A Regulated Token Offering is a type of Initial Coin Offering (ICO) for a cryptocurrency which has been qualified by the US Securities and Exchange Commission under Regulation A+ framework. Regulation A+ is an alternative to traditional initial public offerings with more lenient disclosure obligations that is made specifically to help early-stage startups raise money.
Tier 1 and Tier 2 offerings
Regulation A+ is an exemption to federal securities laws that enables companies to offer and sell up to US $50 million worth of a security in a 12-month time period. There are two tiers of offerings:
- Tier 1: Security offerings of up to $20 million in a 12-month period
- Tier 2: Security offerings of up to $50 million in a 12-month period
This regulation also provides for the preemption of state securities law registration and qualification requirements for securities offered or sold to "qualified purchasers" in Tier 2 offerings. However, Tier 1 offerings are subject to federal and state registration requirements.
Security registration for regulated token offerings
Under Rule 501 of Regulation D of US federal securities laws, a company must register their security with the SEC or find an exemption from registration requirements in order to offer the security to US non-accredited investors. In order for an individual to qualify as an accredited investor, they must have an individual net worth or joint net worth with their spouse that exceeds $1 million, excluding the person or couple's primary residence. Alternatively, an individual can qualify if their individual income exceeds $200,000 in each of the two most recent years, or if their joint income with their spouse exceeds $300,000 in the same time period, so long as they have a reasonable expectation of reaching the same income level in the current year.
First regulated token offering in the United States
Blockstack announced that it had filed for a Tier 1 Regulated Token Offering with the SEC in April, 2019. The company later became the first blockchain startup to receive SEC approval in July, 2019. This made Blockstack's token offering the first ever legally-compliant token offering that was open to both accredited and non-accredited investors in the United States.
The company ran their public token offering under regulation A+ and raised $28 million. According to the founders of Blockstack, Muneeb Ali and Ryan Shea, they spent approximately $2 million and spent 10 months of their time to gain approval from the SEC to go ahead with their regulation A+ regulated token offering. Muneed Ali commented on Blockstack's time gaining approval from the SEC by saying:
This can potentially set a precedent for others in the industry, not just for public offering, but also as a path to launch new public blockchain and establish a path to bootstrapping decentralized ecosystems.
Prior to the approval of Blockstack's token offering, US non-accredited investors had been unable to participate in any legally-compliant cryptocurrency token offerings. However, numerous ICOs took place between 2013 - 2017 that were open to all investors regardless of qualification, as the SEC and other global regulatory bodies had yet to clarify how they would treat cryptocurrencies and token offerings. Beginning in late 2017 up until the Blockstack case, US citizens were widely excluded from participating in token sales once it became clear that projects who accepted funds from US investors may face future legal consequences. The SEC has since published a Spotlight on Initial Coin Offerings which provides some clarity.
YouNow, with Ethereum-token PROPS, becomes the second to receive SEC approval for a token offering .
One day after Blockstack's approval, PROPS announced that they too had qualified for a regulated token offering under Reg A+.
Blockstack receives SEC approval
Blockchain startup blockstack becomes the first to have an SEC-approved token offering available to US investors.
Blockstack announced that it had filed for a Tier 1 Regulated Token Offering with the SEC in April, 2019.
SEC publishes Statement on Cryptocurrencies and Initial Coin Offerings
The article makes clear that the SEC has not given approval to any cryptocurrency sales or trading and that investors should proceed with caution.
Blockstack announces plans to raise $50M in a SEC-regulated token offering - The Block
April 11, 2019
Blockstack Holding First Regulated Token Offering
July 11, 2019
Blockstack Token Sale Becomes the First SEC-Qualified Offering in U.S. History
July 10, 2019
How Non-Accredited Investors Can Get Involved With Security Tokens
November 1, 2018
SEC Clears Blockstack to Hold First Regulated Token Offering
July 10, 2019
SEC Clears Blockstack To Hold First Regulated Token Offering - Digital Securities
July 11, 2019
SEC Gives YouNow's Ethereum Token 'Props' Reg A+ Approval
July 11, 2019
SEC Qualifies First Token Offerings Under Regulation A
Alfred Browne, Karen Ubell, Nancy Wojtas, Kenneth Juster, Katherine Snow, Rodrigo Seira
July 18, 2019
US SEC Approves Blockstack Token Offering Under Regulation A+
July 11, 2019
Documentaries, videos and podcasts
- BlockstackBlockstack is a full stack internet platform for building decentralized apps.
- Initial Coin Offering (ICO)An initial coin offering (ICO) is a means of crowdfunding the release of a new cryptocurrency.
- Initial Exchange Offering (IEO)An IEO is launched and managed by an existing exchange to offer tokens to investors.
- Security tokenCryptocurrency token deriving its value from external assets and are subject to federal regulations and securities.
- PROPS by YouNowBlockchain company
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