Discussing the relevance of federal securities laws to initial coin offerings (ICOs) at the end of 2018, Securities and Exchange Commission (SEC) Chairman Jay Clayton analogized the issuance and sale of blockchain-based cryptographically-protected tokens to the advance sale of tickets to fund a Broadway show production. It is commendable that Chairman Clayton and the SEC Staff continue to engage with the blockchain community in order to provide guidance to the market. In that spirit, this Article aims to distill some of the lessons from Chairman Clayton’s Broadway ticket analogy. One of the most fundamental issues impacting the development of blockchain-based platforms is the appropriate legal and regulatory treatment of two intertwined concepts: the fundraising through the means of an ICO, and the tokens sold to those participating in the fundraising (whether held by those initial purchasers or re-sold by them to third parties). When testifying before Congress in February 2018, Chairman Clayton stated, “Every ICO I’ve seen is a security” — throwing this issue into a very harsh spotlight. However, despite a vast number of commentaries on the proper securities law treatment of ICOs, very few of these have examined closely the critical distinction between the treatment of the fundraising, on the one hand, and the tokens, on the other. Fortunately, Chairman Clayton’s own Broadway ticket analogy provides an ideal environment to take a closer look at this question. To do so, this Article briefly provides background on the relevant aspects of securities law, following with an examination of the ticket analogy. For as long as there have been bridges to sell, unscrupulous promoters have been packaging up investment schemes as standard commercial purchase-and-sale agreements. As I will discuss in more detail below, in many cases the form of these agreements is ignored (most commonly when something goes wrong, and the promoter absconds with the purchase money or the promised goods or services never materialize in the way expected). In these cases, the schemes are often recharacterized by courts as disguised securities offerings that were subject to compliance with the federal securities laws. In most of these cases, it is generally straightforward to distinguish the investment scheme from the asset, good, or service which is its object. However, tokens sold in ICOs pose more challenging analytic questions and have caused ongoing consternation, even to some of the most seasoned regulators. In the concluding sections, this Article shows that, through the lens of the Broadway ticket analogy, the relationship between ICOs and their resultant tokens can be better understood. Finally, the Article suggests that commodities law may be a better framework to regulate cryptographic tokens in many cases
