The rise of Initial Coin Offerings (ICOs) to finance the development of blockchain applications has captured the public imagination.[1] This method of obtaining startup capital raised over $3 Billion in 2017.[2] Naturally, as ICOs have generated more and more money for developers, they have come under increased regulatory scrutiny in the United States and abroad.[3]
To date, legal analysis has focused on the characteristics of an ICO that may qualify it as a security subject to SEC registration. Far less attention has been paid to the possibility that a particular type of ICO, one that issues a utility token prior to operation of the blockchain application to finance its development, may be subject to regulation by the Commodity Futures Trading Commission (CFTC), rather than the Securities Exchange Commission (SEC).
A utility token is the medium of exchange for the product or service offered on a particular blockchain application. Their intended purpose is to allow the holder to obtain whatever the blockchain has to offer. As more fully described below, when utility tokens are issued prior to development, a Pre-Release sale, they are plausibly within the set of contracts regulated by the Commodity Exchange Act (CEA) – contracts of sale of a commodity for future delivery, otherwise known as futures contracts.
SEC Jurisdiction
In the context of an ICO, the most feared potential regulatory scheme are the securities laws, particularly the Securities Act of 1933 (1933 Act) and the Securities Exchange Act of 1934 (1934 Act).[4] The SEC asserted its jurisdictional claim in the aftermath of the failure of The DAO, an implementation of the concept of a distributed autonomous organization (a DAO).[5] During the DAO ICO, DAO Tokens were sold to investors for $150,000,000 in Ether.[6] A short time after the ICO, an attacker used an error in The DAO code and stole the equivalent of $50,000,000.[7] The stolen DAO Tokens were recovered through a hard fork[8] that transferred all Ether raised in the DAO token sale, including the stolen Ether, to a special recovery address.[9] All DAO token purchasers that adopted the hard fork were then able to return their DAO tokens in exchange for Ether.[10] Following the mass refund, The DAO discontinued operations.[11] After an investigation, the SEC determined that under the Howey[12] test for investment contracts, DAO Tokens were securities under both the Securities Act of 1933 (1933 Act) and the Securities Exchange Act of 1934 (1934 Act).[13] The SEC made it clear that the automation of certain aspects of the capital raising, investing, or issuing processes through distributed ledgers, blockchain technology, smart contract or computer code, “does not remove conduct from the purview of the U.S. federal securities laws.”[14]
Utility Tokens as Futures Contracts
a. The CFTC’s Jurisdiction
The CFTC regulates commodities and derivatives contracts.[15] Included in the CFTC’s jurisdiction is the duty to enforce the prohibition on any offer or transaction in connection with a contract for the purchase or sale of a commodity for future delivery unless conducted through a contract market.[16
b. Utility tokens issued prior to development are the embodiment of a contract for the sale of a commodity for future delivery
While they may not be the typical contract of sale of a commodity for future delivery,[17] utility tokens issued prior to development have the defining characteristics of one. Specifically, they are contracts of sale. The product or service that is the subject of that contract is a commodity. And the terms of that contract, by necessity, provide for future delivery of the commodity.
- Utility Tokens Themselves are Contracts of Sale
The biggest conceptual leap is the idea that utility tokens sold in an ICO are properly conceived of as individual contracts of sale. Notably, the CFTC would not be the first regulatory agency to deem a token to be a type of contract. As discussed above, the SEC determined that the DAO Tokens were in fact, investment contracts. If tokens can be investment contracts, it stands to reason that they could also be a different type of contract, a contract of sale.
Moreover, those working in the industry agree that tokens are some type of contract, though there is debate about the particular kind of contract. According to David Siegel, an entrepreneur in the blockchain industry who completed an ICO for his company, a token “is a contract. It represents rights and obligations. The only token that isn’t a contract is an unissued token . . . .”[18] Similarly, in concluding that utility tokens are not investment contracts, Debevoise & Plimpton wrote “[tokens] should be characterized as a simple contract, akin to a franchise or license agreement.”[19] Thus, tokens are generally conceded to be contracts, and the regulatory dispute turns on what type of contract they are. To analyze whether a token can be considered a contract of sale it is necessary to define that term.
