Booming cryptocurrency capital market goes legit with first SEC-compliant deal

Filecoin, one of the first cryptocurrencies to function in explicit compliance with SEC securities regulation, is set to launch on Thursday on a platform called Coinlist, a fund-raising platform to help start-ups run their own "initial coin offerings". The offering is a test of whether the controversial capital raisings can function in accordance with rules designed for shares and bonds.

  • By Lewis McLellan
  • 10 Aug 2017
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Filecoin’s initial coin offering (ICO) will, in contrast with most ICOs, be sold only to accredited investors, ensuring it does not need to be registered as a security. But it will comply with SEC Reg D 506 — the private offering 'safe harbour' of the US Securities Act.

Initial coin offerings are a fund-raising tool for start-ups to generate capital without selling equity or issuing debt. The growth of blockchain, or distributed ledger technology, has allowed tech start-ups to raise money by creating a token, or cryptocurrency, and selling it to investors. The market provided around $500m of funding for start-ups in July alone.

Until late July, the market for such tokens had flourished outside the scope of SEC regulation but, on July 28, the Commission published a report on the Decentralised Autonomous Organisation (DAO), which argued that the tokens sold in its April 2016 ICO were securities and, as such, should have been registered with the SEC.

The SEC report established conclusively that the DAO tokens were securities using a set of criteria called the Howey test. The Howey test states that if an investment contract involves the exchange of money with the expectation of profit based on the managerial efforts of others, then it is deemed to be a security and must be registered with the SEC.

While the SEC has yet to clarify the situation further, securities lawyers say not all cryptocurrencies are likely to be considered securities, according to the Howey Test.

The SEC report has not slowed down the flow of ICOs. There are 57 ICOs in progress and 62 scheduled to begin in the next month, according to

Solo SEC offer

Of these, only Filecoin has elected to adopt a conservative regulatory approach, marketing itself exclusively to accredited investors (those earning $200,000 or more, or with a net worth of more than $1m).

Filecoin’s ICO is the first to be hosted on Coinlist, also a product from Filecoin’s creators, Protocol Labs. Coinlist is a fund-raising platform that will facilitate start-ups which want to run their own ICOs.

The platform is unusual in that it allows investors to demonstrate that they are accredited, and will allow start-ups to restrict their investor base to accredited investors — opening the way for other SEC-compliant offerings.

Filecoin’s ICO on Coinlist will serve as a marketing exercise for the platform’s range of services for start-ups hoping to run their own ICOs.

Coinlist is developing a “Simple Agreement for Future Tokens” that will be used for FileCoin’s ICO. The document is inspired by the Simple Agreement for Future Equity, developed by start-up accelerator Y Combinator.

But it's not all marketing for the listing platform itself. Filecoin also has a tangible purpose — not always the case for a market which many have described as a bubble

It is aiming to make use of swathes of unused online storage space using a peer to peer distributed network. Users will earn tokens by donating their unused storage space and by “mining” — the process that keeps track of the blockchain.

The tokens will function as the service’s native currency, used to pay for file storage and retrieval.

Securities or not?

Filecoin’s decision to follow securities regulation is, in one respect, surprising. Because its tokens will have a specific utility on the platform, they might therefore be considered either assets or a true currency like Bitcoin, rather than securities.

Carol Van Cleef, a partner at Baker Hostetler, said: “Based on Filecoin’s market materials, it appears to have as solid, if not more solid, an argument that it is not a security than many proposed token offerings I have reviewed.”

Van Cleef, however, was not surprised by Filecoin’s decision to sell only to accredited investors: “This decision means that the federal securities laws will not slow down the offering because no registration with or approval of the SEC is required; only a post-sale filing.”

Filecoin raised $52m with a pre-sale of tokens that took place last week.

  • By Lewis McLellan
  • 10 Aug 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
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1 Citi 417,761.51 1606 9.02%
2 JPMorgan 380,362.89 1737 8.21%
3 Bank of America Merrill Lynch 364,928.71 1322 7.88%
4 Goldman Sachs 269,252.76 932 5.81%
5 Barclays 267,252.43 1082 5.77%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 HSBC 45,449.36 196 6.56%
2 BNP Paribas 38,734.80 217 5.59%
3 Deutsche Bank 37,615.10 139 5.43%
4 JPMorgan 34,724.19 118 5.01%
5 Bank of America Merrill Lynch 33,835.53 112 4.88%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 22,475.46 105 8.65%
2 Morgan Stanley 19,057.00 101 7.34%
3 Citi 17,812.08 111 6.86%
4 UBS 17,693.89 71 6.81%
5 Goldman Sachs 17,333.10 99 6.67%