Posted without comment from BloombergView:
Here is a website, Sand Hill Exchange, that lets you speculate on private companies by trading futures contracts that represent one-billionth of the value of a private company. The contracts settle when the company goes public or is sold. It is … not obvious that these contracts, which appear to be “security-based swaps,” comply with the regulations of the Securities and Exchange Commission and the Commodity Futures Trading Commission. (And unlike most actual private-company stock trading venues, Sand Hill Exchange cheerfully advertises that you don’t need to be an accredited investor to trade its stuff.) But don’t worry about that:
What Sand Hill appear to have done is to simply sidestep the entire 40-year old edifice of the CFTC by using the blockchain, that bit of the Bitcoin infrastructure that acts as a distributed public ledger, for transactions.
Haha what? Just because you mumble the word “blockchain” doesn’t make otherwise illegal things legal. Otherwise buying drugs and ordering murders on Silk Road would be fine. Also the website does not, let us say, fully specify how Sand Hill Exchange’s “smart contracts” work. A “smart contract,” in the lingo, is a piece of computer code that creates a self-executing contract. So a call option contract might say, “I’ll pay you the difference between the closing price S and the strike price K of stock XYZ on date D”; a smart contract would just code those variables in and transfer the money from my bank account (bitcoin wallet, whatever) to yours on the relevant date, without the need for us to trust each other or any third-party centralized exchange. Maybe Sand Hill Exchange is letting people trade smart contracts through a blockchain system that it has set up? Or maybe it is letting people trade fully margined dumb futures contracts through its own computers, just like Intrade used to do before it was shut down? Which is what it sounds like? From the fact that Sand Hill Exchange collects margin? And doesn’t describe how its blockchain works at all, sort of defeating the purpose of a decentralized blockchain-based system? And there is this:
Sand Hill Exchange makes every effort to obtain the exit valuation of a company. In the event a valuation cannot be determined, the most recent trade for all outstanding contracts will be reversed. In all cases, the decision of Sand Hill Exchange is final.
That does not sound especially self-executing. Anyway Ello seems to be trading at about a $52 million valuation, which is a data point.
I just love Matt Levine.