On July 10, 2019, Blockstack, a NYC-based blockchain startup, received SEC qualification for its $28M Regulation A+ token offering. This is the first time in U.S. history that a tokenized offering has received SEC qualification under the Reg A+ framework.
What is Reg A+?
Before the JOBS Act was enacted, issuers generally avoided relying on the old Regulation A, because it had a low offering size limit of $5 million relative to the high costs associated with relying on this Section 5 exemption. Further, compliance with state blue sky requirements was perceived as overly burdensome. As a result, there was a public outcry to amend the exemption to make it more useful and popular. Section 401(a) of the JOBS Act amended Regulation A, which is referred to informally as Regulation A+, or Reg A+ for short.
Like the former Regulation A, Reg A+ provides for “mini-public offerings,” which are offerings that are exempt from SEC registration and can be made using general solicitation and advertising. To offer securities under Reg A+, an issuer must first file an offering statement with the SEC on Form 1-A, which includes an offering circular (OC) for distribution to investors. Both accredited and non-accredited investors can participate.
Form 1-A filings are subject to SEC comment and review. And, this process must culminate in the “qualification” of the Form 1-A before sales can be made. Subject to certain conditions, a Reg A+ issuer is permitted to “test the waters,” or communicate with potential investors to gauge whether they might be interested in an offering, before filing a Form 1-A. Securities sold in reliance on Reg A+ are not restricted, meaning they generally can be freely resold by non-affiliates of the issuer (subject to the applicable state blue sky laws).
Who is Blockstack?
Blockstack PBC is a blockchain-based, decentralized platform where users have full ownership and control over their data, and the network apps that use the data run locally on the user’s browser. According to their “About” page, Blockstack is a “decentralized computing platform that puts users in control of their data and identity,” and they “can scale blockchain-based apps to millions of users today.” The company boasts that “apps built on Blockstack make data breaches and trust violations an antiquated notion.”
Blockstack released a statement commenting on this groundbreaking advancement. They believe that “by giving everyone, not just accredited investors, the opportunity to participate in the Blockstack network, we can accelerate the growth of an open, a user-controlled internet. We aim to replace the current, siloed version of the internet with one that is open, fair, and user-controlled.”
Under the SEC Reg A+ framework, Blockstack will conduct a $28 million cash offering, which opened on July 11th. In the Offering Circular, Blockstack specified that it is offering up to 180,333,333 tokens of their cryptoasset, the Stacks Token, in the following ways:
- 78,333,333 Stacks Tokens at a discounted purchase price of $0.12 to current holders of certain non-binding vouchers to purchase Stacks Tokens, up to a maximum of $3,000 in Stacks Tokens to each voucher-holder (the “voucher program”).
- 62,000,000 Stacks Tokens at $0.30 per token to “qualified purchasers” generally (as defined under Regulation A of the Securities Act of 1933, as amended) (the “general offering,” together with the voucher program, the “cash offering”).
- Up to 40,000,000 Stacks Tokens for non-cash consideration pursuant to our “App Mining” program in exchange for the development of well-reviewed applications on Blockstack’s decentralized application network, as well as for the review of those applications.
Blockstack intends to offer the Stacks Tokens on a delayed or continuous basis in a “best efforts” offering, meaning that there is no minimum number of Stacks Tokens that must be sold in the offering, except that each investor in the cash offering must invest at least $100, unless waived by Blockstack. The offering will last longer than one year to facilitate distribution of the tokens in the non-cash system.
Initially, the Stacks Tokens will not trade on a stock exchange, securities exchange, crypto exchange, or other trading market, which means it may be difficult to sell Stacks Tokens. Token buyers do not get an ownership stake in the company. Rather, the Stacks Tokens are designed to function as the native currency of the Blockstack network and may also be traded as part of a secondary trading market (either through an exchange registered with the SEC, or a privately-run bulletin board), if there is such a market. Blockstack anticipates that developers will create in-app economies for digital assets, in which the digital assets can be traded among users or purchased directly from the developers themselves on the Blockstack network.
The Road Ahead
The approval of Blockstack’s tokenized Reg A+ offering marks a notable step forward for fintech, digital rights and identity security. By building, endorsing, and using technology that cannot be corrupted by a centralized authority, the financial world becomes more transparent, secure, and reliable. Blockstack’s accomplishment before the SEC further serves as a beacon of light to other blockchain businesses seeking compliant pathways for the distribution and sale of their native tokens.