heard in the crypto industry led me to a simple and effective standard to determine whether a token is a security - that is, whether the investor cares whether the Project Team is active or not.

If the "the project team is doing their job" matters to investors, it implies that the return on this investment is influenced by the actions of the Project Team, which clearly meets the four criteria of the Howey Test. From this perspective, it's easy to understand why BTC is not a security, as there is no Project Team involved with BTC. The same applies to meme coins, they are merely digits in the ledger under the ERC-20 protocol, with no active Project Team behind them, and therefore are not securities.

If a Project Team is active and whether they perform well or poorly, or act at all, - whether it's in terms of technical upgrades, product iterations, marketing, ecosystem partnerships - has an impact on the token price, then the definition of a security is met. Given the existence of a Project Team, they possess information unknown to other investors and have greater influence on the token price, hence the need for regulatory oversight to ensure that they do not commit acts that harm the interests of investors. The logic of "the actions of the Project Team matter" → "the Project Team can reap the benefits"→ "the Project Team needs to be regulated by securities law" is a simple legal inference.

If you accept this logic, you can judge for yourself which tokens in the crypto space are reasonably classified as securities.

top search result of "项目方在做事" on Twitter

💡 In our view, if there is an expectation or concern among investors about the "the project team is doing their job," this token highly aligns with the definition of a security. From this perspective, it seems quite logical that a high proportion of tokens are classified as securities.

The current SEC wants more than just the basic regulations. As seen from Gary's public statements, he only recognizes that Bitcoin is not a security. For most other tokens, he firmly believes they should be classified as securities. The stance on a few tokens, like ETH, is relatively ambiguous. The CEO of Coinbase also recently mentioned in an interview that before the SEC sued Coinbase, it had demanded that Coinbase cease trading all tokens except for Bitcoin, a request that Coinbase refused.

We think it's unreasonable to classify pure meme coins without an operational project team or decentralized payment tokens as securities. The SEC's demands have exceeded the reasonable scope of securities laws, which has made it harder for the conflict between the industry and the SEC to be resolved simply.

You can read more on the topic in this article: SEC asked Coinbase to halt trading in everything except bitcoin, CEO says."

Recap of SEC vs Ripple Labs

  • Let's briefly highlight a few key points:
    • XRP itself is not a security, but we need to analyze the specific circumstances of XRP sales (such as the process, method, and channels of sale, etc.) to determine whether it constitutes a securities sale. We will elaborate on this point later: A token is just a token. A token is NEVER a security.
    • The court analyzed three forms of XRP sales separately: institutional sales, programmatic sales, and others. In the end, the first type, institutional sales, was considered as securities, while the other two were not.
    • The reasons for judging institutional sales as securities sales are:
Howey Test's RulesAnalysis
1. An investment
of money
✅ It satisfies the criteria; institutional investors made payments to XRP, and Ripple Labs argued that not only is 'payment of money' required, but also 'an intent to invest'. This claim was rejected by the court.
2. in a common
enterprise
✅ It satisfies the criteria; the funds invested by the investors were collectively received and managed by Ripple Labs, and what the investors received were the same fungible XRP tokens.
3. to expect
profits
✅ It satisfies the criteria;
1) All the promotional materials from Ripple received by the investors clearly mention in various ways that the success of the Ripple protocol would drive up the price of XRP.
2) The existence of the lock-up clause directly proves that the investors' intent in purchasing XRP could only be investment and not consumption ('a rational economic actor would not agree to freeze millions of dollars').
4. solely from
the efforts of
the promoter
or a third party
✅ It satisfies the criteria; Ripple Labs explicitly linked the rise in XRP price to the technical advantages of Ripple Labs, the potential for widespread use of the product, the professional capabilities of the team, and successful market marketing in its promotions.
  • The reasons for judging programmatic sales as not constituting securities sales are:

    1. In this case, investors are not sure whether they are buying from Ripple Labs or other XRP sellers. Most XRP trading volume does not come from sales by Ripple Labs, so most XRP buyers have not directly invested their funds into Ripple Labs.

