CoinList, founded as a partnership between Angel List and Protocol Labs, is quietly trying to standardize initial coin offerings (ICOs) by self-imposing similar restrictions as the SEC imposes on companies that conduct certain private offerings under Regulation D.
The Growing ICO Market
ICOs have been a hot topic lately, what with several companies raising millions of dollars within seconds as well as several recent hacking scandals that have led to a few instances of hackers stealing millions of dollars worth of cryptocoins. Many stakeholders and experts have been calling for regulation of ICOs in the face of rising concerns over an ICO bubble. Now it seems like one company is at least attempting to regulate ICOs on its own without the help of any government.
Accredited Investors Only
CoinList, which was founded in part by AngelList, appears ready to launch token offerings on its site that are similar to the offerings available on AngelList’s site; that is, offerings regulated by the SEC under Regulation D. In order to invest in the offerings on CoinList, investors have to be “accredited” which is the same requirement that investors on Angel List have to meet as imposed by Rule 506(c) of Regulation D. However, since the SEC hasn’t come out with any guidance on ICOs and token sales yet, the requirement that investors be accredited on CoinList is one that is self-imposed by CoinList. It’s worth mentioning that there are other requirements under Rule 506(c) but it is unclear whether CoinList will be imposing the. For instance, Rule 506(c) prohibits the transfer of any security purchased for a year after purchase. That wouldn’t make sense in a token offering since the transferability of the token is one of its chief advantages.
Simple Agreement for Future Tokens?
The first token sale that CoinList will launch is for Filecoin, distributed data storage network. Investors will be able to purchase the right to buy tokens from Filecoin prior to the company launching its ICO through the use of Simple Agreements for Future Tokens (SAFT). SAFTs take their name from Simple Agreements for Future Equity (SAFE) which were made famous by incubators like Y-combinator to give early stage companies flexibility when raising capital in early rounds. The popularity of SAFEs has exploded recently and are now widely used in Regulation Crowdfunding offerings. It appears that CoinList is trying to use the same basic structure of a SAFE to allow companies to raise money legally through ICOs. However, instead of the right to future equity in a company, SAFTs give the holder the right to a future token.
It will be interesting to see whether CoinList’s model will take off. It’s clear that investors are clamoring for ICOs and there are more and more reports of sophisticated investors looking to take part. Another interesting aspect of all this is how will the SEC react? This could be a good case study to see if imposing similar restrictions as Regulation D on ICOs will work. Only time will tell.
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