We have seen mind-blowing sums raised through Initial Coin Offerings (ICOs) and how most of the crypto tokens were worthless.
The US regulator, the Securities and Exchange Commission piled in like a vengeance since December 2017 to this no-sweat capital raising environment in an aggressive attempt to chill the market. It took enforcement actions against unregistered token sales that showed no obligations to investors. Yet lately it has been taking a more positive attitude to companies looking to comply with the US securities laws, publishing a fresh regulatory guidance for token issuance in April.
Since then there have been a flurry of startups getting much more benevolent treatment from cryptocurrency’s bête noire regulator. Last month the SEC approved Securitize as a transfer agent. In July 2019, the SEC has approved two token offerings consecutively under Regulation A + opening up an avenue to startup fundraising.
The SEC's regulatory guidance and Reg A+ explained here.
Reg A+ startups
Blockstack provides an open-source computing network that allows developers to build decentralised application on the platform. The company has received the SEC’s approval to run a $28 million public token sale under Regulation A+. This notes the first token offering qualified by the SEC in the US.
Issued on the Ethereum blockchain, Props is a cross-app consumer rewards token that strengthens in-app engagements within streaming platforms such as YouNow and provides a new financial vehicle for content creators. Props token is the first Reg A+ consumer utility token qualified by the SEC.
Apart from approving exempted securities such as Reg A+, the SEC opened doors to further assist the growth of tech companies.
A token issuance platform Securitize is now an official securities ownership tracker approved by the SEC. Registered as a transfer agent, Securitize enables the compliant trading of private securities.
Long-Term Stock Exchange (LTSE) aims to assist tech companies to go public more quickly while giving them time to make their ideas into working products fulfilling their long term goals. Founded by Eric Ries, LTSE was given SEC’s approval in May 2019 and is registered as a national stock exchange in the United States.
Not all blockchain tokens are securities
The SEC has issued no-action letters to a jet leasing firm TurnKey Jet and a gaming token company Pocketful of Quarters confirming that it will not take enforcement actions for selling their blockchain-based tokens without registering them with the SEC.
The utility tokens of both companies thus :
Do not represent equity of a company
Do not represent profit potential
Do not store value
Cannot be traded on a secondary market
Cannot be used as funds to develop company’s business management
Will be used to facilitate payment settlements
Pocketful of Quarters is a cryptocurrency-based gaming platform. Its ERC-20 token Quarters can be used across multiple games to buy game items from fancy armors to extra lives preventing the loss of gaming credits earned while playing video games.
The SEC okay-ed an unregulated ICO of TurnKey Jet in April 2019. TurnKey Jet is an aircraft charter service offering short-term lease including aircraft crew maintenance and insurance. The company’s TKJ token will be sold and remained at a price of $1. The pre-purchased TKJ tokens will be redeemed to charter planes eliminating the delays in payment.
Being able to market and sell blockchain-based tokens as a consumer product marks a big step in the growing crypto space.