Starting with Mystonks: Unveiling the "U.S. Compliance" Marketing Trap of Encryption Platforms

Recently, a platform called Mystonks that provides “U.S. stock on-chain” has sparked widespread controversy due to the freezing of user funds. It is reported that the platform withheld a large amount of assets on the grounds of “user fund sources not being compliant.”

From the perspective of financial Compliance, this handling method is extremely unusual. The standard practice for a regulated financial institution upon identifying suspicious funds is to refuse to accept them and return them via the original route, while also submitting a report to the regulatory authorities. The platform’s direct “seizure” of assets raises a huge question mark over its claimed “Compliance.”

The Mystonks platform has always promoted its core selling points as holding a US MSB license and compliance in issuing STOs. So, what is the truth behind these so-called “compliance” qualifications? The author conducted an investigation.

1. The truth about “Compliance STO”: Filing does not equal permission, private placement does not equal public offering.

During the investigation, the author found that the promotion of Mystonks is not unfounded. In the public database of the U.S. Securities and Exchange Commission (SEC), the registration information of Mystonks Holding LLC can indeed be found.

The key points of this document (Form D) are as follows:

● Filing type: Private placement exemption based on Regulation D 506© rules.

● Issuance target: Limited to “Accredited Investors”.

● Issuance scale: $575,000, with a minimum investment threshold of $50,000.

This document is exactly the crux of the issue and also the most misleading part of the platform’s promotion.

First of all, Form D is a notice filing, not an operating license. It only represents that the company has informed the SEC of a private placement issuance, and the SEC merely archives it, which does not represent any review or endorsement of the company’s qualifications or the authenticity of the project.

Secondly, and most importantly, this filing strictly limits the issuance targets. Regulation D is an exemption provision designed for private placements, aimed at a small number of qualified wealthy individuals or institutional investors (i.e., “accredited investors”). However, Mystonks, as a publicly accessible trading platform, clearly has the vast majority of its users not meeting this standard.

Therefore, the behavior of Mystonks can be understood as: taking a filing document limited to fundraising from a small number of wealthy individuals and publicly engaging in securities trading activities that require strict licensing.

This practice essentially takes advantage of ordinary investors’ unfamiliarity with U.S. securities regulations to create conceptual confusion. To legally provide securities token trading services to the public, the platform requires advanced licenses such as ATS (Alternative Trading System) or Broker-Dealer; this is vastly different from a simple Form D filing.

II. Abused MSB license: “Anti-Money Laundering” filing unrelated to fund security.

After discussing the relatively complex STO, let’s take a look at the more common promotional tool - the US MSB license.

Regarding the MSB license, investors need to recognize a core fact: its value and significance have been greatly exaggerated by many project parties in the market.

The regulatory agency for MSB (Money Services Business) is FinCEN, which is under the U.S. Department of the Treasury, and its core responsibility is anti-money laundering (AML). In other words, FinCEN is only concerned with whether the platform reports suspicious transactions as required to combat financial crime, but it is completely not responsible for ensuring the safety of users’ funds, reviewing the platform’s business model, or technical capabilities.

Moreover, the application threshold for MSB is extremely low. Registration can be easily completed overseas through intermediaries, and there is even no need to establish a physical office in the United States. This makes it a preferred tool for many projects to quickly and cost-effectively “package” their compliance image.

When a platform primarily serving non-US users repeatedly emphasizes its MSB license, investors need to understand that this is more of a marketing strategy rather than proof of its strong financial strength.

Conclusion: Understanding the “Compliance” tricks of a certain type of platform through Mystonks.

The case of Mystonks is not an isolated incident; it clearly reveals a type of platform that commonly employs “Compliance” packaging techniques in the gray area. Looking at the market, many exchanges and financial platforms are reusing similar scripts, and investors need to establish a clear understanding of this.

The typical tricks of this type of platform can be summarized as:

1. Step One: Use the MSB license as a marketing “door opener.” Leverage its “official U.S.” background and extremely low acquisition cost to quickly establish a basic, seemingly reliable image.

2. Step Two: Interpret securities registration using the method of “concept substitution”. Package a limited registration document with strict conditions (such as private placement registration) as a comprehensive operating license that can provide services to the public, using information asymmetry for deep misguidance.

3. Step Three: Utilize regional and legal differences for “precision marketing.” They are well aware that their business cannot take root in the United States, so they focus on overseas users who are unfamiliar with U.S. regulations, creating a situation of “flowers blooming inside the wall and fragrance outside.”

As investors, we should learn lessons from these tricks. When determining whether a platform is truly compliant, keep in mind two basic principles:

● True compliance is expensive and tangible. It means high licensing application fees, deposits, physical office rents, and local legal team expenses. Those easily obtained, invisible and intangible “compliance” must inevitably be of low value.

● True compliance is transparent and specific. It dares to clearly disclose its license type, number, regulatory scope, and restrictions. Any vague or generalized claims of “compliance” often cannot withstand scrutiny.

In investment decisions, please restore the term “Compliance” from a marketing term to a legal fact that needs to be strictly examined. By upholding this bottom line, we can maximize the protection of our asset safety.