    2. XRP buyers did not expect to profit from Ripple Labs' efforts, because:

    • Ripple Labs did not make any direct promises to these investors, and there is no evidence that Ripple Labs' promotional materials were widely disseminated among these investors.

    • These investors are less sophisticated, and it cannot be proven that they have a full understanding of the impact of Ripple Labs' actions on the price of XRP.

  • It's not hard to see that the court's judgement on programmatic sales is primarily based on the fourth item of the Howey Test, which is that these investors did not expect to profit from Ripple Labs' efforts.

  • The judgement of this district court does not have final binding force; it can almost be certain that the SEC will appeal. However, due to the lengthy legal process, it might take several months or even years before we see the results of a new appeal judgement. During this time, the judgement of this court will essentially form important guidance for the development of the industry.

Putting aside our position as cryptocurrency investors, and solely from the standpoint of legal logic, we believe that the court's logic in determining programmatic sales as not being securities is not very convincing.

📕 Here are two articles by seasoned legal professionals with similar opposing views. I recommend reading them if you have time, as our analysis also draws on some of their viewpoints.

First, we need to note the original text of the Howey Test: '...expect profits solely from the efforts of the promoter or a third party...', which clearly points out that the source of profits can be the promoter or a third party, that is, it does not matter who the seller is. Or to say, it is not necessary for the source of the efforts to be the seller or promoter, as long as there is such a third party. Therefore, it does not matter who the investor buys from or whether the seller is the source of the returns. What matters is whether the investor realizes that the appreciation of the asset comes from the efforts of a third party. Therefore, the court's mention of blind buy/sell and the fact that buyers do not know whether they bought XRP from Ripple Labs or someone else is irrelevant to the Howey Test.

The real issue is whether investors in programmatic sales realize that the rise in the price of the XRP token they bought is related to the efforts of Ripple Labs. The court's main argument is that

  1. Ripple Labs has not directly promoted to retail, nor is there evidence that their materials (white papers, etc.) have been widely disseminated among retail,
  2. Retail does not have the cognitive abilities of institutional investors to recognize that the XRP token is related to the work Ripple Labs does in technology, product, and marketing.

First of all, this is a factual issue, not a logical one, which we can't demonstrate here. XRP is an old project, and we don't have a clear sense of what the retail investors were like at that time.

But from our limited experience, the vast majority of tokens with a project team are able to realize that the team's technical upgrades, early mainnet launch, better product, increase in TVL, ecosystem partnerships, KOL promotions, and other efforts have an impact on the price of the token they hold.

In the world of crypto, KOLs, Twitter, and Telegram groups large and small serve as the bridge between most project teams and users, the territory for outreach to retail investors. In projects big and small, we often hear discussions about how the 'community' is doing. Most project teams will have a token marketing/community team responsible for contacting exchanges around the world, hiring KOLs, and helping to disseminate project progress and important events.

💡We believe there is a bias in the court's fact-finding on programmatic sales in this ruling; we also agree with many legal professionals that there is a high likelihood that this part of the judgment will be overturned in the future.

(Just a week after writing this article, on the very day it was about to be published, we happened to see that the new judge in the SEC vs Terraform Labs case refused to adopt the judgment logic in the SEC vs Ripple Labs case - the logic being that no matter where the investor buys the token, it does not affect the investor's expectation that the efforts of the project team will influence the token's price.)

"Whatever expectation of profit they had could not, according to that court, be ascribed to defendants’ efforts," he wrote. "But Howey makes no such distinction between purchasers*. And it makes good sense that it did not. That a purchaser bought the coins directly from the defendants or, instead, in a secondary resale transaction* has no impact on whether a reasonable individual would objectively view the defendants’ actions and statements as evincing a promise of profits based on their efforts.**"

Judge Rejects Ripple Ruling Precedent in Denying Terraform Labs' Motion to Dismiss SEC Lawsuit

☕️ By the way - Airdrops that don't require payment can also be considered securities sales.

