Blockstack, a startup building a decentralized Internet, has become the first company to receive approval from the Securities and Exchange Commission (SEC) to conduct a public offering of tokens for its applications. The New Jersey-based company will raise $28 million under a Reg A+ offering, which allows companies to raise up to $50 million without significant public disclosures. Among the applications being built on Blockstack’s platform are personal data lockers for user data.
A Move Towards Regulation?
The SEC’s greenlight for the offering, also known as initial coin offering (ICO), is significant because it is the first such approval and could signal a move towards greater regulation of the space. The SEC stepped in after an increasing number of fraudulent cases began pervading the ICO ecosystem in recent times. Entrepreneurs took advantage of the absence of regulation to raise large amounts by making tacit promises of profits to investors, while marketing their tokens as utility tokens as opposed to security tokens. Utility tokens require fewer disclosures and have cheaper compliance costs as compared to security tokens.
But Blockstack’s utility tokens came at a steep cost of $2 million, according to the WSJ report. Muneeb Ali, CEO of Blockstack, told the publication that the entire process took ten months because the SEC had to create a “protocol” for digital token offerings under Reg. A+.
The offering is available through a website, specially made for the purpose. Blockstack’s tokens are known as Stack Tokens, and are described as the “native” tokens of the Blockstack network. They will be used as default currency among developers building applications on Blockstack’s platform and are also the default form of payment for in-app payments for digital assets. A cursory reading of the offering circular reveals that a majority of the tokens – 78.3 million – have already been made available by the company to investors at a discounted price of $0.12.
Blockstack was previously in the “testing waters” phase of its offering during which it ascertained public demand for its tokens. The Harvard Endowment Fund bought 95.8 million Stacks Tokens for just over $11 million this year. According to online database Crunchbase, Blockstack had already raised $70.8 million from 28 investors. That list includes a bunch of marquee names, from Silicon Valley firm YCombinator to the Winklevii twins and Naval Ravikant, who founded angelist and has emerged as a figurehead spokesperson for crypto. Digital Currency Group, arguably one of the most influential groups in crypto, is also an investor.