The CEA defines the term “contract of sale” only by saying it “[includes] sales, agreements of sale, and agreements to sell.”[20] While this definition is rather tautological, it does simplify the definitional task by eliminating the need to inquire into the legal elements of a contract.[21] If utility tokens are either sales, or agreements of sale, they are contracts of sale for purposes of the CEA.[22]
A sale is simply “the transfer of property or title for a price.”[23] A utility token is convertible into a certain amount of the product or service that the blockchain will provide. In other words, the utility token represents the transfer of certain property to the buyer who, in purchasing the token, paid for that property. While it is somewhat confusing to think of an object as a sale of another object, it is an apt description of a utility token – the token embodies the ultimate sale of the product or service.
An agreement of sale is “[a] mutual understanding between two or more persons about their relative rights and duties that . . . obligates someone to sell and that may include a corresponding obligation for someone else to buy.”[24] A utility token can be recast as an agreement of sale in two ways. Most simply, it is the representation of the understanding between the developer and the token holder that the network will sell the proposed product or service to the token holder. Alternatively, it is the representation of the understanding between the token holder and the developer/network that the token holder will sell the token to the network in exchange for the proposed product or service, and the network will buy the token from the token holder in exchange for the proposed product or service.
A useful analogy is to a movie ticket. In a very literal sense, the movie ticket is the item that is sold. After paying, the patron walks away from the box office with the paper ticket. However, that ticket is also a contract, specifically a contract of sale for one viewing of a particular movie at a particular time. As with the movie ticket, the patron of an ICO “walks away” with the digital utility token in their possession. But, just as with the movie ticket, that utility token embodies a contract of sale for the use of some quantity of the particular product or service that will be offered through the blockchain application. Like the physical movie ticket is also a contract endowing the holder with the right to watch a movie, the digital record of the utility token is also a contract endowing the holder with the right to a particular product or service.
Admittedly, there are some difficulties with the conception of a token as a contract of sale. First, a contract has two or more parties and relates to the rights and obligations as between the parties to the contract.[25] It is not entirely clear who, or what, is the counterparty to the token holder. Is it the developer? the network? the developer on behalf of the network? both? A logical answer is that the developer, and the developer on behalf of the network are both counterparties. The developer is promising to create the blockchain application as described in the white paper. The developer further acts on behalf of the network as the creator of the network. In this capacity the developer is like the incorporator of a corporation.[26] On behalf of the network, the developer promises to provide the product or service through a peer-to-peer distributed application.
Second, a futures contract typically specifies a quantity,[27] but often the token contract does not specify how much of the good or service the holder is entitled to.[28] Instead, the quantity term – i.e., how much of the good or service is received for one token – is set by the supply of nodes on, and the demand for service from, the blockchain application. For example, if one-hundred thousand new computers begin running the protocol that allow them to store data on the Storj blockchain[29] while demand remains constant, the exchange rate will change such that one Storj coin is worth more computer storage than it was prior to the network expansion.[30] The token contract in a Pre-Release Sale does not specify a quantity because the market mechanism that will allow a quantity term does not yet exist. It seems overly formalistic to deny the existence of a futures contract simply because the developers have found a way to express quantity in a unit that is undefined precisely because the developers have not yet created the market that will define it.[31]
- The product or service promised in the token is a commodity
As a threshold matter, for a utility token to be a contract for the sale of a commodity for future delivery, the product or service sold under the terms of the token must be a commodity. The term commodity includes “all other goods and articles . . . and all services, rights, and interests . . . in which contracts for future delivery are presently or in the future dealt in.” [32] The CFTC puts it mildly when it states “[t]he definition of a “commodity” is broad.”[33] Almost anything, tangible or intangible, becomes a commodity if and when it becomes the object of contracts for future delivery.[34] Indeed, the CFTC has already taken the position that the definition of a commodity includes Bitcoin and other virtual currencies.[35] This decision extends the CFTC’s jurisdiction to, for example, an option sold on Bitcoin, or a contract to deliver a certain quantity of Bitcoin at a certain price at some point in the future.[36]
However, for the CFTC to have jurisdiction over the tokens, as not only a commodity, but also as a separate contract of sale of a commodity, the product or service promised by the token must also be a commodity.[37] Given that the statutory definition is so broad, and extends to “all other good and articles . . . and all services, rights, and interests,” it is difficult to see why anything promised by the terms of the token would not be a commodity.[38] By way of example, digital storage, processing power, and streaming videos, all things that are being sold in token contracts, are all commodities. As such, there is no reason to believe that tokens fall outside of the CFTC’s jurisdiction because the product or service underlying the token is not a commodity.