This comes from an article by John Reed Stark. In the Internet bubble of the late 90s, several companies distributed free stocks to users via the internet. In subsequent legislation and trials, these actions were deemed securities sales. The reason is that although users did not pay money in exchange for these stocks, they gave up other values - including their personal information (required to fill in when registering for stocks) and increased attention for the companies distributing the stocks, which constituted a substantial exchange of value.

SEC Enforcement Director Richard H. Walker said at the time, "Free stock is really a misnomer in these cases. While cash did not change hands, the companies that issued the stock received valuable benefits*. Under these circumstances, the securities laws entitle investors to full and fair disclosure, which they did not receive in these cases.”*

A token is just a token. A token is NEVER a security

As pointed out by Coinbase CLO Paul, this is the most important sentence in the entire judgement that people have not fully understood.

XRP, as a digital token, is not in and of itself a “contract, transaction[,] or scheme” that embodies the Howey requirements of an investment contract*. Rather, the Court examines the* totality of circumstances surrounding Defendants’ different transactions and schemes involving the sale and distribution of XRP.

Both of these judgments consistently express an important point of view:

A token is just a token - it's not like many people mistakenly believe that the court sometimes thinks XRP is a security and sometimes not - a token itself can never be a security.

What might constitute a security is the whole set of behaviors of selling and distributing tokens ('scheme'), there is no question of whether a token is a security or not, only whether a specific token sale behavior is a security or not. We can never come to the conclusion of whether it is a security or not just by analyzing a certain token, we must analyze the overall situation of this sales behavior ('entirety of …', 'totality of circumstances').

Both judges, whose opinions have significant conflicts, have insisted that it must be based on sales conditions rather than the attributes of the token itself to determine whether it is a security - this consistency also means that the possibility of this legal logic being adopted in the future is significantly higher than the judgment for programmatic sales, and we also believe that this judgment indeed has stronger logical reasonableness.

A token is just a token. A token is NEVER a security.

Digital tokens and stocks are fundamentally different. Stocks themselves are a contract signed by investors and companies. Their trading in the secondary market itself represents the trading and transfer of this contractual relationship. As the judge said in the Telegram case, digital tokens are nothing more than an 'alphanumeric cryptographic sequence', and they cannot possibly constitute a contract by themselves. They can only have the economic substance of a contract in specific sales situations.

If this legal point of view is accepted by all subsequent courts, then the future burden of proof on the SEC in the litigation process will be significantly increased. The SEC cannot obtain the regulatory power over all the issuance, trading, and other behaviors of a certain token by proving that it is a security. It needs to prove one by one that the overall situation of each token transaction constitutes a securities transaction.

The Court does not address whether secondary market sales of XRP constitute offers and sales of investment contracts because that question is not properly before the Court. Whether a secondary market sale constitutes an offer or sale of an investment contract would depend on the totality of circumstances and the economic reality of that specific contract, transaction, or scheme. See Marine Bank, 455 U.S. at 560 n.11; Telegram, 448 F. Supp. 3d at 379; see also ECF No. 105 at 34:14-16, LBRY, No. 21 Civ. 260 (D.N.H. Jan. 30, 2023)*

The Ripple case also explicitly pointed out that the court cannot determine whether the secondary sale of XRP constitutes a securities transaction. They need to assess the specific situation of each trading behavior to make a judgment. This greatly complicates the SEC's regulation of secondary transactions, and in some ways it may not be possible to complete; this essentially gives the green light to the secondary trading of tokens. Based on this, Coinbase and Binance.US quickly relisted XRP after the verdict was announced.

📕 There are some interesting discussions related to this in the Bankless podcast:

Bankless: How Ripple's Win Reshapes Crypto with Paul Grewal & Mike Selig

Again, it is still too early to consider this judgment as a definitive legal rule based solely on this case; but the legal logic of "A token is just a token" will indeed significantly increase the legal obstacles the SEC will face in regulating transactions of the secondary market in the future.

Looking forward - Where are the risks and opportunities?

