The recent SEC ruling that Initial Coin Offerings (ICOs) will have to comply with securities registration laws (if the tokens they are selling are considered equity) has resulted in apprehensions that ICOs may dry up in the US. However, Filecoin has raised $52 mln in a pre-ICO sale, as a prelude to what is claimed to be a SEC compliant ICO.
What is Filecoin?
Filecoin, developed by Protocol Labs, is a decentralized storage network. The network is expected to give owners of unused storage a means to monetize their storage capacity. It is also expected to bring down the costs of storing data reliably. Given the large amounts of unused storage in data centers and hard drives around the world, a natural market exists for this service.
Filecoin has raised $52 mln in a pre-ICO sale, in which the company offered selected investors securities which would lead to the allocation of Filecoin tokens. Investors who took part in the pre-ICO sale include Winklevoss Capital and Digital Currency Group. This will be followed by an ICO on Coinlist, which will open on Aug. 7.
The list of documents available for prospective inspectors is comprehensive – ranging from the white paper to Private Placement Memorandum to Simple Agreement for Future Tokens (SAFT). The tokens will not be registered under the Securities Laws and will be sold under an exemption clause only to accredited investors. Each investor will have to execute the SAFT and will have to complete an investor questionnaire to participate in the token sale. There are also constraints on the ability of investors to sell these tokens until they are ‘vested’ (Vesting Period as agreed in the SAFT and measured from the network launch).
Is this the right approach?
The SEC rule on accredited investors works on the assumption that wealthy investors (as defined by net worth) are more likely to be knowledgeable and understand the risks of investment. However, in the cryptocurrency space, this is not necessarily true. A cross section of people including students, software engineers, cryptography specialists, etc. may have a deep understanding about ICOs but may not have the net worth required to be an accredited investor. Preventing them from investing is only going to shut out a huge section of the cryptocurrency community from the ICO market.