- The contract is for future delivery of the commodity
In the context of a Pre-Release ICO which takes place prior to development of the blockchain application – as many do – the delivery of the product or service offered through the proposed blockchain can only occur, if ever, in the future. However, a contract contemplating literal future delivery of the commodity is not necessarily “a contract of sale for future delivery” within the meaning of the CEA.[39]
The CEA does not affirmatively define the phrase future delivery.[40] Perhaps it goes without saying that a contract of sale for immediate delivery – a spot transaction – is excluded from the meaning of a contract of sale for future delivery.[41] In addition to spot transactions, certain contracts contemplating future delivery, specifically “any sale of a cash commodity for deferred shipment or delivery,” also fall outside the statutory definition of a contract of sale for future delivery.[42] To distinguish them, a sale of a cash commodity for deferred shipment or delivery is typically referred to as a forward contract, while a contract of sale for future delivery is referred to as a futures contract.[43]
Unfortunately, there is no bright-line rule distinguishing unregulated forward contracts from regulated futures contracts.[44] Ultimately, the CFTC, or a court, will consider the intentions of the parties, the terms of the contract, the course of dealing between the parties, and any other relevant circumstances.[45] Given the fact intensive nature of this question, it is significant that the CFTC:
has declared its intent to view as a futures contract any agreement for the future delivery of a commodity, with a narrow exception for “the class of commercially motivated cash commodity sales, which contemplate actual delivery of the commodity, but in which delivery may be deferred for purposes of commercial convenience or necessity.”[46]
There are, however, certain characteristics of futures contracts in general that both the CFTC, and the courts make reference to when analyzing a particular contract. Factors that weigh in favor of finding a regulated futures contract include the following:
- The contract terms are standardized;[47]
- The customer does not expect to take delivery;[48]
- The customer has no business use for the commodity;[49]
- The customer can take either a long (buy) position or a short (sell) position;[50]
- The contracts were offered to the general public;[51] and
- The contracts were secured by earnest money or “margin.”[52]
While the presence or absence of these factors is illuminating, they are not exclusive and the presence or absence of one or more is not dispositive.[53] By contrast, a forward contract typically has the following characteristics[54]:
- The contract sets forth specific terms, so that it is not fungible with other contracts;
- The parties are industry participants rather than speculators; and
- Delivery cannot be deferred indefinitely without the seller incurring additional costs.
The CFTC’s touchstone in differentiating forward contracts from futures contracts is “whether a right to make or take delivery is legally enforceable and where offset or cash settlement may be refused by either party.”[55] An unregulated forward contract includes a legally enforceable right to make or take physical delivery, i.e., unilaterally reject cash settlement.
Applying the factors outlined above in light of the CFTC’s broad conception of a futures contract, the tokens issued in an ICO, i.e., the contracts, are likely to be considered futures contracts. The contract terms, as embodied in the token, are standardized across all holders.[56] As the terms are standardized, the contracts are fungible with one another suggesting they are not forward contracts.[57] Although it is ultimately an empirical question, there is good reason to believe that most holders do not expect to take delivery of the service guaranteed to them as the holder of the token. Instead, ICO token purchasers intend to speculate on the price of the token and the underlying commodity.[58] While it is difficult to know, the speculatory intent of ICO purchases would also suggest that most holders do not have a business use, or even a personal use, for the amount of the service purchased. The offer of ICO tokens to the general public also militates in favor of finding tokens to be regulated futures contracts. A purpose of the CEA is “to protect all market participants from fraudulent or other abusive sales practices.”[59] As ICOs typically include offers to the general public, oversight by the CFTC better protects the public from the potential abuses, including fraudulent fundraising, inherent to the ICO process.