The Sword of Damocles Over Staking

Sword of Damocles, 1812, Richard Westall

Sword of Damocles, 1812, Richard Westall

ETH staking has been one of the strongest tracks in the entire industry since 2023; however, the regulatory risks of staking services are still a Sword of Damocles over this super track.

In February 2023, Kraken agreed to a settlement with the SEC and shut down its staking service in the US. Coinbase, which was also sued for its staking service, chose to continue fighting.

Returning to the framework of the Howey Test, objectively speaking, there are indeed sufficient reasons for staking services to be considered securities.

Howey Test's RulesAnalysis
1. An investment
of money
✅ It satisfies the criteria; invest ETH
2. in a common
enterprise
✅ It satisfies the criteria; invested ETHs are pooled together
3. to expect
profits
✅ It satisfies the criteria; Investors expects staking yields
4. solely from
the efforts of
the promoter
or a third party
✅ It satisfies the criteria; staking yields come from the node operator's work and the node operator charges commission from the work.

Kraken chose to settle. So, what are Coinbase's reasons for insisting that staking services are not securities?

Coinbase: Why we stand by staking:

At its most basic level, staking is the process by which users can contribute to the network by staking their token to secure the blockchain, facilitate the creation of blocks, and help process transactions. Users are not investing. Rather, users are compensated for fulfilling this important role through transaction fees and consensus rewards paid by the blockchain itself.

Coinbase makes an interesting statement, suggesting that "users who stake are not investing, but rather being compensated for the contribution they make to the blockchain network."

This statement is valid for individual stakers. However, as delegated stakers, they do not directly undertake the task of validating transactions or ensuring network security. Instead, they delegate their tokens to other node operators who use their tokens to complete these tasks. Stakers are not the direct laborers. In fact, they resemble the buyers of orange farm in the Howey case, owning land/capital (ETH), delegating others to cultivate (node operation), and obtaining returns.

Paying out capital is not labor, because the return from capital investment is a capital gain, not compensation.

Decentralized staking services are a bit more complex, and different types of decentralized staking might eventually receive different legal judgments.

The four criteria of the Howey Test are mostly similar in centralized staking and decentralized staking. The difference might lie in whether a common enterprise can exist. So, the staking model where all users' ETH is put into the same pool, even if it's decentralized, clearly also meets the four criteria of the Howey Test.

The argument in SEC vs Ripple Labs that allowed Ripple to win the Programatic Sales point (the buyer and seller don't know each other and there is no direct selling introduction), doesn't seem to protect staking services here neither.

Because apart from directly buying cbETH/stETH on the secondary market, in the case where stakers pledge their ETH to Coinbase/Lido and receive cbETH/stETH in return, it's clear that 1) the buyer knows who the issuer is, and the issuer also knows who the buyer is, and 2) the issuer clearly communicates to the buyer about the potential returns and explains the source of these returns.

Stake to earn from Coinbase and Lido.fi

Similarly, in addition to staking on PoS chains, many DeFi products that allow staking/locking tokens to earn yield are likely to meet the definition of securities. If it is somewhat challenging to establish a connection between the price of pure governance tokens and the efforts of the project team, the logic in the context of staking to earn yield is very straightforward and simple. Additionally, the reasoning in the Ripple case that made programmatic sales not considered securities also hardly stands here:

1) Users hand over tokens to staking contracts developed by the project team. The staking contract gives returns to users, and these returns are derived from the revenues generated by the project contracts that the project team opened.

2) During the interaction process between users and the staking contract, the contract also promotes and explains the returns to users, which makes it difficult to get away with the reasoning from XRP's programmatic sales.

💡 In summary, projects that offer staking services (in PoS chains, in DeFi projects) have a higher likelihood of being classified as securities due to

  1. clear profit distribution, and
  2. direct promotion and interaction with users.

This makes them more likely to be considered securities than projects that are generally "doing their job" by the project team.

