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TurnKey Token Gets to Fly: SEC Issues First No-Action Letter for Token Sale

On April 3, the US Securities and Exchange Commission (SEC) provided important guidance for token issuers. The SEC Division of Corporation Finance issued a No-Action Letter dated April 3 regarding TurnKey Jet, Inc. (the “TurnKey No-Action Letter”) in which the SEC staff confirmed that it would take no action against Turnkey Jet, Inc. (TKJ) for… Continue Reading



On April 3, the US Securities and Exchange Commission (SEC) provided important guidance for token issuers. The SEC Division of Corporation Finance issued a No-Action Letter dated April 3 regarding TurnKey Jet, Inc. (the “TurnKey No-Action Letter”) in which the SEC staff confirmed that it would take no action against Turnkey Jet, Inc. (TKJ) for selling tokens without registration. This guidance is most relevant to token issuers who are focused on commercial utility and record-keeping benefits in a centrally controlled network and are willing to minimize or eliminate the profit elements of the token. The TurnKey No-Action Letter, taken together with the Framework for “Investment Contract” Analysis of Digital Assets (“Framework”) issued by the SEC’s Strategic Hub for Innovation and Financial Technology on the same date, offers guidance for structuring the elements of a private, permissioned, centralized blockchain token and network.[1] 

The SEC staff emphasized the following elements of tokens sold by TKJ (TKJ Tokens) and the associated network in the TurnKey No-Action Letter:

  • No proceeds from token sales are used to develop the network or related software;
  • The network is “fully developed” and operational before tokens are sold;[2]
  • When sold, the tokens are usable for their stated commercial functionality;
  • Tokens cannot be transferred outside of the network;
  • Tokens are sold by the issuer at a stable price throughout network operation;
  • Each token represents an obligation to supply commercial services valued in a stable amount (i.e., the tokens are stablecoins);
  • The issuer only repurchases tokens at a discount to their face value;[3] and
  • Marketing of the tokens emphasizes their functionality, and not potential for increases in market value.

TKJ’s no-action request contains a lengthy description of the proposed network and tokens. These facts may prove significant to the SEC’s evaluation of any subsequently issued tokens seeking to rely upon the TurnKey No-Action Letter. Some features of the TKJ network and token elements that may prove significant to structuring TKJ Tokens and associated networks include:

  • A network that is a permissioned blockchain, where permission is conditioned upon agreement to contractual terms and conditions;
  • Fees for participation in the network are permissible;
  • Distinctions among network users are possible, and may even be required to the extent individual consumers participate;
  • TKJ Tokens allow the continuing active participation of the token issuer without causing the tokens to be securities, addressing a major focus of the Framework;
  • The network operator satisfies applicable know-your-customer/anti-money laundering and sanctions requirements for network participants (in this case, in concert with stricter security and identity requirements for users of on-demand private aviation); and
  • Token marketing materials emphasize the tokens’ consumptive use, and users represent that their purchases are for commercial use.

Of course, some of these may prove less significant than other elements not emphasized above.

Other interesting elements of the TKJ Tokens could prove significant to future responses from the SEC staff. First, the nominal asset underlying the TKJ Tokens is the US dollar, rather than a commodity or company product or service. The Framework seems to contemplate a greater variety of asset pegs, but pegs of commodities, foreign currencies, or in-kind delivery may raise greater concerns of speculative or investment opportunity and may implicate other statutory regimes.[4] Second, TKJ commits to continuous and open-ended sales, which appears to factor heavily in its argument that TKJ tokens would have future price stability. Third, the US dollars underlying the TKJ tokens will be maintained in escrow with banks on a one-to-one ratio, and escrow balances will be subject to independent audit. The escrow arrangement contractually limits TKJ’s discretion over the use of the escrowed funds, but seemingly subjects network participants to risk of contractual breach by TKJ, and the escrowed amounts to the risk of claims by TKJ’s creditors.[5] Finally, TKJ committed to offer no rebate, reward, bonus, or similar program. This commitment creates greater restrictions than are sometimes observed for prepaid and stored value programs.

As a product of the SEC, the TurnKey No-Action Letter does not address potential issues associated with other applicable regulatory frameworks. For example, the creation and maintenance of a centralized, permissioned blockchain operating in whole or substantial part within the United States may trigger US anti-money laundering (AML) regulations administered by the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) applicable to Money Services Businesses (MSBs). Notably, administrators and exchangers of convertible virtual currency could be viewed as a type of MSB known as a money transmitter.[6] Additionally, use of fiat currency to purchase a digital token of this type may be subject to rules about acting as a provider or seller of prepaid access, a different type of MSB. However, the regulations contain a number of potential exemptions or limitations, which centralized, permissioned blockchain creators may be able to avail themselves of in certain scenarios. Such activity may also trigger money transmitter laws at the state-level, depending on the particular facts and circumstances.

