Capital markets News

SEC permits $28m Blockstack token offering


On the 10th July, it was reported that the Securities and Exchange Commission (SEC) has approved Blockstack’s $28 million token offering. In the past the SEC has been strict about blockchain based coin offerings, having sued firms over unregistered ICOs. Importantly, the Blockstack tokens do not represent shares in the company and are utility tokens.

However, Blockstack applied for and won approval under Reg A+. It is a 2015 SEC amendment to legislation which allows companies to raise up to $50 million without registering as securities, aiming to encourage employment and support new businesses. Registering is not only expensive but sometimes a point of contention among firms.

Companies such as Kik, sued by the SEC last month, believe that their ICO was not the sale of securities as their blockchain based tokens had other uses besides investment. The SEC disagreed and claimed the $100 million Kik raised was unlawful.

Yesterday’s report reveals that, for the first time, the SEC has reviewed and “qualified” an unregistered coin offering. The founders of Blockstack hope it won’t be the last time. They spent nearly a year and $2 million to gain approval, as the SEC had to make a protocol from scratch.

The Wall Street Journal article quoted co-founder Muneeb Ali joking that “the $2 million is our donation to the crypto industry.”

ICOs used to be the way for such companies to raise money, especially if they had promising technology. After the SEC’s legal action over Kik and others, they have fallen in value by nearly $7 billion from last year.

Indeed, Blockstack hopes that the newly written protocol will be the new way that blockchain firms can raise money without either paying to register or fearing legal action over an unregulated sale.

The NY based firm provides a blockchain based platform for developers, eventually aiming to build the ‘decentralized internet’.

It’s not the organization’s first token offering. In late 2017 it conducted an ICO. It raised $50 million from accredited investors but also included two novel features. Firstly, it did not hold a pre-sale in which a small number of investors get a preferential price. And secondly, it had a public ICO element where it issued free vouchers that allowed users to buy tokens at the same price in the future but limited to $3,000 per user. These voucher holders will participate in the SEC qualified token offering at 12 cents compared to the public who will pay 30 cents per token.