Securities law is not the only concern

Securities law is the main focus of this article, but it's important to remind everyone that securities law is only a small part of the overall regulatory framework for crypto — of course, it's worth special attention because it is one of the stricter aspects. Whether a token is ultimately regarded as a security, commodity, or something else, some more fundamental legal responsibilities are common, and many regulatory agencies outside of the SEC and CFTC will get involved. The content involved here is worthy of another long article, we will just briefly give an example here for reference.

This is the responsibility related to Know Your Customer (KYC) centered on anti-money laundering (AML) and counter-terrorist financing (CTF). Any financial transaction must not be used for financial crimes such as money laundering and terrorist financing, and any financial institution has the responsibility to ensure that the financial services it provides will not be used for these financial crimes. To achieve this goal, all financial institutions must take a series of measures, including but not limited to KYC, transaction monitoring, reporting suspicious activities to regulators, maintaining accurate records of historical transactions, etc.

This is one of the most fundamental, undisputed basic laws in financial regulation, and it is a field jointly supervised by multiple law enforcement departments, including the Department of Justice, Treasury/OFAC, FBI, SEC, etc. Currently, all centralized crypto institutions are also complying with this law to perform necessary KYC on all customers.

Regulations other than SEC

The main potential risk in the future lies in DeFi, whether it is necessary and possible to make DeFi comply with similar regulations as CeFi, requiring KYC/AML/CTF; and whether this regulatory model might harm the foundation of blockchain value, permissionlessness.

From a basic principle point of view, financial transactions are generated in DeFi, so these financial transactions need to ensure that they are not used for money laundering and other financial crimes, so the necessity of regulatory law is undoubted.

The challenge mainly lies in the difficulty in defining the regulatory object, essentially these financial transactions are based on the services provided by a string of code on Ethereum, so is it the Ethereum nodes running this code, or the project parties/developers who wrote this string of code, who should be the regulatory object? (That's why there are controversial cases caused by the arrest of Tornado Cash developers.) In addition, the decentralization of nodes and the anonymization of developers make this oversight thinking even more difficult to implement — this is a problem that legislators and law enforcers must solve, it is questionable how they will solve these problems; but what is unquestionable is that no regulator will allow money laundering, arms trading and other activities on an anonymous blockchain, even if these transactions account for less than one ten-thousandth of the blockchain transactions.

Actually, just on the 19th of this month, four senators from the U.S. Senate (two Republicans and two Democrats, so it's a bipartisan bill) have proposed a legislation for DeFi, the Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act. The core is to require DeFi to comply with the same legal responsibilities as CeFi:

In an effort to prevent money laundering and stop crypto-facilitated crime and sanctions violations, a leading group of U.S. Senators is introducing new, bipartisan legislation requiring decentralized finance (DeFi) services to meet the same anti-money laundering (AML) and economic sanctions compliance obligations as other financial companies*, including centralized crypto trading platforms, casinos, and even pawn shops. The legislation also modernizes key Treasury Department anti-money laundering authorities, and sets new requirements to* ensure that “crypto kiosks” don’t become a vector for laundering the proceeds of illicit activities.

Bipartisan U.S. Senators Unveil Crypto Anti-Money Laundering Bill to Stop Illicit Transfers

Ensuring Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) in DeFi transactions is a key regulatory challenge beyond securities laws. Regardless of whether a token is classified as a security or commodity, there are strict rules against market manipulation. Resolving these issues in crypto is a future challenge for the industry.

Below are some typical forms of market manipulation. Anyone involved in crypto trading will likely recognize them.

Here are some common forms of market manipulation:

  1. Pump and Dump: This involves buying a security at a low price, artificially inflating its price through false and misleading positive statements, and then selling the security at the higher price. Once the manipulator sells their shares, the price typically falls, leaving other investors at a loss.
  2. Spoofing: This involves placing large buy or sell orders with no intention of executing them, to create a false appearance of market interest in a particular security or commodity. The orders are then canceled before execution.
  3. Wash Trading: This involves an investor simultaneously buying and selling the same financial instruments to create misleading, artificial activity in the marketplace.
  4. Churning: This occurs when a trader places both buy and sell orders at the same price. The orders are matched, leaving the impression of high trading volumes, but no net change in ownership.
  5. Cornering the Market: This involves acquiring enough of a particular asset to gain control and set the price on it.
  6. Front Running: This occurs when a broker or other entity enters into a trade because they have foreknowledge of a big non-publicized transaction that will influence the price of the asset, thereby benefiting from the price movement.

