With all the hacks, scams, and inside jobs, plus the myriad of rogue projects and Ponzi schemes, ICOs have got a bad name.
The ease with which blockchain projects minted their own tokens and raised vast amounts of money unchecked was never going to last long.
Unsurprisingly, the US Securities and Exchange Commission (SEC) began to clamp down on ICOs, and STOs (Security Token Offerings) in the US looked to be the new way forward.
So why have there been so few? And are things about to change?
Why there have been so few STOs in the US
Despite reports that the number of STOs increased by 130% in Q1 2019, there are still less than 50 STOs worldwide – and just 11 in the United States. When you consider the thousands of ICOs that were taking part during their heyday in 2017, that’s a very small number indeed.
Why is this the case? Well, to hold a compliant token sale in the United States, you must file for the right option under the country’s existing securities exemption laws. This may be a Reg A+, Reg CF, or a Reg D 506(c).
The Reg D 506(c) is simple, quick, and efficient. There is no cap on the amount of money a company can raise. However, projects are limited to raising money from accredited investors only, which rather flies in the face of cryptocurrency investing being available to all.
The Reg CF (Regulation Crowdfunding) is the cheapest and easiest of all. Companies can solicit the deal to anyone over 18. They don’t have to be accredited investors either, but funds are limited to up to $1.07 million over a 12-month period. That may not be too shabby, but it’s also not enough for most world-changing start-ups to change the world.
The Reg A+ is the option that could be a real game-changer for serious blockchain companies. They can solicit the deal globally and raise up to $50 million. However, they need two years of audited financials and the process is costly. Moreover, despite Blockstack making a world-first filing for a Reg A+ STO in April of this year, the company lacked a ‘transfer agent’ – a key requirement of the SEC.
What is a transfer agent?
This is the main stumbling block that has prevented companies from filing for STOs in the US so far. The SEC stipulates that issuers conducting a Reg A+ offering must engage the services of a stock transfer agent registered with the SEC or classified as exempt with a section 12(g) exemption. This exemption is something very hard to achieve since it requires an offering to have no more than 2,000 investors (accredited or otherwise) and less than 500 non-accredited investors.
Failure to use or find a transfer agent has been stopping companies in their tracks. However, things look to be about to change for blockchain start-ups wanting to raise serious funds through STOs in the US.
Securitize becomes an SEC-registered transfer agent
Securitize – a platform for the issuance and management of digital securities – has just become the first blockchain-focused transfer agent to register with the SEC. The platform already has experience of working in the cryptocurrency industry, a working protocol, live issuers, and integrations with multiple regulated digital security marketplaces in the United States.
This new registration will enable the company to act as the missing piece of the puzzle for firms looking to hold legally compliant token sales. As a transfer agent for digital securities registered with the SEC, Securitize will enable issuers of Reg A+ and Reg CF digital securities to exempt their digital securities from the mandatory registration requirements of Section 12(g) of the Securities Exchange Act of 1934.
Securitize is the first and currently only SEC-registered transfer agent with a working blockchain protocol and active issuers. It has also developed key integrations that allow digital securities to be traded on SEC-registered alternative trading systems (ATS), including the likes of tZERO, Open Finance Network, and Sharespost.
This makes Securitize a one-stop digital securities service provider and an extremely attractive option for US-based blockchain companies looking to raise funds compliantly. Co-founder and CEO Carlos Domingo commented:
“Securitize has consistently led the market through our execution and commitment to delivering on the promise of compliant digital securities on the blockchain. Becoming a registered transfer agent is the natural next step for Securitize as we continue to work toward making all securities digital. It opens up opportunities for issuers of registered securities to tap into the digital securities market in an efficient and trusted way.”
As Securitize pips its competitors to the post as a registered SEC transfer agent, one can only assume that more will follow. This means that at long last, STOs in the US might start to take off in earnest.