Offering Cryptocurrency Under Reg A+: Blockstack as a Fundraising Template

Description

On July 10, 2019, the SEC qualified an initial coin offering (ICO) by Blockstack PBC, marking the first time that the SEC has cleared a securities offering of digital assets. The Blockstack offering--made under Tier 2 of Regulation A--may provide other cryptocurrency companies with a roadmap for fundraising and the distribution of digital assets in compliance with the federal securities laws.

To date, issuers of digital assets have used Regulation D to comply with U.S. securities laws. However, since a token securities offering over the internet will involve a "general solicitation," companies have generally been forced to use Rule 506(c) under Regulation D, which limits the sale of tokens to accredited investors. By contrast, tokens qualified in a Reg A+ offering may be sold not just to accredited investors but also to any other persons for whom the tokens purchased do not exceed 10% of the greater of their annual income or net worth.

Blockstack is planning on the eventual transition to an independent, decentralized network that it does not control. According to recent guidance from the SEC, a token may lose its character as a security if it is usable in a decentralized network that is not dependent on the managerial efforts of another person. In essence, Blockstack's tokens may convert from a security into a digital asset that is no longer subject to securities registration or reporting requirements. Such a development would enable trading of the tokens on existing cryptocurrency exchanges.

Listen as our authoritative panel examines the offering of digital tokens under Reg D and Reg A+ with a particular focus on the Blockstack transaction. The panel will also discuss how such tokens might cease to be subject to securities reporting requirements as the underlying blockchain evolves into a truly decentralized platform.