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SEC approves 1st consumer RegA+ token Props for cross-app rewards – TechCrunch

After cracking down on ICOs, the SEC just okayed the first two RegA+ tokens that offer an alternative way for anyone to gain a financial stake in a company, even unaccredited investors. Blockstack got approved for a $28 million digital token sale to raise money, while influencer live-streaming app YouNow’s spin-off Props received a formal green light for a consumer utility “Howey” token users can earn to get loyalty perks in multiple apps.

Props has already raised $21 million by pre-selling tokens to Union Square Ventures, Comcast, Venrock, Andreessen Horowitz’s Chris Dixon and YouTuber Casey Neistat, so it isn’t raising any money with the RegA+ by selling its tokens like Blockstack. Instead, users earn or “mine” Props by engaging with apps like YouNow, which will award the tokens for creating broadcasts, watching videos and tipping creators. Having more Props entitles YouNow’s 47 million registered users bonus features, VIP status and more purchasing power with the app’s proprietary credits called Bars, which users have bought $70 million-worth of to date.

How Props Work

But unlike most virtual currencies that can only be used in a single app and don’t technically belong to consumers, the open-sourced Props blockchain system can be integrated into other apps via an API and people can export their Props to cryptocurrency wallets. That lets them apply their Props in other apps beyond YouNow. Four partnered apps have been lined up, including xSplit, a 17 million-registered-user app for video game streaming.

While Props aren’t currently redeemable for fiat currency, they were valued at $0.1369 each by the SEC-approved filing. The company is working to have Props listed on Alternative Trading Systems that work similarly to cryptocurrency exchanges. That lets Props give everyday app users a financial incentive to see the network of apps that adopt them grow. Because there’s a finite supply of 1 billion Props (with 600 million mined so far), if demand for Props rises, then users could sell them for more. This creates a new growth hacking method for startups by providing a way to reward early and hardcore users.

“Our offering of Props is the first consumer-facing offering of ‘Howey tokens’ to be qualified by the SEC. It makes it the first offering of consumer-oriented utility tokens that the SEC deems compliant, outside of Bitcoin and Ether,” Props CEO Adi Sideman tells me. While SEC officials have said Bitcoin and Ether aren’t securities thanks to their sufficient decentralization, they haven’t received formal approval. “We used Regulation A+ (Reg A) for this qualification, so that Props may be earned by, and provide functionality to, non-accredited investors, users, apps and validators, in compliance with U.S. regulations.”

Props YouNow

However, this also could create risk for less-savvy users who might misunderstand the token system and be overly convinced they’ll get rich by watching tons of musicians or comedians streaming on YouNow. Props will need to ensure partners that integrate its tokens don’t exaggerate their potential. It’s spent two years working on SEC approval, but could still face consequences if Props are misrepresented.

“Props enables us to turn creators into stakeholders in the network, meaning they become partners in the success of the network. It’s an important tool for us to better incentivize and align with the most important users of our apps,” PeerStream CEO Alex Harrington writes. “Props abstracts, for us as developers, the technical and regulatory complexity associated with blockchain-based tokens, through a simple set of APIs that we can use to integrate the token into our apps’ experience.”

With Blockstack and Props having pioneered the RegA+ approach, we could see more companies filing to use this method of raising money or sharing stakes with their users.

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Facebook’s $5 billion FTC fine is an embarrassing joke

Facebook’s stock went up after news of a record-breaking $5 billion FTC fine for various privacy violations broke today.

That, as the New York Times’ Mike Isaac points out, is the real story here: the United States government spent months coming up with a punishment for Facebook’s long list of privacy-related bad behavior, and the best it could do was so weak that Facebook’s stock price went up.

From some other perspectives, that $5 billion fine is a big deal, of course: it’s the biggest fine in FTC history, far bigger than the $22 million fine levied against Google in 2012. And $5 billion is a lot of money, to be sure. It’s just that like everything else that comes into contact with Facebook’s scale, it’s still entirely too small: Facebook had $15 billion in revenue last quarter alone, and $22 billion in profit last year.

The largest FTC fine in the history of the country represents basically a month of Facebook’s revenue, and the company did such a good job of telegraphing it to investors that the stock price went up.

Here’s another way to say it: the biggest FTC fine in United States history increased Mark Zuckerberg’s net worth.

What lesson would you learn from that? Would anyone?

That’s actually the real problem here: fines and punishments are only effective when they provide negative consequences for bad behavior. But Facebook has done nothing but behave badly from inception, and it has only ever been slapped on the wrist by authority figures and rewarded by the market. After all, Facebook was already under a previous FTC consent decree for privacy violations imposed in 2011, and that didn’t seem to stop any of the company’s recent scandals from happening. As Kara Swisher has written, you have to add another zero to this fine to make it mean anything.

There are other elements to the settlement, as Tony Romm at the Washington Post has reported: Facebook will have to document how it plans to use data before it launches new products, and execs like Zuckerberg will have to promise the company has protected user privacy. But none of these conditions will prevent Facebook from collecting and sharing data, and they certainly won’t affect Facebook’s insanely lucrative ad business, which relies upon that data.

And as Peter Kafka notes, regulatory compliance costs aren’t exactly a deterrent either: Facebook will pay the fine, eat the cost of a few more lawyers and PR people to ensure compliance with this new order, and carry on with the business of, uh, issuing a new worldwide currency while exposing underpaid contractors to horrifying videos of people being murdered for $15 an hour.

Members of Congress are already opposing this settlement — Rep. David Cicilline is calling it a “Christmas present,” while Senator Ron Wyden says the FTC has “failed miserably.” Senator Richard Blumenthal says the decision is “inadequate” and “historically hollow,” and Senator Mark Warner says “It’s time for Congress to act.”

There are surely going to be many more statements and strongly-worded condemnations of the FTC in the weeks ahead, as the settlement goes through Justice Department review and inevitable approval. But words are just words, really. If our government is going to hold Facebook accountable for its reckless and irresponsible behavior, it has to actually do it, and in such a way that Mark Zuckerberg learns that actions have consequences.

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