What if crypto loses? - Securities law won't kill altcoins

We lack sufficient legal and political knowledge to predict the outcomes of these legal disputes, but objective analysis leads us to acknowledge that the logic of U.S. securities law supports classifying most tokens as securities. So we must deduce or imagine what the crypto industry might look like if most tokens are considered securities.

Some tokens may choose to comply as securities

Firstly, purely from an economic perspective, the compliance cost of being publicly listed isn't as daunting as it might seem. For large-cap tokens with a FDV of over 1 billion, they are likely able to bear the cost.

A simple market value comparison reveals that many tokens have comparable market values to listed companies, especially those with a 1bn+ FDV. It's entirely reasonable to believe that they can handle the compliance costs of a listed company.

  • The U.S. stock market has about 2000 companies with a market value of 100mn-1bn and about 1000 companies with a market value of 1bn-5bn.
  • In the current bear market environment for altcoins, crypto has about 40-50 tokens with a FDV>1bn, and about 200 tokens with a FDV of 100mn-1bn. It's expected that more tokens will join the 100mn+/1bn+ value rank during a bull market.

We can also refer to some research on the compliance cost for listed companies. One relatively reliable source is the SEC's estimation of the listing compliance costs for small and medium-sized companies:

Their research shows that the average cost of achieving regulatory compliance to enter the marketplace as an IPO is about 2.5million.Oncetheyareestablished,smallcapcompaniescanexpecttopayabout2.5 million**. Once they are established, small-cap companies can expect to pay about **1.5 million in ongoing compliance costs every year.

The conclusion is that there is a ~2.5mn listing cost, and a ~1.5mn ongoing annual cost. Considering inflation over the years, 3-4mn for an IPO and 2-3mn for annual recurring costs seem reasonable estimates. Additionally, these numbers positively correlate with the size of the company, and the costs for microcap companies worth hundreds of millions of dollars should be below these averages. Although it's not a small amount, for large project teams with hundreds of members, it's not an unacceptable cost."

"What's more uncertain is how to resolve these projects' historical compliance issues.

Listing a stock requires an audit of the company's financial history. Tokens, unlike equity, would need to disclose different content for listing, thus requiring a new regulatory framework for clear delineation. However, as long as there are clear rules, there are ways to adjust and deal with them. Companies with historical financial problems can also get the chance to go public by restating their historical statements.

While the cost of compliance is acceptable, it is also quite high; so, are project parties incentivized to do so? There's no simple answer to this question.

Firstly, compliance will indeed impose many burdens on many project parties and limit their operational flexibility. They cannot engage in "market value management," insider trading, false advertising, and coin selling announcements, etc. These restrictions affect the fundamentals of many business models.

However, for projects with particularly large market values, gaining greater market liquidity, accessing more deep-pocketed investors, and obtaining comprehensive regulatory approval are essential conditions for them to move to the next level, whether from the perspective of market value growth or project development.

"'Illegal harvesting' can be fierce, but the 'leek field' is small; 'legal harvesting' must be restrained, but the 'leek field' is large."

As the project scale increases, the balance between the potential benefits of non-compliance and the opportunities brought by the vast market and capital access post-compliance increasingly tips towards the latter. We believe that leading public chains/layer2s and blue-chip DeFis will take this step towards a completely compliant operational model.

