Dominant assurance contracts seems gambling-like/scam-like the same way that crypto-currency does. The top comment on the Berkeley House Dinner Project is “this is a dollar-auction (AKA scam)”, and the second top comment is “Surely this is illegal?”
I don’t see anywhere in your post where you address the question of whether this is actually legal, though? An offer that if someone gives you money then (depending on factors outside of that person’s control) you may give them double their money back sounds like the kind of thing societies tend to regulate heavily. For example, in the US, I think it is possible that this would pass the Howey test to be considered a security?
I think it fails 3 and 4 simultaneously. There is no “expectation of profit to be derived from the efforts of others”. If the contract succeeds then others make an effort but you do not make a profit. If the contract fails you make a profit, but not from the efforts of others.
Not a lawyer, but I’m not sure it’s so clear cut. If I buy because I expect the contract not to tip, I’m expecting profit (3) derived from your efforts in setting up the contract (4).
Maybe we shouldn’t call it a Refund Bonus but something like “Attention Compensation”. I would say that you are expecting to profit (3) derived from your efforts of reading the contract and agreeing to pledge and then not actually getting what you paid for (not 4).
Personally I think it’s irrational to give money expecting a DAC to fail. make-yass made a post about this. I think the long-run social equilibrium is that people realize that it’s dumb to gamble on DACs failing and don’t do it.
Agree, this is important. When I wrote about this I didn’t consider that it might be illegal. I’m quite ignorant of the law, but I recently wrote my thought on legality of refund bonuses here. tl;dr, I think it’s legal, but there’s a bunch of things you have to do for it to be legal. And I now think this is the main reason no crowdfunding platform has ever used refund bonuses, not that they don’t know about it or don’t think it’s a good idea.
I would really like if someone law-savvy would write up an explanation of the legality of refund bonuses. I’d even be willing to contribute money towards that.
I am not a lawyer, but I think that sometimes the problem can be avoided by returning something other than cash. Sometimes, just having an expiration date makes the difference. You give me $1; if the project fails I give you a $2 coupon you can spend in Walmart you need to spend before December 2023.
(Of course, ask a lawyer about the details. I am just pointing at a possible angle of approach.)
Does “Kickstarter but they refund you if the project doesn’t meet its goal” exist? I think not — that might get you some of the gains of a DAC platform.
Also, what does PayPal’s TOS say about this? I seriously considered building something similar, and Stripe only approves “crowdfunding” if you have their written approval.
I don’t see anywhere in your post where you address the question of whether this is actually legal, though? An offer that if someone gives you money then (depending on factors outside of that person’s control) you may give them double their money back sounds like the kind of thing societies tend to regulate heavily. For example, in the US, I think it is possible that this would pass the Howey test to be considered a security?
This is the Howey test
An investment of money
In a common enterprise
With the expectation of profit
To be derived from the efforts of others
I think it fails 3 and 4 simultaneously. There is no “expectation of profit to be derived from the efforts of others”. If the contract succeeds then others make an effort but you do not make a profit. If the contract fails you make a profit, but not from the efforts of others.
Not a lawyer, but I’m not sure it’s so clear cut. If I buy because I expect the contract not to tip, I’m expecting profit (3) derived from your efforts in setting up the contract (4).
Maybe we shouldn’t call it a Refund Bonus but something like “Attention Compensation”. I would say that you are expecting to profit (3) derived from your efforts of reading the contract and agreeing to pledge and then not actually getting what you paid for (not 4).
Personally I think it’s irrational to give money expecting a DAC to fail. make-yass made a post about this. I think the long-run social equilibrium is that people realize that it’s dumb to gamble on DACs failing and don’t do it.
In traditional charitable enterprises, we just call it “a donor gift.”
Agree, this is important. When I wrote about this I didn’t consider that it might be illegal. I’m quite ignorant of the law, but I recently wrote my thought on legality of refund bonuses here. tl;dr, I think it’s legal, but there’s a bunch of things you have to do for it to be legal. And I now think this is the main reason no crowdfunding platform has ever used refund bonuses, not that they don’t know about it or don’t think it’s a good idea.
I would really like if someone law-savvy would write up an explanation of the legality of refund bonuses. I’d even be willing to contribute money towards that.
I am not a lawyer, but I think that sometimes the problem can be avoided by returning something other than cash. Sometimes, just having an expiration date makes the difference. You give me $1; if the project fails I give you a $2 coupon you can spend in Walmart you need to spend before December 2023.
(Of course, ask a lawyer about the details. I am just pointing at a possible angle of approach.)
Does “Kickstarter but they refund you if the project doesn’t meet its goal” exist? I think not — that might get you some of the gains of a DAC platform.
Also, what does PayPal’s TOS say about this? I seriously considered building something similar, and Stripe only approves “crowdfunding” if you have their written approval.
That’s just Kickstarter. You already only pay if the project hits its funding goal.