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.

SEC Publishes Regulatory Framework for Digital Assets

On April 3rd, the U.S. Securities and Exchange Commission (SEC) has published new regulatory guidance for token issuers, under the title “Framework for ‘Investment Contract’ Analysis of Digital Assets.”

This regulatory guidance for crypto tokens has been in the works since last November, as stated by SEC Director of Corporation Finance William Hinman. Other members of the agency, including FinHub head Valerie Szczepanik and Commissioner Hester Peirce, have repeatedly stated that SEC staff was working on the document.

According to the published document, a framework issued by FinHub will be employed to analyze if digital assets fall under the securities category under the US federal security laws depending on the nature of the digital asset.

Speaking at New York University in March, FinHub Commissioner Peirce explained:

“Now staff guidance is staff guidance. The Commission can go ahead and bring enforcement actions anyway but staff guidance does carry a bit of weight, but I would like to do something more formal at the Commission level so people have a little bit more certainty.”

Apart from analyzing the nature of digital assets, this framework is intent to provide assistance to anyone who seeks to comply with the U.S. securities laws. However, the agency cautions the public to use this framework as a guideline or a tool that helps market participants recognize which digital asset offer or sale falls under the federal security laws.

Therefore, the regulatory guidance is merely a representation of the staff’s view and not a rule or an official statement made by the commission; meaning the framework is not legally binding on the divisions or the commission.

The new document outlines a number of factors that token issuers must take into consideration when analyzing whether or not their offerings qualify as securities, which includes an expectation of profit, whether a single or at least central group of entities are responsible for specific tasks within the network, and whether a group is creating or supporting a market for a digital asset.

It is also emphasized that token issuers should look at tokens previously sold: to check if previous tokens should have been registered as securities or if a digital asset previously sold as a security should be reevaluated.

The criteria for reevaluation include whether:

  • the distributed ledger network and digital asset are fully developed and operational (meaning individuals can immediately use the token for some function);
  • the token is focused on a specific use case rather than speculation;
  • Prospects for appreciation in the token’s value are limited; and if billed as a currency, the token actually operates as a store of value.

Meanwhile, the SEC has issued as well its first-ever no-action letter, which has highlighted reasons not to consider some digital assets as security. The no-action letter is not binding on courts but rather is only applicable to the recipients.

AI-Based Hedge Fund Numerai Raises $11 Million via Token Sales

American prediction market startup and hedge fund Numerai (NMR) has raised $11 million in an initial coin offering (ICO) round led by investors Paradigm and Placeholder, with the end goal of launching Erasure project. The funds raised in the round come from exclusively selling NMR tokens.

It’s an incredible feat such as very few companies have succeeded this year in attracting venture capitalists to private token sales without renouncing equity.

Founded in October 2015, Numerai is an AI-run, crowd-sourced hedge fund based in San Francisco. Numerai’s trades are determined by an AI, which is fueled by a network of thousands of anonymous data scientists. The technological innovation Numerai provides is in its use of structure-preserving encryption that they apply on their data feeds. Its aim is to prevent biases and overfitting, it also makes possible for Numerai to share their data feed for free with its users.

Based on the Ethereum (ETH) blockchain, Numeraire tokens are used in trading market predictions on the startup’s platform.

Numerai founder Richard Craib stated that the funds from the recent ICO would go primarily towards hiring engineers for Erasure – the decentralized unit of Numerai’s marketplace. Respectively, anyone can load data related to a wide range of markets beyond stocks and traditional assets. Currently, the platform has 44,000 registered users.

The ICO round was led by VC and private equity firm Placeholder, and crypto investment company Paradigm, founded by Coinbase co-founder Fred Ehrsam.

Placeholder partner Joel Monegro has commented on the company’s decision to invest through tokens rather than equity, citing:

“The way we think of our investing in decentralized crypto networks is underwriting, capitalizing the network. … As more people come to buy and sell data from each other, the role of big financial investors like ourselves diminishes over time. Then we can gradually begin to exit our position as the network becomes self-sustaining.”

He further added that Erasure will be the project used to “break open the investment market” by allowing any party to buy or sell predictions on a public blockchain network.

Paradigm co-founder Fred Ehrsam was drawn to the proposal as Erasure is a concrete project in comparison to most proposals. It has a first use case and customer – Numerai – and it’s simple in the way that the mechanism is just writing encrypted predictions to the chain with the ability to sell them.

Erasure was announced in October of 2018 and is expected to launch within the later half of 2019. According to Craib, Erasure will allow users to sell their predictions to any investment fund on the public network via the peer-to-peer InterPlanetary File System (IPFS), and directly connect their crypto wallets to the Ethereum-based marketplace. Whilst Numerai-based prediction models are at the moment mostly centered on traditional assets, with the launch of Erasure users will be able to sell or buy predictions on any asset.

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.