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Blockstack and YouNow launch the first SEC approved token sales

Blockstack and YouNow are the first companies to receive official SEC qualification for their digital token offerings. The two blockchain projects are the first to receive regulatory approval to access the public U.S. securities markets.

Under the SEC Regulation A+ framework, decentralized computing network Blockstack was the first to be sanctioned. It started its $28 million token offering on July 11th. With the exception of a few geographical restrictions, the offering is open to non-accredited investors all over the world, including those in previously banned regions such as the US and Canada.

"This regulatory framework has never been used for a crypto project before," said Blockstack’s Britanny Laughlin to Brave New Coin on The Crypto Conversation podcast. "In fact, it is legislation that was based on the 1933 Howey Test, and the fact that the SEC has qualified our offering means we are making history for crypto."

In a move that represents a significant step towards mainstream acceptance, the offering allows anyone – from tech enthusiasts, experts, newcomers, or seasoned investors — in the U.S. and globally, to legally contribute to an early-stage blockchain project.

Stacks and Props

The use cases of the two project’s tokens are similar to those sold by companies during the ICO boom of 2017.

Blockstack’s digital token Stacks is used in the same way as Ether; acting as fuel to register digital assets or run smart contracts, and as an investment like "owning a piece of land" on the network, said CEO Muneeb Ali.

Props, the digital token of streaming service YouNow, is used to reward app users, developers, and validators on the network.

However, unlike many of the projects selling tokens in the mania of 2017, Blockstack and YouNow are seasoned companies with working products and an existing user base.

For example, the Blockstack network is live. It already hosts over 165 applications, including a decentralized equivalent to Google Docs; blockchain-based password managers; and the self-destructing email platform Dmail.

YouNow, which has been in operation since 2011, and started building its blockchain network in 2017, is also well-established — and has boasted of hosting 100 million user sessions a month.

But even for established companies, getting the approval of the SEC has taken months of negotiations and years of careful compliance.

Regulation A

Formed in 2013 at the Comp Sci department of Princeton, Blockstack watched the 2017 ICO explosion from the sidelines. Instead of participating, said Laughlin, the firm remained skeptical — deciding instead on a regulated alternative under SEC exemption Regulation D, which allowed Blockstack to make a private offering to accredited investors only. "We wanted to be able to offer Stacks tokens to anyone in our community," said Laughlin. "In 2017 we did a token offering but not to anyone not accredited, leaving out developers and community members, and these were given vouchers to come back and participate at the same value at a later date."

With exemption under Regulation A, the opportunity for public participation in the Blockstack token offering has arrived. It means that a legal framework has been created to allow other legitimate projects to eventually move forward with SEC-sanctioned token offerings. “The fact that the SEC has qualified our offering means that we’re making history for crypto. The idea that decentralized tech can move forward in a regulated way in the US is huge news for the wider ecosystem.”

Under the US Securities Act of 1933, companies offering securities to investors must either register with the SEC, or qualify for an exemption like Regulation A, which enables companies to officially offer securities to the general public via two tiers: Tier 1, which allows offerings of up to $20 million in one year, and Tier 2, which allows offerings of up to $50 million in the same time period.

Blockstack and YouNow have both opted for Tier 2 offerings, and will now need to meet specific criteria to stay on the right side of the SEC. This includes the filing of annual, semiannual and current event reports, the provision of audited financial statements, and the maintenance of certain geographical and financial limits. The company must keep its business base in the US or Canada, and issue "no more than 10% of the greater of the person’s, alone or together with a spouse, annual income or net worth" to any individual investor.

These stringent requirements could help restore faith in the tarnished ICO market. According to a recent report from BitMEX, ICOs had dropped up to 97 percent by the first quarter of 2019.


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