Blockstack just marked an industry first that could set a precedent for compliant token sales in the United States. The decentralized computing network that uses Bitcoin as the basis for its DApps filed a statement with the SEC to hold the first $50 million token offering using the SEC Reg A+ framework. Is this the start of many more to come?
ICOs Have Dropped Off a Cliff
ICOs were all the rage in financing in 2017 and even the first few months of 2018, until they quickly dropped off a cliff, killed by regulation.
— Barry Silbert (@barrysilbert) October 11, 2018
When companies started finding out that what they were doing was tripping into securities territory and could actually be illegal, this type of unregulated free-for-all token sale sharply ended.
Depending on the jurisdiction, most blockchain companies are moving to new ways of financing. That’s either through STOs, private VCs, equity token offerings (ETOs), or a securities exemption such as the Reg CF.
Thus far, no other blockchain company has filed to the SEC to hold a Reg A+. Why?
Securities Exemption Breakdowns in the U.S.
Blockchain companies looking to raise funds through regulated token sales in the U.S. currently have four options. None of them is perfect.
They can register with the SEC and hold an IPO, something expensive and prohibitive to most blockchain companies.
They can select a Reg D 506 (C) that allows them to quickly raise funds with no cap on the raise and very limited effort (they simply fill out a form). But there’s a catch. They can only solicit accredited investors.
To get around that, a few companies have been going for the Reg CF option, which stands for Regulation Crowdfunding.
As the name suggests, this is more inclusive and open to anyone over the age of 18. Companies can also do it with limited effort. But they better not have hopes of raising very much. If they need more than $1.07 million, this option won’t work for them.
This brings us to what Blockstack (the Bitcoin company that rebranded from Onename back in 2016) is choosing, the Reg A+.
Bitcoin-backed DApp Platform Blockstack Files for Reg A+
SEC-approved Reg A+ allows Blockstack to raise up to $50 million compliantly. The token sale will also be open to anyone over the age of 18 (not just accredited).
So, if they can include everyone and raise up to $50 million, why isn’t everyone doing it? Because there are much higher costs involved with holding a Reg A+ that keep many companies at the gates.
Moreover, it’s (currently) a lengthy and strenuous process and companies must provide two years of audited financials. However, while this was something completely impossible back in 2017, now that many blockchain companies are reaching maturity, Reg A+ could be a way forward for them.
Once the Blockstack Reg A+ filing is approved (assuming that it is) it will be the first SEC-qualified token offering of its kind.
Co-Founder and Blockstack CEO Muneeb Ali enthused:
Upon qualification, we believe that this offering may be the first time a blockchain project receives approval to access the public U.S. securities markets… This can potentially set a precedent for others in the industry.
Yet Reg A+ Is Still Too Restrictive for Most
While Reg A+ could be the way forward for established and profit-making companies in the space, it’s not the solution for all. The need for two years of audited financials immediately disqualifies startups. The high cost associated with it may also dissuade others in the blockchain industry scrambling to survive the crypto winter.
Blockstack isn’t your average struggling blockchain company, either. It was created by computer scientists from Princeton University with the goal of decentralizing the internet using the Bitcoin blockchain as a base.
Blockstack previously raised investor capital in the form of a Reg D from big gun investors like Lux Capital and Union Square Ventures. We’re not talking about a one-man band here. It’s probably too early to decide whether this will set a precedent for other Bitcoin and blockchain firms yet.
Will Blockstack be approved by the SEC? Share your predictions below!
Images via Shutterstock