Dragonchain has spent millions of dollars on legal fees to comply. This process has represented a significant cost to the project and platform, as the team has been required to communicate advanced and often abstract technology to lawyers and bureaucrats, many without sufficient technical background. Many actions and processes had been assumed from within false contexts, and we spent considerable time educating our attorneys and the SEC. Often, we have later found that information provided to our attorneys material to the case were not conveyed or were misinterpreted by one or the other side. This is understandable given the complexity of advanced blockchain technology patterns and use cases. We're essentially being regulated by lawyers that don't have adequate understanding of the technology or its intended use.Reading between the lines, Roets is essentially saying: (1) lawyers are too expensive; so (2) I fired my lawyers and I'm writing this myself; because (3) my lawyers and the SEC bureaucrats don't understand "the complexity of advanced blockchain technology patterns and use cases." Needless to say, this effort to dissuade the SEC from proceeding failed spectacularly. Roets' response fails because, like most non-lawyers (and all too many lawyers), he doesn't separate what matters from what doesn't. Roets thinks what matters is that his business is both too awesome and too complex for mere mortals to grasp. It isn't. Basically, DRGN is the entry key into a blockchain. A blockchain is no more than an electronic ledger to which you can add transactions but cannot alter them once they are validated. Any activity that depends on the validity of a ledger -- of a secure history of transactions - can be instantiated on a blockchain. Since the DRGN is how one access the Dragonchain blockchain platform -- "micro-licenses" is what Roets calls them -- owning DRGNS is the prerequisite to using any application that runs on the Dragonchain blockchain, which itself runs on Ethereum. The key to Dragonchain's business is to build applications that make the blockchain easily accessible, that permit transactions to be appended to it flexibly. Those two attributes will determine how many different kinds of activities will be able to use the platform. The SEC described Dragonchain's business more briefly: to create a "turnkey" blockchain platform that other businesses could use to "introduce blockchain technology into their daily activities." That is basically correct, and really all one needs to know. It is not beyond the ken of mere mortals, no matter what Roets thinks. One mere mortal who surely gets it is SEC Chair Gary Gensler. At the same time that Roets was out selling DRGNs, Gensler was himself learning "the complexity of blockchain technology," the only way one really learns anything - by trying to teach it to someone else. In 2018, Gensler was a professor at MIT, and taught a course there called Blockchain and Money. That course -- video lectures, class discussions, reading lists and all -- are available online, so anyone can take it without having to get into MIT, do any homework or write any papers. https://ocw.mit.edu/courses/15-s12-blockchain-and-money-fall-2018/. At that price, it was worth auditing, so I did. It's a very good course, and Prof. Genlser was both a funny and engaging teacher, but you can tell this course was his way of learning the blockchain world. He had a tough audience too - chock full of MIT graduate students from both the business school and the engineering school. They kept him on his toes, and to see him spar with them was a highlight of the course. But the takeaway is that Chairman Gensler understands cryptosecurities very, very well -- a lot better than Joe Roets understands securities law. In the end, Roets only had one relevant argument: that the DRGN was a utility token and not a security. Not only is DRGN how one accesses the platform, but DRGN buyers agreed that they were not financial instruments, not securities, and that they were not buying any equity in Dragonchain. And, Roets argued, he and Dragonchain had nothing to do with developing any markets for DRGNs. That was all the work of third parties. In essence, paraphrasing the old song, once the DRGN goes up, who cares where it comes down. You can guess what happened next. The SEC complaint meticulously alleges how Dragonchain and Roets actually did sell DRGNs, not as utility tokens to ultimate users of the Dragonchain platform, but broadly through its "website, social media, conference appearances, and Telegram." DRGN was "pre-sold" to members of a crypto investment club, and its ICO was pitched to crypto investors -- and sold to 5,000 of them! -- with promises of increasing value as the "ecosystem matured," a cap on the number of DRGNs that could be minted and instant liquidity on numerous coin exchanges. The SEC showed how DRGN's buyers were investors with no interest in actually using the platform, but only looking to earn profits from the success of Dragonchain's business, no matter what they said in subscription agreements they probably never read. True utility tokens would have no value at all outside their use as access keys. See the discussion of Turnkey Jets in https://www.brokeandbroker.com/4532/aegis-frumento-inverted-jenny/. But DRGNs, which sold for about $0.06 each in the ICO, shot up to $5.50 in January 2018. Then their price fell below a dollar by March, below a quarter by July, below a dime by December. DRGNs are now worth about two pennies, but there's chatter about how their price may hit a dollar again in a year. And that's how DRGNs fly; the same way all securities do. They aren't magic.
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