Blockstack is the First SEC-Approved Token Offering Under Reg A+

The United States Securities and Exchange Commission (SEC) has granted blockchain-based startup Blockstack clearance to run a $28 million public token offering under Regulation A+, according to an official blog post from Blockstack.

According to news, Blockstack will launch its token offering online on Thursday, July 11th.  It will be open to any purchaser in the U.S. and globally, who would like to take part in the Blockstack next-generation computing network.

Blockstack is a blockchain builder that has raised $47 million through a previous token offering under Regulation D, which is a different provision that does not require SEC approval but is only limited to accredited investors. In comparison, Regulation A+ is open to all companies and individuals and serves as an initial public offering (IPO) alternative for smaller companies to publicly raise money with less strenuous accounting and disclosure standards than a regular IPO requires.

Although previously companies have taken advantage of Regulation A+ funding, this marks the first time that investors will receive a token, rather than shares in the company. This development has the potential to be a game-changer for other crypto startups that are looking to sell tokens but not equity in their companies whilst also remaining SEC-compliant.

Blockstack founder Muneeb Ali has shared his enthusiasm, however stated that the process has very long and costly since the SEC had to devise a brand new protocol for token offerings under Reg A+, something the regulator had never done before.

Accordingly, the startup has spent 10 months and approx. $2 million to gain approval from the SEC. Ali apparently said that Blockstack had to develop a protocol for running what is essentially a regulated ICO through Regulation A+ from the ground up.

This is possibly a precedent-setting moment for the crypto space, according to reports. Initial coin offerings (ICOs) have lost much of their appeal ever since they became the target of an SEC crackdown. According to WSJ data, ICOs attracted less than $120 million to their coffers in Q1 2019 in comparison nearly $7 billion in the year-ago period.

Meanwhile, recent poor performances and fraud concerns surrounding some of the Reg A+ IPOs have discouraged Nasdaq and the New York Stock Exchange from Reg A+ listings. Against this backdrop, having the SEC’s approval on a Reg A+ token offering may shed light on a new path for blockchain companies to raise funds under regulation, according to the startup.

Now that Blockstack has successfully created this new path for blockchain companies to raise funds, certainly more companies will now be encouraged to seek SEC approval for their token offerings rather than argue with the regulator that their tokens are not securities.

Telegram to Hold a Partial Public Sale via Liquid Crypto Exchange

Messaging app giant Telegram’s gram token, previously sold to accredited investors in one of the bigger ICOs of 2018, is finally going on public sale, a press release confirmed on June 11th.

According to the news, a limited sale of the gram token will be hosted by cryptocurrency exchange Liquid from July 10th.

The offering comes before a full public sale planned for October. However no further details about the sale have been disclosed to the public. The sale will ensue via Gram Asia, which claims to be the largest holder of gram tokens.

Prior to this, grams have been sold only to accredited investors in Telegram’s massive two-phase private initial coin offering (ICO) back in February and March of 2018, which subsequently raised  around $1.7 billion for its Telegram Open Network (TON) project and was by far the largest fundraise made via a crypto token offering.

The Telegram Open Network (TON) was an ambitious blockchain project with the goal to decentralize multiple facets of digital communication, varying from file sharing to browsing to transactions.

According to the gram sale page on Liquid’s official website:

TON brings speed and scalability to a multi-blockchain architecture that addresses the need for minimal transaction times and airtight security.”

Liquid CEO Mike Kayamori has stated in the press release that:

“We share the vision for a more secure and open value transfer system in order to enable the mainstream adoption of cryptocurrencies.”

He further added that the TON blockchain infrastructure could help boost Telegram’s current capacity as well as efficiency as a peer to peer network of value, with the launch of their cryptocurrency light wallets for Telegram’s highly engaged user base.

Meanwhile, the sale is open to all investors globally; however it excludes several nations including the U.S. and its territories as well as Japan, most likely due to regulatory reasons that the token could be considered a security within those jurisdictions.

Investors interested in participating in the sale on the Liquid platform can purchase grams with either U.S. dollars or the USDC stablecoin. According to the official website, a full token launch is expected at the end of October.

Notably, any gram tokens sold in the upcoming offering will not be immediately tradeable.

“The tokens being sold will not be released until after TON goes live (mainnet release), in accordance with the delivery schedule. Purchasers will not be able to transfer, withdraw, or trade the Grams before they are released.”

This news comes roughly two weeks after Telegram released a testnet version of the TON client, which itself follows an extensive development process and the Q3 launch date.

As of press time, Telegram has not released any official comments regarding the news.

SEC Sues Kik Over Its 2017 Token Sale

The U.S. Securities and Exchange Commission (SEC) sued Kik Interactive Inc. for illegally raising $100 million during a 2017 token sale, making this one of its highest profile cases targeting a company for not registering an offering with the regulator.

In a filing submitted Tuesday in the Southern District of New York, the SEC said Kik violated Section 5 of the Securities Act of 1933, which requires offerings to be registered.

The current law states that all those selling financial instruments deemed securities to US investors must first register their offering with the SEC. Since Kik did not, the firm is now being sued.

Kik, whose product is an online messaging application, raised more than $55 million from U.S. investors by selling a digital token called Kin without the proper disclosures, the SEC said in a Tuesday court filing. The agency is seeking undisclosed monetary penalties.

Steven Peikin, co-head of the SEC’s enforcement division stated:

“Companies do not face a binary choice between innovation and compliance with the federal securities laws,”

The SEC has been looking with skepticism at ICOs for years, arguing that the sales are likely securities that must follow federal rules. The regulator has publicly advised investors of the risks in buying tokens during an ICO, cautioning that scammers might be using them to lure investors into frauds.

In late 2016 and early 2017, Kik faced a crisis, according to the SEC filing.

Fewer and fewer people were using Kik Messenger. The company expected to run out of cash to fund its operations by the end of 2017, but its revenues were insignificant.”

Then the company decided to do an ICO, in what a board member called “a hail Mary pass,” according to the filing.

Kik was among the biggest initial coin offerings in the past two years and had prominent backers.

Kin recently launched a crowdfunding site called DefendCrypto.org to raise money to fight back against an SEC investigation into the firm, and the agency’s broader crackdown on ICOs.

Kik argues that it has attempted to work with the SEC over the past 18 months and has spent over $5 million in the process. Many in the cryptocurrency community believe the case could help clarify when a token will be considered a security and subject to SEC regulations.

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.