It’s been another hot period of activity in the token sales world, with fundraising for this new mechanism passing yet another milestone in the last week. According to fintech research firm Autonomous NEXT, token offerings have now raised more than $4.2 billion in 2017, which easily outstrips the $265 million that was raised between the beginning of 2014 and the end of 2016. And there has been a more varied dispersion of project types this year, with the most-funded industries being core technology (such as new blockchains) and finance.
Crowdfunding giant Indiegogo also plans to boost token sale activity after it announced last week that it is to launch a new platform exclusively for such offerings. The investment platform will enable token sales for those who choose to set up a crowdfunding campaign, and Indiegogo founder and chief business officer Slava Rubin believes that one thing that has been missing to date is a platform that can make token sales “accessible to a global audience, while maintaining the strictest standards for legal compliance and quality control. This is a big step towards achieving our mission of democratizing finance around the world.”
The platform will support both utility and security tokens, and it will help start-ups comply with SEC regulations governing securities offerings. The website will also operate under the proviso that non-accredited investors will be able to invest up to $10,000 in each token sale — even for those registered as securities — although there will be restrictions set in place and each company will be limited to $1 million in contributions from this class of investor.
And speaking of regulatory compliance, SEC Chairman Jay Clayton issued an official statement on behalf of the US financial regulator, advising investors about token sales. “If an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution,” the statement recommends. Clayton has also reminded investors that no token sale has been officially registered with the SEC as of yet, and as such, they should be approached with due caution. Clayton added, “I encourage Main Street investors to be open to these opportunities, but to ask good questions, demand clear answers, and apply good common sense when doing so”, whilst also providing a list of recommended questions that the finance industry watchdog encourages being asked prior to investing, including “Where is my money going?” and “Is the blockchain open and public?”
Shortly after the SEC’s statement, the US regulator closed down the token sale of Munchee with a cease and desist order on Monday. The $15 million raised during the sale must also be returned to their respective investors. The company was looking to launch a decentralised blockchain-based food review and social platform, as well as a downloadable app. But with Munchee classifying its MUN token as a ‘utility’ token, which means that it would mainly be used within the company’s ecosystem rather than to fund operations, the SEC discovered that the company was actually using the token as a ‘security’ instead.
According to the SEC’s Clayton, “Merely calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security. Tokens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law.” Clayton nonetheless believes that token sales remain useful ways for entrepreneurs and others to raise funding, including for innovative projects. However, any such activity that involves an offering of securities must be accompanied by the important disclosures, processes and other investor protections that our securities laws require.”
The Centra token offering, which was promoted by none other than Floyd Mayweather, Jr., is currently facing a new class-action complaint. The lawsuit, which was filed on Wednesday, accuses Centra Tech of violating U.S. securities law through a token sale that raised $30 million for the development of a cryptocurrency-focused debit card. According to the complaint, “Defendants raised over $30 million in digital cryptocurrencies by offering and selling unregistered securities in direct violation of the Securities Act.” The complaint also accuses Centra of misleading investors about the nature of its relationship with Visa and Mastercard, as well as listing fake team members on its website.
In response, Centra has stated that the lawsuit “appears to repeat unfounded claims
regarding Centra Tech, [and] alleges that Centra Tech’s offering of Centra Tokens was an unregistered sale of securities. The plaintiff’s complaint attempts to mimic claims and allegations the Securities and Exchange Commission has lodged against other cryptocurrency offerors,” the start-up wrote, adding: “Centra Tech disputes the allegations in the complaint.” The class-action also comes over a month after two of the firm’s founders left the company.
The highly renowned Russian blockchain platform Waves is aiming to establish new standards for the token sales industry. The initiative intends to provide an array of services across various areas including legal, tax and accounting, business due diligence, and KYC for emerging companies in the domain. The project is also being set up in conjunction with other industry luminaries such as Deloitte CIS and Ethereum Competencies Center. Indeed, it will be the second collaboration between Deloitte and Waves after the blockchain’s USD fiat gateway was launched in June.
Waves also explained that this new regulatory body is open to all crypto market leaders including professional services firms, blockchain platforms, token sale platforms, and notable individuals associated with the industry. It is also keen for industry incumbents to welcome self-regulation as a positive step for the sector, with CEO and founder Alexander Ivanov explaining further: “Regulation is clearly an emerging phenomenon and concern in the crypto space. If certain jurisdictions have not yet announced their intentions, then it’s only a matter of time. Waves has always been clear that regulation — the right kind of regulation — is a good thing for the crypto space. We have also been clear that we want to be a part of that emerging dialogue. We want a seat at the table to be able to shape the future of regulation…”. With the project receiving much positive feedback, Waves will now spend the coming months registering the association in Switzerland, with the final standards expected to be completed in January.
