Blockstack Files with SEC for Its Token Sale

Blockstack, a blockchain-based applications platform launched in 2017, has announced its intent to raise $50 million in a token sale, by filing with the SEC for Regulation A+ crowdfunding exemption.

First Token Sale Filed with the SEC

The token sale, would be operated via a wholly-owned subsidiary, the “Blockstack Token LLC,” and entail the sale of 295 million Stacks (STX) tokens.

If approved, this could be the first token offering that has been registered with SEC. While the move still requires regulatory review, the sale would enable Blockstack to raise capital through the U.S. securities markets.

The Regulation A+ exemption enables equity crowd funding campaigns to offer and sell securities to U.S. investors via two tiers, either for $20 million or $50 million, each over a 12-month period.

The total amount of tokens being offered stands at 295 million. According to the SEC filing, Blockstack will be offering 215 million tokens at $0.12 to its early backers. Another 40 million tokens will be made available at $0.30 each. The final 40 million tokens will be reserved for incentivizing developers building applications on the platform.

Some of the investors that will be participating in the sale include Hardvard’s endowment fund, Lux Capital, Foundation Capital along with other individual investors.

 “The net proceeds of the offering will be used to accelerate the development of its decentralized computing stack and app ecosystem,” the company said in a release.

Previous Token Sale

The company has already raised $52 million in December 2017 by selling 440 million tokens at the time. Investors included Union Square Ventures, Foundation Capital, Winklevoss Capital and Blockchain Capital, among others.

Muneeb Ali, co-founder and CEO of Blockstack, believes this could help the cryptocurrency industry establish a proper framework for both investors and other blockchain startups.

“We’ve been working with securities lawyers to create a legal framework that can enable blockchain protocols to comply with SEC regulations.”

 “This can potentially set a precedent for others in the industry, not just for public offerings, but also as a path to launch new public blockchains and establish a path to bootstrapping decentralized ecosystems.”

According to the filing, Blockstack now employs 21 employees and has $32 million in total assets. The company has launched its native blockchain, the Stacks protocol, and has seen more than 80 decentralized applications built on its platform.

German Politicians Push For Legal Framework for Cryptocurrencies

Most recently, German parliamentary representatives have put forth new suggestions for an appropriate legal framework for cryptocurrency trading as well as token granting, as they believe it would encourage the industry’s domestic development.

Politicians Recognize the Potential of Blockchain

The proposal was suggested at a public hearing hosted by the Bundestag’s Finance Committee on March 11th. The latest public hearing was scheduled to discuss the opportunities that blockchain can offer the country and how to turn it into a financial and business hub.

Union parties’ Antje Tillmann and colleague Matthias Hauer brought up the subject as they believe that Germany should not be left behind as blockchain begins to change the nature of finance in the coming years. According to their statement, whilst the industry is still in its nascent phase, they believe that blockchain technology is bound to make a significant and effective impact as a base technology for national digitization strategies across multiple fields, therefore the groundwork for its future implementation should be laid today.

In their joint appeal, they brought up both the current as well as the future state of the industry.

Both representatives reassessed the government’s projects up until now and commended their efforts for supporting pilot projects across the electro-mobility sector as well as electricity trading projects and projects for the Federal Office for Migration and Refugees.

Germany Doesn’t Want to Miss Out on the Trend

However, Tillman and Hauer stated that the efforts of the government should be increased. With an increasing outflow of blockchain startups to European as well as non-European countries, financing rounds (ICOs) are taking place almost exclusively abroad. Presently, ICOs are not fully regulated in Germany, and are generally treated as securities by regulators yet there is no clear rule on how to create an ICO in Germany so far.

Respectively, creating a good environment for startups to operate in the country, would lead to more investment and more opportunities for Germany to become a leader in the field.

Tillmann and Hauer claimed that in order to stay at the forefront, the government needs to lay out clear regulations for cryptocurrency and token trading to crypto trading, stating that “the potential of blockchain technology can only be fully realized if there is legal certainty and potential risks are mitigated. The goal must be to retain the entire added value of this promising technology in Germany and to develop our country into a pioneer of the blockchain economy.

Meanwhile, Germany’s justice and finance ministries have come out with a proposal to launch a state-run register to regulate the blockchain sector and protect investors from possible abuses. It is expected that the government will introduce a nationwide blockchain strategy within the first half of 2019.

South Korean Financial Regulator Won’t Lift Ban on ICOs

South Korea’s state financial regulator – the Financial Services Commission (FSC) – has stated in a press release that it will continue to ban initial coin offerings (ICOs) in the country, after conducting an investigation into token projects that have been disregarding the law.

The FSC decision came as a result of a survey conducted by the financial institution itself, unveiling  that firms conducting ICOs were making use of foreign jurisdictions, but still raising funds from local businesses and individuals.

The survey in question was conducted in September 2018, as the FSC had sent the survey questionnaire to 22 local firms that handled ICOs abroad, and only 13 responded. According to statistics, the companies had held the ICOs since the second half of 2017, raising a combined total of 566.4 billion won ($509 million).