The TurnKey No-Action Letter appears to provide a path for issuing stablecoins with potential widespread applicability as an alternative to stored value and prepaid programs without registration as securities. TKJ Tokens may provide their issuers with the following benefits, among others:

  • Prepayments for products or services that provide positive cashflow (i.e., “float”);
  • Avoidance of wire, credit card, and other intermediary fees;
  • Avoidance of foreign exchange translation costs;
  • Interest income on escrowed balances supporting token redemption obligations;
  • GAAP income as fulfillment obligations are written-off for non-redemption;
  • Records management efficiencies from blockchain recordkeeping;
  • Transaction settlement and auditing efficiencies from blockchain recordation speed, immutability, and multiplicity;
  • Processing of transactions outside of normal banking hours; and
  • Smart contract implementation that may lead to reduced personnel costs and fewer commercial disputes.

On the other hand, the path represented by the TurnKey No-Action Letter may not be attractive to other types of start-up businesses and protocol developers, in particular, those intending to create protocols or networks with decentralized management and governance decision-making. In sum, the TurnKey No-Action Letter brings welcome clarity to one type of token offering—i.e., a token issued in conjunction with a developed private, permissioned, centralized blockchain network—but the Framework and guidance from other regulatory agencies is needed to understand the broader landscape of token offerings.

[1] The TurnKey No-action letter and Framework are expressions of staff views and are not binding upon the SEC. Further, the TurnKey No-action Letter is not formally applicable to any issuer other than TKJ. Nevertheless, no-action letters and staff bulletins reflect substantial deliberation by the SEC staff and in practice are often highly influential on the SEC. We therefore believe that the TurnKey No-Action Letter and Framework provide important guidance to future token issuers.

[2] While the operational element would seem to be satisfied by a network that has reached the minimum viable product stage, it is not clear whether full development is intended to represent some later stage of development.

[3] It appears that redemptions (i.e., “burns”) of tokens in exchange for the underlying value can be made at par, at least to commercial users.

[4] See additional insight from Steptoe on the Framework here.

[5] It is possible that further measures of security could affect the determination of TKJ’s counsel that the tokens are not notes under the Reves test. Reves v. Ernst & Young, 494 U.S. 56 (1990). However, the SEC staff’s response in the TurnKey No-Action Letter makes no mention of this issue.

[6] These regulations generally apply to the creation and issuance of tokens constituting convertible virtual currency, but may also be triggered by engaging in other activities that could be viewed as the administration or exchange of such tokens or currency.



Bitcoin dominance is an irrelevant metric unless…



The volatile cryptocurrency market has given way to multiple metrics for the market observers to analyze and predict what’s coming next. One such metric has been Bitcoin dominance, but as per Su Zhu, it should not be relevant to you unless you are a billionaire.

How so?

The CEO of Three Arrows Capital opined this after noticing the trend of the newcomers avoiding Bitcoin and Ethereum and opting for risky crypto tokens. When the largest digital asset was stuck in a wider correction period, altcoins like Dogecoin [DOGE] grabbed much attention. This was possible due to the hype created by Tesla CEO or, self-proclaimed “doge-father,” Elon Musk and the Doge community.

However, understanding the newcomers’ enthusiasm Zhu opined that if he were to bet on projects now, he would choose Solana and Avalanche.

Despite the popularity of altcoins, the exec remained bullish on Bitcoin and Ethereum as he expected, the former to flip gold’s market cap, and the latter to eventually hit a value above $25,000. Bold predictions, but nothing we haven’t heard before.

However, newcomers were more bothered about the dominance metric but as data suggested, Bitcoin dominance has recently been falling. The dominance was hit earlier but recovered to form a peak at 49.25% on 30th July. But given the correction phase that followed, the dominance of BTC fell and was last noted to be at 40% on 10th September.

It is interesting to note that despite plenty of adoption related news such as that of El Salvador, coming in over the past few weeks, it looks like the dominance has remained unaffected by it.

Source: CoinMarketCap

Twitter user and crypto enthusiast, @HsakaTrades also noted that Bitcoin dominance was not a relevant metric for anyone who has a “sub mid 9fig portfolio]. Agreeing with Hasaka, Zhu added,

“To clarify, if you’re holding for 5+ yrs, you shouldn’t be thinking about btc dominance in the first place. And obv btc and eth have a strong place in that portfolio.

If you’re allocating actively atm, and think debating btc v eth v alts is a good framework, you’re ngmi.”

