On July 10, 2019, the SEC qualified the first-ever offering of digital tokens under Regulation A+. Blockstack PBC sought to offer up to 180,333,333 “Stacks Tokens” in the following ways: (1) 78,333,333 Stacks Tokens at a discounted price of US $0.12 per token (up to a maximum of US $3,000 per holder) to current holders of certain non-binding vouchers to purchase Stacks Tokens, (2) 62,000,000 Stacks Tokens at a price of US $0.30 per token to “qualified purchasers” as defined under Regulation A+, and (3) up to 40,000,000 Stacks Tokens for non-cash consideration pursuant to Blockstack’s “App Mining” program in exchange for the development and review of applications on Blockstack’s decentralized application network. (Blockstack PBC had previously filed a preliminary offering statement under its subsidiary, Blockstack Token LLC, on April 11, 2019 (File No. 024-10986), which was subsequently withdrawn after Blockstack PBC was to act as issuer of the Stacks Tokens.) “Qualified purchasers” under Regulation A include accredited investors as well as unaccredited investors who may invest only up to a maximum of 10 percent of the greater of their annual income or net worth.
The offering circular that was included as part of the offering statement noted that Stacks Tokens are the native token of the Blockstack network, meaning that they are used as the default currency to obtain control over digital assets on the Blockstack network. The Blockstack network is intended to be an open-source, peer-to-peer network using blockchain technologies ultimately to build a new network that will enable and encourage the creation and use of decentralized applications.
The offering circular noted that possession of Stacks Tokens will allow users to perform certain actions on the Blockstack network, including burning the tokens as “fuel” to create a new digital asset or smart contract, paying application developers to download or access their applications, and making in-application payments for digital assets to application developers as well as other users. The offering circular also noted that Stacks Token holders may be permitted to participate in non-binding polling regarding potential upgrades to the network and that Blockstack may use Stacks Tokens to provide incentives to users, developers, and employees (including through the App Mining program). In addition, the offering circular noted that, while Stacks Tokens are freely tradable on registered exchanges or alternative trading systems, no exchanges or trading systems currently exist to support the trading of Stacks Tokens on the secondary market.
The offering circular noted that Blockstack is treating the Stacks Tokens as securities based on its view that the tokens are “investment contracts” under the SEC’s Framework (as summarized above) and the application of SEC v. W.J. Howey Co. to digital assets. Although the offering relies on Regulation A+ as an exemption from federal registration under the Securities Act, Blockstack has taken the position that the commercial uses of Stacks Tokens on the Blockstack network (including transfer between users) do not require registration or an exemption from registration under state securities laws. The offering circular also noted that Blockstack has taken the position that registration as a transfer agent, clearing agency, exchange or alternative trading system, or broker-dealer is not required under the Exchange Act with respect to Blockstack, the network’s blockchain, the network, and/or its miners. In addition, the offering circular noted that Blockstack may in the future determine that Stacks Tokens no longer constitute securities under federal and state securities laws if the network is sufficiently decentralized, purchasers of Stacks Tokens do not reasonably expect Blockstack to carry out essential or managerial efforts, and Blockstack does not retain a degree of power over the governance of the network such that any material, non-public information about Blockstack would be of special relevance to the network.