Blockchain startup Blockstack, a new decentralized computing platform and app ecosystem, received clearance by the Securities and Exchange Commission (SEC) to sell its bitcoin-like digital Stacks (STX) tokens in a $28 million offering this week, according to the Wall Street Journal. The offering would be the first of its kind, offering other cryptocurrency and blockchain startups a new model for future fundraising efforts following the cratering of the initial coin offering (ICO) market over the past year.
What it Means for Investors
Blockstack was founded six years ago based on the vision of its creators, Muneeb Ali and Ryan Shea, to build a decentralized internet that couldn’t be monopolized by a few mega-corporations, like the Googles and Facebooks that currently dominate the Internet. The startup raised more than $50 million in a token offering to accredited investors back in 2017, but the recent approval from the SEC will now allow for tokens to be sold to the general public.
The current $28 million offering, which began on Thursday, was approved by the SEC under Regulation A+, a regulation introduced as part of the 2012 Jumpstart Our Business Startups Act. Regulation A+ was as an alternative to an initial public offering (IPO), allowing younger businesses a way to raise capital with fewer disclosure requirements than a typical IPO.
To get the approval, Blockstart had to work closely with the SEC to develop a protocol from scratch, as it was the first digital-token offering under Reg A+. But ten months of hard work and $2 million later and Blockstack tokens are the first SEC-approved digital tokens that will be sold to regular investors. Now that the template exists, other cryptocurrency and blockchains will have a much easier time applying for their own so-called mini-IPO. “My joke has been that the $2 million is our donation to the crypto industry,” Ali said.
While other companies have made token offerings under Regulation D, which don’t require SEC approval, they are limited to accredited investors only. In a Reg A+ sale, anyone can purchase a company’s shares or tokens. Taking the Reg A+ route will be important for many startups going forward, especially considering the massive slump in the ICO market. During the first quarter of 2019, ICOs raised $118 million, declining more than 98% from the $6.9 billion raised a year earlier, according to research firm Token Data, per the WSJ.
While Blockstack’s achievement to gain approval from a major regulator marks a new era for cryptocurrency and blockchain, investors will still need to be vigilant. Many of these mini-IPOs have suffered subpar performance and fraud concerns, inciting both Nasdaq Inc. and the New York Stock Exchange to raise their listing requirements for Reg A+ companies.