While this advice could stand true for experiences, long-term trader interested in making money, but not the ones looking out to invest in tech. This was especially highlighted in the comments wherein the crypto users were upset about the CEO’s Solana [SOL] recommendation that recently witnessed an outage.

Nevertheless, the trading advice and strategies differd from trader to trader and Zhu’s opinion to not focus on the BTC dominance, prebably stemmed from a hodlers perspective. While interesting projects were now erupting in the crypto space, it looks like Bitcoin’s dominance, not only in terms of price, but as a crypto project could be challenge.

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Millions of Dollars Raised Through Solana’s DeFi Projects

Millions of Dollars Raised Through Solana's DeFi Projects

PAI, an algorithmic stablecoin, backs Parrot Protocol. Grape Protocol was the primary source of the downtime. Solana has been up

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  • PAI, an algorithmic stablecoin, backs Parrot Protocol.
  • Grape Protocol was the primary source of the downtime.

Solana has been up nearly 3200% since August. Investors’ interest in Ethereum rival systems featuring DeFi, NFT, and smart contract services has risen dramatically.

The software applications that simulate legal contracts are smart contracts. Once housed on a blockchain network, the software application will run automatically without human intervention.

This month, Solana’s DeFi initiatives raised millions of dollars. This is another proof of Solana’s potential to compete with Ethereum. Currently, Ethereum has the most DeFi and NFT projects.

Bots raced to invest in a token sale for Grape Protocol over flooded the blockchain, causing Solana to collapse for 17 hours on Tuesday. Let us take a look at the few IDO that helped raise millions.

Grape Protocol

Grape Protocol, the primary source of the downtime, managed to raise just $600,000 on Raydium’s “Acceleraytor.”

Tokenized communities may use Grape Network to connect to platforms like Discord, Telegram, and soon twitter to collaborate over Solana and reward members with crypto.

Parrot Protocol

Parrot Protocol is based on Solana. Investors in the Initial DEX offering included Sino Global Capital, Alameda Research, and QTUM VC. Moreover, to put it simply, Parrot is a non-custodial lending platform and decentralized exchange.

PAI, an algorithmic stablecoin, backs Parrot. Furthermore, Parrot offered a governance token called PRT in its IDO. Thus, allowing investors to vote on the protocol’s operation and farm yields on Solana without affecting other Layer 1 blockchains.

Solana’s failure impacted Parrot’s IDO, but it was resolved by Sept. 16. Moreover, the team said it would start working on PRT staking, NFTs, and adjustable interest rates in “Letter from the Parrot.”

Several Solana initiatives will be launched in the next day’s/weeks. Examples include Solanium, Boca Chica, and Solstarter. On Solanium, whitelisted users may buy MatrixETF.

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Cosmos (ATOM) Lead Market-Wide Rally

Cosmos (ATOM) Lead Market-Wide Rally

Cosmos’ creators call it an “internet of blockchains.” ATOM also launched a bridge to Ethereum at the end of August.

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  • Cosmos’ creators call it an “internet of blockchains.”
  • ATOM also launched a bridge to Ethereum at the end of August.

Cosmos (ATOM) blew up 10.74 percent overnight to establish a new price of $39.58, according to CoinMarketCap. It surpassed $40 yesterday, reaching $40.76. Despite today’s minor decline, Cosmos’ price was still ten dollars more than seven days ago, and twenty dollars higher than this time last month.

Its creators call it an “internet of blockchains.” It’s an interoperability network that allows various blockchains to connect, exchange data, and interact with one another.

In short, Cosmos claims to address some of the “hardest problems” in the blockchain sector. It seeks to provide an alternative to “slow, costly, unscalable, and ecologically harmful” proof-of-work protocols like Bitcoin by connecting blockchains. On August 18, Cosmos rose 25% from $15 to $20 after the introduction of Emeris, a cross-chain DeFi interface.

It also launched a bridge to Ethereum at the end of August. The inter-blockchain communication protocol (IBC) allowed trade across the Cosmos and Ethereum networks for the first time, along with the integration of Sifchain.

Cosmos Might Soon Over Take FTX Token

Cosmos is “Blockchain 3.0” — thus, as previously said, ease of usage is a significant objective. To this aim, the Cosmos SDK emphasizes modularity. This enables a network to be created quickly using existing code. Long term, it is anticipated that sophisticated applications would be simple to build.

Cosmos now has the twenty-first largest market value, but at this pace, it would only take $0.8 billion to flip FTX Token and make a bold entry into the top twenty.

Some in the crypto sector, much worried about the amount of fragmentation in blockchain networks. There are hundreds, yet few can converse. Cosmos wants to change this by making it feasible.

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