Token sales may still be “extremely viable” in the cryptocurrency economy, according to venture capitalists, as a platform for regulation-compliant sales has been selected for a high-profile accelerator program.
Blockchain advisory and consultancy firm Alchemist – which supported projects such as Ethereum (ETH), Lisk (LSK) and Zcash (ZEC) – and the seed accelerator Techstars, announced on Tuesday that capital-raising platform Paperstreet would be included in its inaugural blockchain-focused accelerator.
“We’ve seen a radical shift in how companies can potentially be built using blockchain technology,” said Yossi Hasson, Managing Director of the Alchemist Techstar accelerator. “New funding models, business models, and organizational design models are being tested and implemented in an attempt to build a more open Internet and financial system.”
“Together, Techstars and Alchemist will work to advance this select group of extremely viable startups in the blockchain and cryptocurrency industries,” he added.
What is Paperstreet?
Paperstreet might sound like a soap company, but it’s actually a capital raise platform on which crypto startups can launch token sales, equity offerings and private placements. After registering and passing KYC/AML checks, investors can browse and invest in featured projects; it’s a one-stop shop, with hosted projects having to first past a vetting procedure.
Sales are compliant with securities regulations; they are aimed at investors, accredited as well as non-accredited depending on jurisdiction, in the US, Europe and Asia-Pacific regions. Paperstreet says they’ve responded to the position taken by the SEC.
“We believe that the SEC has made their stance on the matter abundantly clear,” they write in a blog post. “[Regulatory] issues can easily be avoided using the Paperstreet platform.”
So far, Paperstreet has hosted eight capital raises, some finished, some still active. Three have been utility token sales and four equity offerings; one project was a combination of utility token and equity sale; another was a private sale. All are blockchain-oriented projects.
Are token sales returning?
Utility token sales were as good as dead until 2019, but they are starting to show signs of life again. Strict regulatory control makes security sales almost completely inaccessible to retail investors, including most of those who participated in the ICO craze in 2017.
Token sale platforms can now address the compliance issues associated with ICOs. Binance Launchpad, which finished its first token sale, BitTorrent (BTT), in fifteen minutes, required all investors to first complete KYC.
Dermot O’Riordan, VP of Ops & Strategy at The Reserve, thinks it’s unlikely projects will ever host their own public sale again. “When times are tough there is always a flight to quality,” he said. “Any public sale will be conducted through a massive platform that has an existing user base that is interested in such financial instruments.”
Paperstreet is just one of ten startups selected by Techstars and Alchemist. Others include a media payments platform, a liquidity reserve as well as a crypto accounting solution. Hasson told Crypto Briefing that projects will have “an unparalleled amount of resources and expertise in building, scaling, and driving adoption for their platform.”
In the case of Paperstreet, Hasson said: “Founder and CEO of Alchemist Steven Nerayoff, who helped build the legal architecture behind Ethereum’s token sale, is uniquely positioned to help Paperstreet build on their mission of scaling a fully compliant end-to-end token sale platform that connects retail investors with alternative investment opportunities typically reserved for VCs and institutions.”
Laying the foundations
Despite retail investors getting burnt in 2018, BitTorrent highlighted demonstrable demand for crowdsales. Today’s development shows attention is turning to token sale infrastructure. Paperstreet is developing a platform for retail investors to participate in utility token sales – as opposed to ICOs – legally and with high standards of quality control.
This development is worth some attention. Techstars has had an 87% success rate for tech startups, its portfolio companies raising a total of $6bn. Alchemist has been behind some successful cryptocurrency projects, including Ethereum, as mentioned above.
Hassan Hassan, founder of Bluefield Capital, believes finding solutions to known pain points will secure the long term future for tokenized crowd sales. “Anything addressing regulatory and quality control in the fundraising stage of cryptocurrency is a step in the right direction,” he said. “It seems natural that anything addressing the gaps and pitfalls of non-regulated fundraising will have a positive long-term impact”.
Past performance isn’t always an indicator for future success – Paperstreet may end up in the waste paper basket after all. But cautions aside, it shows that the market has a serious interest in fixing the tokenized crowdsale model.
A token sale platform joining an accelerator is big news. A legal and safe ecosystem would spur on more investment and the eventual return of the utility token.
This article has been updated to include additional quotes.
The author is invested in digital assets, including BTC, ETH and NEO which are mentioned in this article.