Last month, the U.S. Securities and Exchange Commission (SEC) finally gave a blockchain startup company, Blockstack, approval to sell bitcoin-like digital tokens directly to investors— to some extent. The SEC has previously sued and fined several cryptocurrency companies for initial coin offerings (ICO) that the agency said violated securities law.
This is a first-of-its-kind offering that could give other startup cryptocurrency companies a new fundraising template. The $28 million offering was approved under Regulation A+ (Reg A+), which was created in 2012 to help startups enter the capital markets without the level of disclosure required for a standard initial public offering (IPO). Blockstack is limited to raising $50 million within a one-year period in this Reg A+ offering and will sell the tokens to the public through a website created for the offering. The company already has raised $5 million in venture-capital funding and $47 million through a 2017 Reg D token offering.
However, the SEC stopped well short of approving a normal IPO. While there are some similarities between the offering and an IPO, there are major differences. For example, token buyers will not get ownership stakes in the company. Rather, they will get “utility tokens” that they can use as currency on Blockstack’s network, a blockchain-based software platform on which developers can build applications. Blockchain is the technology that supports bitcoin.
The Blockstack offering is, in essence, a regulated version of initial coin offerings, unregistered public sales of digital tokens that exploded in 2017. Cryptocurrency ventures raised billions of dollars through ICOs before the SEC began a legal campaign against token sales that it said violated investor-protection laws.
Hope for the Future
The SEC has now given investors and entrepreneurs alike a ray of hope for the future of the space. “This means everyone from general enthusiasts, to longstanding Blockstack supporters, to accredited or non-accredited investors alike — in the U.S. and globally, can participate in the sale,” announced Blockstack. Reg A+ could be the answer crypto companies have been looking for to sell tokens.
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