In a first, a cryptocurrency exchange is planning to raise money from the markets using an initial public offering (IPO). The INX Exchange has filed a prospectus with the SEC to raise $130 million through an IPO. The IPO is significant because it will be the first security token registered with the SEC. Cryptocurrency startups have used an alphabet soup of acronyms, including Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs), to raise funds for their ventures.
IPO Details
The INX exchange’s IPO, which is registered in Gibraltar, had to file the draft F-1 form, which is a prospectus form that foreign security issuers must sign. It signed the form on August 19 and has begun marketing the sale to institutional and retail investors.
The INX exchange’s draft prospectus states that when the company begins operations, it will be mainly open to professional traders and institutional traders. Users of the exchange will need to go through KYC and AML screening. Two platforms will be established by its parent company INX Limited – one for trading securities and another one that utilizes non-security tokens.

“When fully operational, we expect to offer professional traders and institutional investors trading platforms with established practices common in other regulated financial services markets, such as customary trading, clearing, and settlement procedures, regulatory compliance, capital and liquidity reserves and operational transparency,” the company’s prospectus states.
INX plans to place 75% of the offering’s proceeds in a cash fund “in excess of $25 million” that will be used to reimburse company and customer losses resulting from hacks and breaches, technical glitches, and counterparty defaults. It is targeting money transmitter licenses in eight U.S. states by the end of 2019 and “most” U.S. states by the end of 2020. (Per existing regulations, cryptocurrency exchanges are required to obtain money transmitter licenses in states where they intend to operate).
The INX token also has utility value because it can be used to pay fees on INX. At the same time, token holders will also receive a share of the exchange’s overall profits. They will also receive payments first and take precedence over shareholders, if the exchange liquidates. But they will not be considered equity holders; IPO investors are equity holders in the exchange, for all practical purposes. The company plans to establish a platform for trading of derivatives, such as options, swaps, and futures, later.
INX’s venture enters a growing industry of regulated cryptocurrency exchanges that could serve as direct competitors to it. Recent examples include the likes of tZERO, Coinbase Prime, and Fidelity Digital Assets. The venture will also compete with Bakkt by Intercontinental Exchange, which offers derivatives trading.
A Shift Away from ICOs?
This is the first time that a token sale has been registered with the SEC and follows the issuance of no-action letters issued by the agency to two startups earlier.
Whilst it became a popular mechanism to raise funds, the ICO ecosystem was rife with scams and unsavory characters. The regulatory uncertainty surrounding the status of tokens issued by cryptocurrency ventures also ballooned into a risk when the SEC began cracking down on startups. Taken together, the current set of developments translates into a shift towards regulation for the cryptocurrency ecosystem.
The INX token sale will also be one of the largest and amongst the few fully-fledged IPOs in the fledgling cryptocurrency industry. In 2018, one of the largest IPO in the crypto world was by Argo Mining in the London Stock Exchange, which was worth $32.5 million.
INX is headed by Alan Silbert, brother of Barry Silbert – already a prolific investor in cryptocurrency-related ventures. It also counts notable members of the cryptocurrency and financial services ecosystem – such as Jameson Lopp, CTO of Casa, Mark Yusko, CEO of Morgan Creek Capital, and David Weild, a former vice-chairman of Nasdaq – as part of its advisory board.