Most importantly, the token does not create a legally enforceable right of the network to make delivery of the product or service to the token holder, and cash settlement is readily available to the token holder without the consent of the counterparty. The token holder can refuse delivery indefinitely in two ways, by continuing to hold the token without use, or by selling the token. Cash settlement is available by virtue of the exchange trading that begins in each token shortly after it is issued.[60] Exchange trading is not limited by sales restrictions that require the ICO entity or the development team – the counterparty – to consent to post-ICO transfers. The failure of ICO tokens to provide for legally enforceable delivery is strong evidence that they are not unregulated forward contracts.
On the other hand, the enumerated factors do reveal two distinctions between a typical futures contract and the ICO tokens. First, customers are unable to take both buy and sell positions in the traditional sense which contemplates the simultaneous ownership of one buy contract, and one sell contract.[61] Second, the tokens are not secured by margin because while delivery of the commodity is deferred, the token purchaser pays the contract price up front.[62] As the CFTC considers a particular contract a futures contract unless it is very clearly a forward contract,[63] the lack of these two indicia is unlikely to render the tokens unregulated forward contracts.
Recommendations for avoiding the CFTC
If ICOs selling utility tokens are potentially subject to regulation by the CFTC, developers will want to structure their sales to minimize the risk of the CFTC finding a futures contract over which it has jurisdiction.[64] The simplest way to sidestep CFTC jurisdiction is to act only outside of the United States market.[65] Interestingly, this could require more than preventing offers and sales in the United States. The CEA makes it unlawful “to conduct any office or business anywhere in the United States, its territories or possessions, for the purpose of soliciting, or accepting any order for, or otherwise dealing in, any transaction, in or in connection with, a contract for the purchase or sale of a commodity for future delivery.”[66] The italicized language suggests that simply operating, e.g., having an office or employing developers, in the United States is sufficient to trigger a CEA violation.
Perhaps the most effective way to deprive the CFTC of jurisdiction would be to sell utility tokens simultaneous with or after the launch of the operational application. If the network is already functional, the delivery of the utility promised in the token is not affirmatively for future delivery. The buyer could choose to take delivery immediately, within the two-day grace period for spot transactions, or within the proposed twenty-eight day window for spot transactions.[67] Negating the future delivery element is a decisive way to remove the ICO transaction from the CFTC’s jurisdiction.[68] Obviously, however, this means that an ICO cannot be used in the way most developers seek to use them – to raise money to fund development.
A final suggestion is to make the tokens non-transferrable. If the tokens are non-transferrable, they are effectively not fungible with other tokens and the purchaser must take delivery (or a sunk-cost loss) as no mechanism of cash settlement is available in the absence of a secondary market.[69] This in turn also means that the purchasers are more likely to be considered industry participants, or at least not speculators, because there is only a use opportunity, not a profit opportunity.[70] Non-transferability[71] and the resulting enforceability of actual delivery renders the tokens more like a forward contract that is exempt from CFTC regulation.[72]
Impact of CFTC Regulation
While the full impact of a CFTC determination that ICO tokens are contracts of sales of a commodity for future delivery is beyond the scope of this post, two key results are worth pointing out. First, ICO utility tokens would have to be sold through a board of trade designated as a contract market, or pursuant to an exemption from the CFTC.[73] Second, utility tokens sold through a designated board of trade would be subject to the exclusive jurisdiction of the CFTC.[74]
In general, sale of a futures contract is unlawful unless conducted through a board of trade designated as a contract market.[75] Currently, there are only fourteen designated contract markets operating in the United States.[76] Alternatively, blockchain developers seeking to conduct an ICO can pursue an exemption authorizing off-market transactions.[77] In general, the CFTC may exempt a class of contracts only if doing so will “promote responsible economic or financial innovation and fair competition.”[78]
Futures contracts sold through a designated board of trade – i.e., designated contract market – are subject to the exclusive jurisdiction of the CFTC.[79] In the case of utility tokens, this would mean that the CFTC’s jurisdiction precludes the SEC’s jurisdiction even if the token is also a security.[80]
Conclusion
Currently, the blockchain industry, and regulators appear to believe that the regulatory scheme that is most likely to be extended to ICOs are the federal securities laws. Indeed, the SEC appears to be preparing to exert its jurisdiction over a broad range of ICOs. But, for Pre-Release ICOs involving utility tokens, there is a strong case that the token sales fall within the meaning of a contract of sale of a commodity for future delivery, and are therefore subject to regulation as futures contracts, not as securities. This would make the CFTC, rather than the SEC, the primary regulatory agency overseeing the ICO phenomenon.