The survey also revealed that Singapore and Switzerland were the most popular places to host an ICO amongst those companies that responded to the FSC. Due to the survey, it was found out that companies had been setting up paper companies abroad in order to bypass the ICO ban in South Korea, whilst raising funds from Koreans as proved by the white papers and marketing materials used in the Korean language.

According to data gathered from the survey, some ICO projects did not reveal any important information for investors such as company profile and financial statements, and in some cases gave false information. Respectively, the risk for investors was also deemed high as the value of the projects’ tokens had fallen by an average of 67.7% since launch.

Due to the statistics gathered with this investigation, the FSC won’t lift the ICO ban in South Korea any time soon and advises the public to do due diligence and exercise caution before getting involved with ICO related projects.

South Korea formally banned ICOs in September 2017, citing lack of stability and ease of manipulation as cause to stop citizens from buying cryptocurrency tokens.

Hong Nam-ki, head of the office for government policy coordination, stated in October last year that the financial regulators in the country had been reviewing the topic over the course of recent months and declared that the FSC survey would guide decision-making for the policy. Hopes of a reversal appeared last year after the National Assembly began debating the ban, but the tone has evidently since turned grim.

Social Media Platform Kik Ready to Battle SEC in Court Over Securities Fraud Allegations

Canada-based social media giant Kik is currently facing an imminent enforcement action over an alleged securities infraction, after the U.S. Securities and Exchange Commission (SEC) judged its 2017 initial coin offering (ICO) to have involved the sale of unregistered securities.

According to a report published by the Wall Street Journal, the tokenized social media startup has warned US regulators that they would fight the proposed enforcement action against the company. Kik founder and CEO Ted Livingston has stated that the firm’s token – KIN – operates like a currency and therefore is not an unregistered security, as suggested by the SEC. It is reported that the company has managed to raise around $100 million in “KIN” tokens for its chat-based social media network — which can be earned on the platform, traded or redeemed for goods and services.

In addition to the WSJ report, Livingston has stated in a blog post that there are various projects at a similar point with the SEC and has commented that whilst he believes that the industry needs regulation, he argues it should not be done in this way. He further argued that the crypto space as a whole must challenge the application of securities laws to emerging assets such as decentralized platform tokens.

Having made the claim that the kin is a currency, Livingston argues that it is explicitly stated in the Securities Exchange Act of 1934 “that the definition of a security shall not include currency.” As such, the company argues that Kin fits the definition of a currency in that it is a medium of exchange, and therefore is exempt from the SEC’s definition of a security.

Furthermore, Livingston has said that the company’s token does not satisfy the Howey Test, which is the U.S. standard for determining whether something is a security.

The SEC had contacted the company after the launch of the ICO and most recently has sent a Wells notice, which states that Kik has violated securities law. As a response to the notice, the company Kik claimed that its ICO involved no fraud and the alleged accusations are believed to be unjustifiable such as the company had made substantial efforts in good faith to comply with all existing laws and regulations when selling Kin in September of 2017.

It is further mentioned in the post that, if the enforcement action is taken up, the firm is ready to go to court and is confident to prevail.

With ICOs having diminished in number, mostly due to the threat of regulatory actions, the verdict in this case could have a major effect on the crypto industry. If an American civil judge determines that Kik’s ICO wasn’t a securities offering, not only would the firm be safe from hefty fines and other stringent measures, but it could also aid dozens of other projects struggling under the SEC’s control.

SEC Director Hinman Says ICO Guidelines Will Be Published

The U.S. Securities and Exchange Commission (SEC) stated that they will release guidelines for cryptocurrencies and how ICOs might be classified as securities.

William Hinman from the SEC spoke at the Fintech Week in D.C. and confirmed that the agency will publish guidance in “plain English” for developers looking to raise money through ICOs. It is not yet clear when this will happen, but certainly the regulator is actively pursuing this.

Hinman stated at the event:

“We also will be putting out more guidance, the idea is a plain English instrument that people can look at and they’ll bring together sort of my Howey-meets-Gary speech, and that analysis … We’ll elaborate on that in a very plain English way, so ‘do I think I have a security offering,’ look at that guidance and you should be able to sort things out.”

Recently the SEC has also opened the FinHub which is directed towards FinTech startups and includes companies conducting ICOs. Its role is to offer a channel for discussion and guidance for entrepreneurs and developers.

“Once you determine whether you have a security, we’re going to have in that guidance, ‘how do I go about registering’ and ‘how do I go about doing an exempt offering,'” Hinman added.

The purpose of the guidelines is to shed light on a set of quirky subjects in finance like accounting, custody and token valuation. It will also touch on secondary market transactions and give developers a better understanding of how market forces can influence tokens after the initial offering.

“I think we can try to bring that together and share that … we want to share that a little bit more transparently,” he said.

When asked about how the SEC might classify a token sale as a securities offering, the SEC representative mentioned that factors like the expectation of a return on investment indicate a potential securities offering.

“If someone’s offering an instrument for money or other consideration to a third party, and that third party expects the offerer to generate a return or so something that will increase the value of the coin or token or whatever they want to call it, and there’s that expectation of return, we’re generally going to see that as a securities offering,” he said.

Previously William Hinman has stated that Ether is not a security because it is sufficiently decentralized.