In a fast-changing space like cryptocurrency, it is important to look for guide posts and reflect on recent developments, as new trends may last for at least a week or two.
One such emerging trend is the increase in more conventional venture financing structures, that use digital assets as a sweetener to an investment, as opposed to the digital assets serving as the primary investment vehicle. In this model, the investor is receiving the equity, SAFE, convertible note, etc., and has the benefit of consuming a digital asset, or participating in the potential appreciation of a digital asset. Also, while certainly not dispositive by any stretch of the imagination, having a plan of distribution of a digital asset, that does not contemplate sales of the digital asset for capital raising purposes, will be helpful for the Howey analysis to determine whether a transaction qualifies as an investment, and for the risk profile of the digital asset.
Another trend is the initial exchange offering, or IEO. An IEO is structured as a direct sale of a digital asset, to or through an existing cryptocurrency exchange. There are a number of potential benefits of the IEO structure, namely, that the issuer is only negotiating the deal terms with one counterparty, as opposed to a wide array of purchasers in the ICO context. The issuer also gets the benefit of leveraging the exchanges user base and infrastructure. And finally, transactions with a collaborative exchange can be responsibly designed to comply with applicable securities laws, anti-money laundering, and know your customer best practices, and other financial regulatory guidelines.
Originally published May 11, 2019, on PAI News. Created by ObEN, the PAI News app features content channels from Fenwick and other blockchain and cryptocurrency industry leaders.
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