[1] Mike Orcutt, What the Hell Is an Initial Coin Offering, MIT Tech. Rev. (Sept. 6, 2017), https://www.technologyreview.com/s/608799/what-the-hell-is-an-initial-coin-offering/.
[2] Coindesk, Coindesk ICO Tracker: All-Time Cumulative ICO Funding, (Nov. 7, 2017), https://www.coindesk.com/ico-tracker/.
[3] See, e.g., U.S. Sec. & Exch. Comm’n, Investor Bulletin: Initial Coin Offerings (2017); Lulu Yilun Chen & Justina Lee, Bitcoin Tumbles as PBOC Declares Initial Coin Offerings Illegal, Bloomberg (Sept. 4, 2017), https://www.bloomberg.com/news/articles/2017-09-04/china-central-bank-says-initial-coin-offerings-are-illegal (reporting that the People’s Bank of China declared initial coin offerings illegal).
[4] Micha Benoliel, Understanding the difference between coins, utility tokens and tokenized securities, Startup Grind (Aug. 8, 2017), https://medium.com/startup-grind/understanding-the-difference-between-coins-utility-tokens-and-tokenized-securities-a6522655fb91.
[5] Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, Release No. 81207 (Sec. & Exch. Comm’n July 25, 2017) (report).
[6] Id. at 2-3.
[7] Id. at 9.
[8] A hard fork is an agreement by the majority of the network to revert back to an earlier version of the chain, effectively erasing the blocks, and the transactions those blocks recorded (including the attack), that were confirmed after the final block in the chosen version.
[9] Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, supra note 5, at 9-10.
[10] Id.
[11] See id.
[12] Sec. & Exch. Comm’n v. W.J. Howey Co., 328 U.S. 293 (1946).
[13] Id. at 1.
[14] Id. at 2.
[15] Phillip McBride Johnson & Thomas Lee Hazen, Derivatives Regulation 6 (2004).
[16] Commodities Exchange Act, 7 U.S.C. § 6(a) (2012).
[17] I.e., an agreement between a seller and a buyer that the seller (called a short) will delivery to the buyer (called a long), at a price agreed to when the contract is first entered, and the buyer will accept and pay for, a specified quantity and grade of an identified commodity during a defined period in the future. McBride Johnson & Hazen, supra note 15, at 25.
[18] David Siegel, The Token Handbook, in The Token Handbook, (Sept. 13, 2017), https://medium.com/@pullnews/the-token-handbook-a80244a6aacb.
[19] Debevoise & Plimpton, Securities Law Analysis of Blockchain Tokens, in A Securities Law Framework for Blockchain Tokens 22, (Coinbase et al., 2016).
[20] 7 U.S.C. § 1a(13).
[21] A contract is a subset of agreements that creates obligations between the parties that are enforceable at law. Contract, Black’s Law Dictionary (10th ed. 2014).
[22] See 7 U.S.C. § 1a(13).
[23] Sale, Black’s Law Dictionary (10th ed. 2014).
