At the Intersection of Technology, Law, and Business
July 15, 2019 - Regulatory, Blockchain, Fintech

First Token Offering Qualified by the SEC Under Regulation A

UK Regulations: Urgent Action Required from Loan-Based Crowdfunding Platforms

On July 10, 2019, Blockstack Token LLC (“Blockstack”), a wholly-owned subsidiary of Blockstack PBC, a Delaware public benefit corporation, became the first company to have an offering of digital assets qualified by the U.S. Securities and Exchange Commission (“SEC”) under Regulation A.

Blockstack is a technology company that offers an open-source blockchain-enabled network for developers to build and publish their own decentralized applications. According to Blockstack’s website, over 165 applications have been built on the Blockstack platform. Purchasers of Blockstack’s tokens (“Stacks Tokens”) will be able to use the tokens on its platform.

Token offerings have been under increasing scrutiny, especially with respect to whether or not tokens are securities. In its offering circular disclosure, Blockstack acknowledges that the Stacks Tokens are characterized as investment contracts under the Howey test, while noting that the Stacks Tokens “will not have the rights traditionally associated with holders of debt instruments, nor…equity.” The disclosure, in its discussion about the nature of Blockstack’s decentralized network, also references the SEC’s recent guidance on evaluating whether digital assets constitute securities for purposes of the Securities Act of 1933, as amended (the “Securities Act”).

Many blockchain-based companies have conducted token offerings in the United States under various securities exemptions, including Regulation D, which do not require SEC approval. One notable difference in Regulation D offerings is that general solicitation, such as advertising, is not permitted in offerings to non-accredited investors and, in certain other offerings, the number of participating non-accredited investors will be limited. Blockstack’s approval to offer its tokens under Regulation A will allow an unlimited number of retail investor to buy Stacks Tokens and permit Blockstack to conduct advertising activities.

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