Happy Tuesday! Kodak's blockchain venture has collapsed. This is such a big surprise! (Sarcasm)
Coinbase Approved to List Securities
Coinbase's purchase of a broker-dealer, alternative trading system and a registered investment advisor was approved yesterday. This approval comes after Coinbase announced they were looking into adding other tokens. The move into listing securities on their platform is a significant one. Security tokens seem like a natural evolution in ICOs. At the moment, many ICOs skirt security laws by allowing non-accredited investors to invest.
Most ICOs have little to no protection for investors. Security tokens solve many of the problems currently associated with ICOs. It would allow a legal way for any investor, regardless of income, to own a piece of an early-stage startup, immediate liquidity and protect investors from scams. The most logical way to do this is through the Reg A+ process. For those who aren't familiar with the Reg A+ process, it's like a mini IPO. Here are the highlights:
- Raise up to $50 million in a 12-month period using a “public solicitation” of its shares and have the offering be exempt from SEC and state securities law registration.
- Confidentially submit its offering memorandum to the SEC
- Immediate liquidity which isn't subject to accredited investor laws
- Combine public funding (through Reg A+) with private funds from venture capitalists to create a larger round of fundraising
I've been a big fan of the Reg A+ process. I wrote about the process here for the Gab ICO. The one downside to a Reg A+ offering is that the company must have two years of audited financials. If you think about it though, this will help create more quality ICOs. A company will raise a private fundraising round in anticipation of an ICO. Once, the two-year threshold passes, they will raise a Reg A+.
This process will also help accelerate investment in the space. Security tokens don't have a lot of the regulatory ambiguity that ICOs have. Institutions will be cleared to invest in them because they know they are regulated and will have access to third-party custody. I'll give an example of a potential security token offering that Coinbase might have.
I own 100 residential homes in Arizona. I want to sell some of these so I can receive liquidity, but don't have enough homes to create a REIT. I'd launch a security token. I'd be able to sell a portion of my ownership to investors, the investors would have protection because SEC laws govern the sale, and I'd also be allowed to issue dividends from the rental income. It's a perfect compromise to the IPO and ICO process.
IBM Launches a StableCoin
Coindesk reported that IBM is launching a stablecoin. Here are the details:
Announced Tuesday, a startup called Stronghold is launching USD Anchor, which will run on the rails of the Stellar blockchain and use its consensus mechanism to verify transactions. The token will be backed one-for-one with U.S. dollars held at a Nevada-charted trust company called Prime Trust, which in turn will deposit the cash at banks insured by the Federal Deposit Insurance Corp.
New York City-based Signature Bank was originally expected to be providing the federally insured backing of the stable coin, but it appears to have backed out of the partnership at the eleventh hour, according to IBM.
Let's digest this. This token sounds very much like Tether but being built on the Stellar blockchain. I don't have a problem with Stablecoins that are backed by collateral assets. It's a perfect solution for solving the Fiat-Crypto bridge. For example, Binance doesn't allow fiat deposits. Many users will then be subject to the daily fluctuations of the cryptocurrency markets. If Binance lists a trusted stablecoin, users won't need to transfer their tokens off the exchange to enter a fiat position. IBM is tokenizing fiat currency.
Reddit explains the use case for IBM's stablecoin:
A huge upcoming feature in XLM is the atomic swaps so say you want YEN, the stellar network will find the cheapest way to get you YEN through multiple paths (pathfinding), it may end up being USD->XLM->EURO->BTC->ETH->YEN for an example, but it is all one transaction to you and if any part fails, the whole transaction fails.
Remember, the whole use case here is simply trading value from one entity to another, so cross borders payments where there is no USD in say Africa or Russia, you can quickly and cheaply (basically free) send value anywhere as long as there is a way to retrieve the value on the other end - such as an anchor in that country’s native currency.
Who knows if this will be a success. I am skeptical of IBM's effort in blockchains. Their focus on permissioned blockchain seems more like a marketing ploy than a true investment in innovation. I hope this stablecoin project proves me wrong.
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