[24] Agreement, Black’s Law Dictionary (10th ed. 2014).
[25] See Contract, Black’s Law Dictionary (10th ed. 2014) (two or more parties are required); Agreement, Black’s Law Dictionary (10th ed. 2014) (same).
[26] Incorporator, Black’s Law Dictionary (10th ed. 2014) (An incorporator is “[s]omeone who takes part in the formation of a corporation, usu[ally] by executing the articles of incorporation.”).
[27] See Johnson & Hazen, supra note 15, at 25.
[28] See, e.g., Shawn Wilkinson et al., Storj: A Peer-to-Peer Cloud Storage Network 1 (Dec. 15, 2016), available at https://storj.io/storj.pdf.; Golem Factory GmbH, The Golem Project 3, (November 2016), available at https://golem.network/doc/Golemwhitepaper.pdf.; Roger Haenni, Datum Nework: The decentralized data marketplace, datum (Oct. 27, 2017), https://datum.org/assets/Datum-WhitePaper.pdf.
[29] The Storj blockchain application is designed to provide for distributed file storage on a decentralized network of computers. Wilkinson et. al, supra note 28.
[30] Graphically, the supply curve shifts outward.
[31] But, cf., In re National Gas Distributors, LLC, 556 F.3d 247, 260 (4th Cir. 2009) (holding that under the Bankruptcy Code, a “forward agreement” includes a quantity fixed at the time of contracting). Note that in the Bankruptcy Code, “forward agreement” includes both forward contracts and futures contracts, in contrast to the CEA which distinguishes between the two as described more fully infra at Part IV.b.3.
[32] 7 U.S.C. § 1a(9) (2012).
[33] Coinflip, Inc., Order Instituting Proceedings, Making Findings and Imposing Remedial Sanctions, at 3 CFTC No. 15-29 (Commodity Futures Trading Commission Sept. 17, 2015).
[34] Johnson & Hazen, supra note 15, at 9.
[35] Coinflip, Inc., supra note 33, at 3.
[36] Indeed, the CFTC has authorized a company, LedgerX, to provide clearing services for fully-collateralized digital currency swaps and Bitcoin options. CFTC Grants DCO Registration to LedgerX, LLC, PR7592-17, (Commodity Futures Trading Commission July 24, 2017), http://www.cftc.gov/PressRoom/PressReleases/pr7592-17; CFTC Grants SEF Registration to LedgerX, LLC, PR7584-17, (Commodity Futures Trading Commission July 6, 2017), http://www.cftc.gov/PressRoom/PressReleases/pr7584-17; see also Coinflip, Inc. supra, note 33, at 3-5.
[37] 7 U.S.C. § 6(a) (2012).
[38] See id § 1a(9).
[39] Johnson & Hazen, supra note 15, at 23-24.
[40] See 7 U.S.C. § 1a.
[41] Bank Brussels Lambers, S.A. v. Intermetals Corp., 779 F. Supp. 741 (S.D.N.Y. 1991).
[42] 7 U.S.C. 1a(27) (2012).
[43] Johnson & Hazen, supra note 15, at 23-25.
[44] CFTC v. Co Petro Marketing Group, 680 F.2d 573, 581 (9th Cir. 1982).
[45] Asa-Brandt, Inc. v. Adm Investor Services, Inc., 138 F. Supp.2d 1144, 1157 (N.D. Iowa 2001), aff’d in part and rev’d in part on other grounds, 344 F.3d 738 (8th Cir. 2003
[46] Johnson & Hazen, supra note 15, at 29-30.
[47] E.g., NRT Metals v. Manhattan Metals 576 F. Supp 1046 (S.D.N.Y. 1983).
[48] E.g., Commodity Futures Trading Comm’n v. Nobel Metals Intern., Inc., 67 F.3d 766, 773 (9th Cir. 1995) (citing Co. Petro Marketing Group, 680 F.2d at 579).
[49] See Co. Petro Marketing Group, 680 F.2d at 579 (contrasting those who intend to use the commodity with those purchasing for speculative purposes).
