Good morning defiers! Today’s newsletter is all about a potential ICO comeback –I know, that also made me cringe.
ICOs are Gearing for a Comeback
It might be time for ICOs (or a version of them) to come back from exile and U.S. regulators just helped them take the first step.
ICO became a bad word for good reason. Initial coin offerings came to symbolize the worst of the 2017 crypto bubble: The slimy “entrepreneurs,” the greed-crazed “investors,” Paris Hilton endorsements, rented Lambos. It gave all of crypto a bad name.
The space was so traumatized that when the SEC started regulating ICOs almost to oblivion, most were happy to put the whole mess behind and not look back.
I’d argue that’s a mistake.
Underneath all the scammers and excess, at their core ICOs are a groundbreaking way of raising money. They enabled startups from all over the world to bootstrap their projects even if they couldn’t get Silicon Valley fund managers to open their emails. And they gave anyone with an internet connection access to early stage tech investments usually only available to the very wealthy few.
The DAO hack, when an attacker drained about $150 million from an Ethereum smart contract in 2016 prompting a hard fork, caused a similar scar in the community. For a long while nobody would dare associate themselves with anything remotely similar. But there’s value in decentralized autonomous organizations and three years later the space has healed and is ready to reconsider DAOs as viable ways to organize resources in a decentralized way. Suddenly, there’s a proliferation of DAOs (MolochDAO, DigixDAO, dxDAO, etc.)
The same thing is likely to happen with ICOs. It’s been two years since the height of the craze. Maybe by next year the community will have recovered from the shitcoin explosion and token issuance / fundraising will become a pillar of decentralized finance, alongside lending, trading and payments.
It will probably have to be in a modified version to better align issuers’ and investors’ interests and keep scammers and regulators at bay. The SEC’s approval of the first token issuance for retail investors yesterday might be a step in that direction.
Blockstack will be able to sell $28 million of digital tokens under Regulation A+. It’s not the first blockchain company to issue tokens that fall under SEC guidelines. The difference is that while most of those so-called “security tokens” were under Regulation D, meant for accredited investors only, anyone can invest in Reg. A+ assets.
The provision allows for issuance of as much as $50 million in 12 months and requires less disclosure than regular IPOs.
It’s significant that regulators are essentially allowing the issuance of “utility tokens,” which are used to access blockchain networks and don’t represent a stake or any rights to the company, in line with the original ICO idea. U.S. regulators currently view Blockstacks’ Stacks tokens as securities –which is great because it means that under Reg A+, crypto companies can stop pretending the main reason people are interested in their tokens is to make money from their appreciation.
It took Blockstack more than a year and about $2 million to get this. Hopefully that’s only because it was the first and should serve to pave the road for the rest.
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