blockstack

Blockstack Token Sale to Offer 2500x Returns if Approved

Blockstack PBC, a blockchain software company based out of New York, filed with the SEC on April 11th in hopes they’d see approval for the 1st US regulated token offering. If the SEC approves their filing, it could mean a 2500x return on investment for certain token holders. While it might seem like the SEC has softened their stance on ICOs, it’s really a whole different story.

Blockstack PBC Explained

blockstack

Blockstack is a computing network that aims to be completely decentralized. Created by Princeton computer scientists, the design of the network gives engineers a place to build privacy-focused applications.

On the building platform, developers control their own data as opposed to storing it with big tech companies. This would help them maintain control over their digital property rights while enabling enhanced security and privacy. The open source platform currently has core developers contributing from all over the world.   

With the recently announced SEC filing, Blockcstack Token LLC (a subsidiary of Blockstack PBC) hopes to see approval of their proposed $50 million token offering. Their filed submission was the result of months of working with the SEC and securities lawyers. They’ve been trying to structure an offering under the Regulatory A+ Framework.

Their end goal was strict compliance with the SEC. So the hope is that this filing will stand as an example for moving forward through the American web of cryptocurrency regulation.

What is Regulation A+?

This alternative to IPO securities guidelines gives an exemption to some of the security regulations overseen by the SEC. It essentially allows for equity crowdfunding campaigns to offer and sell securities to American investors.

Originally part of the JOBS Act of 2012, Regulation A+ was set up to enable more people to invest in startups. This was one way of helping to jumpstart innovation. Previously, the only investors allowed to participate in these offerings had to have stringent income qualifications:

  • An individual salary of over $200,000 for over two years, or
  • Joint annual salary of $300,000, or
  • $1 million in net worth, not counting a primary residence.

Regulation A+ enables SEC registered companies to raise money from the public, including both accredited and non-accredited investors.

Two tiers were available for this exemption, the first with a cap of $20 million raised in one year, and the Tier 2 offering capped at $50 million. Blockstack went with the Tier two option in their filing. Basically, Regulation A+ was a definite nod to crowdfunding, one that has taken on a new meaning with cryptocurrencies and token offerings. So far, Blockstack has made several submisisons and gotten feedback from lawyers and the SEC. Now they are hopeful with their latest filing.

As CEO of Blockstack PBC Dr. Muneeb Ali explained, “We’ve been in a confidential submission process with the SEC, making progress as we drive towards an SEC-qualified token offering.”

Hope for US investors and innovators

Blockstack’s compliant heavy filing gave hope to American innovators and US investors wanting to take part in token offerings. Up until this point, the regulatory atmosphere has been uncertain. As a result, companies have felt in the dark without concrete guidance in this new era of digital token offerings.

One of the biggest challenges has been adherence to the Howey Test. This generation-old guidance, written pre-Internet, helps companies determine if their investment product is a security. But digital assets don’t succinctly fit into this framework, which was originally meant for stocks.

In the past year, amidst this regulatory vacuum, the US market has been essentially closed to investing during the massive surgence of token offerings worldwide. Even more important, many US businesses wanting to raise funds through the Initial Coin Offering (ICO) have largely departed for greener pastures or closed up shop unable to break through the regulatory quagmire.

What is the Howey Test?

Under the Howey Test, a transaction is an investment contract and therefore under the SEC’s jurisdiction if:

  1. It is an investment of money.
  2. There is an expectation of profits from the investment.
  3. The investment of money is in a common enterprise.
  4. Any profit comes from the efforts of a promoter or third party.

One of the reasons Blockstack does stand out in this filing is that they are shooting for complete decentralization. When you look at Questions #3 and #4 of the Howey Test, a decentralized network doesn’t quite fit into the equation. How is a decentralized network a common enterprise? And who exactly is the ‘promoter or third party’?

As explained in the filing, the proposed offering will have several stages:

  • 215 million tokens at $.00012 to current voucher holders. These holders include the Harvard Management Company, the world’s largest investment fund that oversees Harvard’s Endowment Fund.
  • 40 million tokens at $.30 in a general offering to qualified investors.
  • 40 million tokens going toward developers who create applications on the network.

Potential 2500x ROI

What’s interesting about this filing, is that upon approval, the voucher-holding investors who signed up to buy during the offering will see a 2500x return from purchasing the tokens early at $.00012 per token.

While we’re talking about a decentralized platform and token offering, you have to wonder if giving the top American fund managers the biggest advantage is really what cryptocurrencies are about.

Needless to say, many in the community are glad that institutional investors are bringing credence to the industry. Others view big banks and funds entering the market as a mid-term phenomenon taking hold until cryptocurrencies and financial autonomy become mainstream.

SEC’s ICO Framework

Last week, the SEC published their ICO framework for companies seeking to determine if their token constitutes a security. The framework itself actually snuffed out a lot of the features of ICOs we’ve come to know, love and hate. In return, what we got was a suggested general direction that still revolves around comparing cryptocurrency tokens to stocks and other securities.

The SEC is a bit behind the times and still trying to use the Howey Test for digital assets. But these new assets require moving away from the aging set of guidelines with clearer more relevant guidelines.

A pretty big caveat

Maybe the SEC will approve and thus register the Blockstack LLC token offering. But even then, there’s no guarantee that investors will be able to trade their tokens on the open market. Blockstack expressly stated this in theirSEC filing:

“There are currently no national securities exchanges or exchanges that have been approved by the Financial Industry Regulatory Authority (“FINRA”) or registered under Form ATS with the SEC (which we refer to in this offering circular as “registered exchanges or alternative trading systems”) to support the trading of Stacks Tokens on the secondary market.”

Until such a registered exchange emerges, holders of Stacks tokens who want to trade on the secondary market will have to make their own determination as to whether or not they as an investor are in compliance with all state and federal securities laws.

A shift in SEC focus

We are seeing the excitement fomenting around Blockstack’s SEC filing. But we’re also noticing a large departure from what the SEC’s primary focus has been when it comes to token offerings. Over the past few years, the Commission has been going after ICOs that raised millions without registering with them and others that scammed investors.

Now it seems they’re gaining traction in developing a framework that blockchain-based businesses can follow for their token sales. All in all, it’s exciting to see participants from all industries and persuasions laying the groundwork for a cryptocurrency-filled future.

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Also published on Medium.