[50] E.g., Jones v. First Nat’l Monetary Corp., [1980-1982 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 21,740 (CFTC 1983).
[51] In re Stovall, [1977-1980] Transfer Binder] Comm Fut. L. Rep. (CCH) ¶ 20941 (CFTC 1979).
[52] Id.
[53] Id. ¶ 20941 at 23799.
[54] Nagel v. ADM Inv. Serv., Inc., 217 F.3d 436, 441 (7th Cir. 2000).
[55] Id.; see L & R Farm P’ship v. Cargill Inc., 963 F. Supp. 2d 798, 804 (W.D. Tenn. 2013) (citing Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 318 (6th Cir. 1998) (focusing on the evidence that the contract contemplated physical delivery)).
[56] Every token issued will be a product of the same smart contract.
[57] See Nagel, 217 F.3d at 441.
[58] Laura Shin, How to Speculate in ICOs: 10 Practical Financial Tips, Forbes (July 17, 2017), https://www.forbes.com/sites/laurashin/2017/07/17/how-to-speculate-in-icos-10-practical-financial-tips/#3272d3345378.
[59] 7 U.S.C. § 5(b) (2012); In re Stovall, [1977-19080] Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 20941 (CFTC 1979).
[60] Coinist, How to Get Your Token Listed On An Exchange, https://www.coinist.io/how-to-get-your-digital-token-listed-on-an-exchange/ (last visited Dec. 8, 2017).
[61] See Johnson & Hazen, supra note 15, at 25.
[62] See id.
[63] See id. at 29.
[64] See Debevoise & Plimpton, supra note 19.
[65] 7 U.S.C. § 6(a) (2012) (prohibiting proscribed actions anywhere in the United States, its territories or possessions).
[66] Id.
[67] CFTC Issues Proposed Interpretation on Virtual Currency “Actual Delivery” in Retail Transactions, PR7664-17, (Commodity Futures Trading Commission Dec. 15, 2017). available at http://www.cftc.gov/PressRoom/PressReleases/pr7664-17#PrRoWMBL.
[68] See, e.g., 7 U.S.C. § 6(a) (2012) (limiting prohibition to contracts of sale of a commodity for future delivery).
[69] See Nagel v. ADM Inv. Serv., Inc., 217 F.3d 436, 441 (7th Cir. 2000).
[70] See id.
[71] For example, blockchain developers are able to prevent (or seriously impair) transferability by prevent owners from “map[ping] a public key to [their] account.” block.one, EOS Token Purchase Agreement, 9-10, EOS.IO (Sept. 4, 2017), https://eos.io/documents/block.one%20-%20EOS%20Token%20Purchase%20Agreement%20-%20September%204,%202017.pdf. While this particular method would likely impair the function of the token, the transfer restriction could be lifted when the blockchain application becomes operational to permit the intended use. Other mechanisms for rendering utility tokens non-transferrable also may be possible.
[72] See Nagel, 217 F.3d at 441.
[73] 7 U.S.C. § 6(a) (2012).
[74] Id. § 2(a)(1)(A).
[75] Id. § 6(a).
[76] Trading Organizations – Designated Contract Markets (DCM), CFTC, available at https://sirt.cftc.gov/SIRT/SIRT.aspx?Topic=TradingOrganizations&implicit=true&type=DCM&CustomColumnDisplay=TTTTTTTT (last visited Nov. 12, 2017). National securities exchanges, registered national securities associations, and alternative trading systems are also designated contract markets for security futures products, provided that they list no other contracts of sale for future delivery. 7 U.S.C. § 7b-1(a).
[77] 7 U.S.C. § 6(a).
[78] Id. § 6(c).
[79] Id. § 2(a)(1)(A).
[80] Chicago Mercantile Exch. v. SEC, 883 F.2d 537 (7th Cir. 1989), cert. denied, 496 U.S. 936 (1990) (noting that if an instrument is both a security and a futures contract, the CFTC has exclusive jurisdiction).