Long-term coexistence and interdependence of compliant and non-compliant ecosystems

Of course, most project parties won't be able to embark on the road to securities compliance; the future crypto world will consist of both compliant and non-compliant parts, each with clear boundaries but also closely interconnected."

compliant ecosystemnon-compliant ecosystem
CapitalsOnshore institutional
capital, low-risk-preference
individuals
Offshore institutional capital, crypto-native, high-risk preference individuals
Underlying assetBTC, ETH, a few
compliant large-cap tokens
Most small and medium market cap tokens
ExchangesLicensed onshore
exchange, some
regulated DEXs
Unlicensed offshore exchange, some unregulated DEXs
Features of
the Market
Lower returns, lower
volatility, safer and more
transparent, more
mature and stable
Higher returns, higher volatility, more opaque and risky, more innovation and opportunities
ComplementarityThe price rise of
mainstream coins
and the asset
appreciation will
bring overflowing
liquidity, which
can still drive the
price of small
and medium-sized
coins in the
non-compliant
ecosystem.
A more flexible and open environment nurtures new opportunities, and as small and medium-sized coins gradually grow, some will enter the compliant ecosystem.

coexistence and interdependence of compliant and non-compliant ecosystems

Such a coexistence pattern already exists today, but the influence of the compliant ecosystem in the crypto world is still relatively small. As the regulatory framework becomes clearer, the influence and importance of the compliant ecosystem will become increasingly significant. The development of the compliant ecosystem will not only significantly increase the total scale of the entire crypto industry, but also "transfuse" a large amount of liquidity to the non-compliant ecosystem through the rise in prices of mainstream assets and resulting liquidity overflow.

💡 Large projects will become compliant, while smaller projects can remain in the non-compliant market and still enjoy the overflow of liquidity from the compliant market. The two markets will complement each other ecologically, proving that securities laws will not be the end of crypto.

Peace is More Important Than Victory

On the judicial side, the SEC vs Ripple case has yet to be settled, and the SEC vs Coinbase/Binance cases have just begun - the settling of these cases could take several years.

On the legislative side, since July, several crypto regulation bills have been submitted to both houses, including the Financial Innovation and Technology for the 21st Century Act, Responsible Financial Innovation Act, Crypto-Asset National Security Enhancement and Enforcement —— Historically, more than 50 crypto-related regulatory bills have been submitted to both houses, but we are still far from a clear legal framework.

Statistics on the passing rate of bills in the US House of Representatives throughout history. On average, Congress receives about 7,000 bill submissions each year, with about 400 being enacted. https://www.govtrack.us/congress/bills/statistics

Statistics on the passing rate of bills in the US House of Representatives throughout history. On average, Congress receives about 7,000 bill submissions each year, with about 400 being enacted. https://www.govtrack.us/congress/bills/statistics

The worst outcome for the crypto industry is not that most tokens will eventually be classified as securities, but the loss of time and space for the industry to grow, and the waste of resources and opportunities, due to the long-term lack of a clear regulatory framework.

The escalation and intensification of conflicts between regulators and the crypto industry is good news, as it means that resolution is nearing.

The verdict for Ripple Labs was announced on July 13, and the next day, July 14, is the anniversary of the French Revolution. This reminds me of the unrest in France after the revolution; but it was also during that chaotic time that the foundation of modern law - the French Civil Code - was born. I hope that we can see that, although the crypto industry is currently experiencing chaos and turmoil, it will eventually find its direction and way out, establishing a set of norms and codes that can coexist harmoniously with the outside world.

Code civil des Français


📎 Phoenix Capital Management is a fundamental-driven cryptocurrency hedge fund. The founding team has held key positions in several multi-billion dollar hedge funds. We strive to use a rigorous and scientific methodology, combining top-down macro research with bottom-up industry insights, to capture structural investment opportunities in the cryptocurrency industry and create long-term returns that transcend bull and bear cycles.

You can find all our writings here: Writings .

🤩 Hiring! We are actively searching for crypto researchers to join our team. If you are interested, please send your resume to [email protected]. Details can be found here.


Disclaimer:

This content is for informational use only and is not intended as financial or legal advice.

Any mistakes or delays in this information, and any resulting damages, are not the responsibility of the author. Please be aware that this information may be updated without notice.

This content does not promote or recommend the purchase or sale of any financial instruments or securities discussed.

The author may hold positions in the securities or tokens discussed in this content.