The U.S. Securities and Exchange Commission has finally given a blockchain company the O.K. to sell tokens directly to investors—sort of.
The SEC on Wednesday approved blockchain startup Blockstack’s application to raise money via a token offering, the first time it has allowed this type of fundraising in the cryptocurrency industry, according to the Wall Street Journal. The SEC has sued and fined several companies for initial coin offerings (ICO) that the agency said violated securities law.
The action “is a massive step towards the much-needed clarity for the US crypto space,” according to social trading platform eToro’s senior market analyst, Mati Greenspan. “This could be considered the first regulated token offering.”
That said, the SEC stopped well short of approving a normal ICO. Most notably, the offering was approved under Reg A+, a type of license created in 2012 to help start-ups enter the capital markets without the level of disclosure required for a standard initial public offering (IPO). The main difference is that Blockstack is limited to raising $50 million within a one-year period.
Up until this point, the SEC only approved initial offerings under Reg D, which can only be bought by accredited investors. These are companies with assets of at least $5 million or individuals with a net worth—excluding their primary home—of $1 million.
Blockstack had already raised $47 million in 2017 via an SEC-approved Reg D offering, as well as $5 million from venture capital firms, said the Journal.
The SEC has been aggressively declaring that ICOs are securities offerings that must be registered with the agency. Last month the agency launched one of its highest profile enforcement actions to date, suing Ethereum developer Kik Interactive over a 2017 ICO that raised $100 million.
All this has had a profound effect of the market. According to data from TokenData, ICOs raised just $118 million in the first quarter of 2019, compared to $6.9 billion in the same period a year earlier, the paper added.
Another difference between Blockstack’s offering and traditional ICOs is that it is not selling a true Bitcoin-type cryptocurrency, but a utility token usable only on its network. The company is creating a blockchain-based decentralized web platform on which developers can build dApps. Founders Muneeb Ali and Ryan Shea acted as advisors to the HBO comedy “Silicon Valley,” in which the main character is building a decentralized internet based on Blockstack, the Journal noted.
Ali, the CEO of Blockstack, told the Journal that the company spent $2 million and 10 months winning approval, joking that it “is our donation to the crypto industry.”
Blockstack’s tokens, which are available at stackstoken.com, “are consumed as ‘fuel’ when users register digital assets, like usernames, or when they register/execute smart contracts,” the company said on its website. “Using Stacks, developers can build and distribute apps that let users maintain ownership of their data and protect their digital rights.”
More than 100 independent developers have already built over 165 dApps on Blockstack, the four-year-old, New York-based company added.
Updated at 9:42 am on July 12 to reflect that Blockstack’s Reg A+ offering was not an exchange token.