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SEC Clears First Two Regulated Token Offerings

In July 2019, the SEC qualified the first token offerings under Regulation A+, approving blockchain startup Blockstack’s bitcoin-like digital tokens on July 10, and live video streaming platform YouNow’s offering of its “Props” tokens on July 11. These decisions will likely serve as new fundraising templates for many blockchain businesses.


Blockstack describes its services as being an open-source decentralized computing platform, whose software libraries enable developers to build decentralized applications, that have no single point of failure or control. The company provides decentralized protocols for authentication, data storage, and software distribution.

According to Blockstack’s filings on EDGAR, it intends to conduct a cash offering under the Regulation A+, Tier 2, framework. Unlike traditional registered IPO filings, this framework allows the sale of Blockstack’s tokens to retail investors as well as to accredited investors and institutionsAs part of the offering, an additional supply of tokens is proposed to be allocated to Blockstack’s App Mining Program, which rewards developers who create the top-ranked applications within the Blockstack ecosystem.


Following on the heels of the Blockstack qualified offering, on July 11, 2019, the SEC approved YouNow’s “Props” token offering under the Regulation A+, Tier 2 framework. According to its filings on EDGAR, YouNow has created an Ethereum-based blockchain token, which it intends to distribute to those who create content using its app for activities that “drive community engagement” or as a reward for administration of its own blockchain. The Reg A+ offering also includes a secondary distribution of tokens to be distributed by its affiliated foundation for grants to persons developing key apps or otherwise contributing to the development of the network. The company also said that users will begin to receive tokens for engaging with the platform.

Both offerings are significant in that they establish a basic framework for companies that have sought to issue tokens as rewards for specific platform users and developers. In the past, issuers have attempted to structure such tokens to fall outside the Howey test as something other than a security. The Blockstack and YouNow precedents clarify that such attempted structures are unlikely to be acceptable to the SEC in the absence of fact-specific no-action relief. This is not surprising in light of the two recent no-action letters issued by the SEC in TurnKey Jet and Pocketful of Quarters, as highlighted in this newsletter. The SEC draws a clear line between tokens developed for use strictly on a particular platform or “in-app” versus tokens that may be transferred outside the platform or publicly traded on an ATS or other exchange.

The Howey test is based on the U.S. Supreme Court’s landmark case, SEC v. W.J. Howey Co., setting the standard for what arrangement constitutes an investment contract and is therefore regulated as a security.  In the context of blockchain tokens, the Howey test asks if a party has invested funds, in a common enterprise, with the expectation of profits, based on the efforts of a third party.

©2019 Greenberg Traurig, LLP. All rights reserved.


About this Author

Rebecca DiStefano, Greenberg Traurig Law Firm, Boca Raton, Corporate and Investment Law Attorney

Rebecca G. DiStefano concentrates her practice in the areas of securities regulation, corporate finance, corporate governance, private equity, venture capital, and mergers and acquisitions law. Rebecca counsels public and private companies in areas including angel financing, debt and equity financing, registration of securities under the Securities Act of 1933, registration under the Investment Advisers Act of 1940, continuing disclosure requirements of the Securities Exchange Act of 1934, initial and continued listing of securities on the stock exchanges and electronic...

Barbara Jones, Greenberg Traurig Law Firm, Los Angeles, Private Equity, Corporate and Energy Law Attorney

Barbara A. Jones is a member of the firm’s Global Securities practice group and co-chairs the firm's Blockchain Task Force. She is also co-coordinator of the firm’s interdisciplinary Conflict Minerals Compliance Initiative. Barbara maintains a diverse corporate and securities law practice across industry groups, emphasizing complex international and domestic transactions, including blockchain/cryptocurrency transactions, private and public financings (including ICOs), dual listings, mergers and acquisitions, strategic collaborations and joint ventures, and licensing transactions. Her practice includes serving as a trusted advisor to public and private company boards of directors on governance and complex regulatory reporting and compliance issues. Barbara's clients include financial institutions, private equity and venture capital groups, and companies in blockchain, life sciences and biotechnology, information technology, energy (traditional and renewable), mining, defense and security, telecommunications, media, entertainment and sports. Barbara is also active in the representation of Olympic athletes and sports-related organizations.

Barbara practiced U.S. law in London from 1990 through 2003, and headed the international capital markets practice of a major U.S. law firm from 1999 to 2003 before relocating to Boston. From 1997 to 1999, she served as Vice-President, Assistant General Counsel and Regional Counsel for capital markets with J.P. Morgan Securities Ltd. in Europe, the Middle East and Africa. Since returning to the U.S., she has continued to actively represent public and private companies, private equity groups and investment banks in the European, Scandinavian, African and greater Asian markets, including China.