The Securities and Exchange Commission on Wednesday cleared blockchain startup Blockstack to sell bitcoin-like digital tokens. This is the first-of-its-kind offering that could mark the beginning of a new fundraising model for cryptocurrency businesses.
The startup’s $28 million offering was approved by the SEC under Regulation A+. This is an alternative to an initial public offering (IPO) and popular initial coin offerings (ICO) meant to help fledgling businesses raise capital, a lawyer for Blockstack said. The company announced plans to begin selling the tokens to the public Thursday through a website created for the offering.
While the offering resembles an ICO in some ways, there are some differences. Token buyers won’t get ownership stakes in the company. They will instead get “utility tokens” that will act as a currency on Blockstack’s network, a blockchain-based software platform on which developers can build applications. Blockchain is the technology that supports BITCOIN.
This makes Blockstack’s offering the first regulated version of initial coin offerings (ICOs), which are unregistered public sales of digital tokens that exploded in 2017. So far, billions of dollars have been raised through ICOs but the SEC began a legal campaign against token sales earlier this year in an attempt to protect investors and regulate markets.
BLOCKSTACK’S offering could mark the creation of a new niche that will fill the funding hole left when the ICO market cratered. ICOs raised $118 million in the first quarter of 2019, according to research firm TokenData, down from $6.9 billion a year earlier.
Blockstack, founded in 2013 by Muneeb Ali and Ryan Shea, spent 10 months and about $2 million getting SEC approval for the Reg A+ sale. Mr. ALI said it took so long and cost so much because the company and the SEC had to start from scratch to create a protocol for a digital-token offering under Reg A+.
“In a way, the $2 million is our donation to the crypto industry,” Mr. ALI said.
At least one other crypto-based startup, YOUNOW INC., also has filed for a Reg A+ offering, according to a regulatory filing. All of this is happening while several ICOs are trying to settle lawsuits with the SEC for failing to register their tokens as securities.
The SEC has not made any comments on the alleged registration.