Blockchain Week in Review: Week of April 15-19, 2019

U.S. Developments

Regulatory Updates

Arca Investment Management Files With SEC to Issue Stablecoin

Arca Investment Management, a California-based investment management firm specializing in digital assets, filed an amended preliminary prospectus with the SEC seeking to make available its Arca UST Coins to investors. The Arca U.S. Treasury Fund (“Fund”) would issue its shares as “Arca UST Coins,” which are digitized securities that would be ERC-20 compatible tokens and utilize the Ethereum blockchain.

In compliance with the “Names Rule” under the Investment Company Act of 1940, the Fund will invest at least 80% of its assets in U.S. Treasury Securities, which could include bills, bonds, and notes issued by the U.S. Treasury; the remaining assets would be held in cash, cash equivalents, or investment-grade bonds. The Fund is designed to function as a stablecoin, because it is structured to have little volatility between the “net asset value” per share and the coin’s value for purposes of trading in a secondary market. The Fund’s shares will be issued as a digitized security token, and all transactions, including issuance and transfer, will be recorded on the Ethereum blockchain, with ownership and transfer of the Arca UST Coin authenticated through cryptography. Arca Investment Management seeks to raise $25 million with its offering. Continue Reading

Dear Enterprise, Have You Developed a Sound and Methodical Blockchain Consortia Engagement Strategy?

We can help. Perkins Coie has identified 34 factors in 5 overarching categories that shape the outcomes of successful enterprise consortia engagement efforts through its analysis of 71 consortia across 12 industries.

Recently, Forbes published an article detailing the ways that large companies, including some of the best-known companies in tech, finance, manufacturing and retail, are forming or joining blockchain consortia or other proprietary blockchain projects. The Forbes article reflects an uptick in enterprise engagement with blockchain, a trend Perkins Coie’s blockchain group has also seen in recent months. Specifically, across industries, companies are coming together to form and participate in blockchain consortia, which allows them to address common issues and challenges—in their industry or with each other—by leveraging the tremendous potential of blockchain and distributed ledger technology (“DLT”). Whether to help address business or operational challenges, or unlock new business models and opportunities, DLT is fueling a new collaborative trend among enterprises. Blockchain consortia are emerging as the vehicle enterprises are using to drive toward common goals and desired objectives. Continue Reading

Blockchain Week in Review: Week of April 8-12, 2019

U.S. Developments

Blockstack Files With SEC for Regulation A+ Token Sale

Blockstack, the New York-based blockchain software provider, has announced that it intends to make a $50 million token offering that would use the SEC’s Regulation A+ exemption. The sale would enable Blockstack to raise capital through the U.S. securities markets via a subsidiary, Blockstack Token LLC, and would be the first SEC-qualified token offering of its kind.

While Blockstack’s offering requires further regulatory review, a Regulation A+ offering provides an alternative to a traditional IPO. Passed as part of the 2012 Jumpstart Our Business Startups (JOBS) Act, the exemption is intended to give companies wider access to the public investing community and to support small business growth and employment by lowering regulatory hurdles for companies trying to raise capital. In addition to exemption from registration, a company filing under Regulation A+ may confidentially submit its offering memorandum to the SEC, undergo an expedited review process, and have fewer ongoing public disclosure requirements. Continue Reading

SEC’s FinHub Publishes Framework for Digital Assets and SEC’s Division of Corporation Finance Grants First No-Action Relief to Token Sponsor

The U.S. Securities and Exchange Commission (SEC) Strategic Hub for Innovation and Financial Technology (FinHub) published a framework on April 3, 2019, for analyzing whether a digital asset is offered and sold as a security under the federal securities laws.

The framework includes “common sense guidance” that provides greater detail and clarity regarding the application of the federal securities laws to digital assets and is intended to be “an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset.”

Concurrent with the announcement of the framework, the SEC’s Division of Corporation Finance issued a no-action letter in connection with TurnKey Jet, Inc.’s proposed offering of a digital asset for use in its air charter business. The no-action letter provides the first illustrative example of how a digital asset can be sold without having to register it as a security.

This client update provides an overview of the framework, the TurnKey no-action letter and key takeaways for market participants and companies innovating in digital asset products and services.

Blockchain Week in Review: Week of April 1-5, 2019

U.S. Developments

Regulatory Updates

SEC Releases “No-Action Letter” Stating Turnkey Jet ICO Tokens Are Not Securities and Releases “Framework for ‘Investment Contract’ Analysis of Digital Assets”

The U.S. Securities and Exchange Commission (SEC) Strategic Hub for Innovation and Financial Technology (FinHub) published a framework on April 3, 2019, for analyzing whether a digital asset is offered and sold as a security under the federal securities laws.

Concurrent with the announcement of the framework, the SEC’s Division of Corporation Finance issued a no-action letter in connection with TurnKey Jet, Inc.’s (TurnKey) proposed offering of a digital asset for use in its air charter business. This no-action letter provides the first illustrative example of how a digital asset can be sold without having to register it as a security.

An in-depth review and commentary on this development is available here. Continue Reading

Blockchain Week in Review: Week of March 18-22, 2019

U.S. Developments

Regulatory Updates

SEC’s Valerie Szczepanik Speaks at SXSW

The U.S. Securities and Exchange Commission’s (“SEC”) Associate Director of the Division of Corporation Finance and Senior Advisor for Digital Assets Digital and Innovation, Valerie Szczepanik, participated in a Q&A session at the South by Southwest (SXSW) conference in Austin, Texas. Szczepanik spoke on a number of blockchain-related topics, including the SEC’s regulatory approach to digital assets and stablecoins.

On the regulatory approach to digital assets, Szczepanik encouraged companies to approach the SEC and its FinHub to discuss and engage in a discussion about proposed projects and approaches to digital assets before launching to the public. Szczepanik highlighted the recent action against Gladius as an example of a company working with the SEC, albeit after the fact. In that action, Gladius avoided the imposition of penalties due to self-reporting and cooperation with the SEC. Continue Reading

Blockchain Week in Review: Week of March 11-15, 2019

U.S. Developments

Regulatory Updates

SEC Chairman Clayton Explains that an Asset Can Lose Its Status of Being Labeled a Security

U.S. Securities and Exchange Commission (“SEC”) Chairman Jay Clayton appears to have confirmed SEC-staff analysis of the classification of decentralized digital assets.  Last year, SEC Director of Corporation Finance William Hinman said during a speech that decentralization impacts the classification of digital assets and that, by way of example, Ethereum did not exhibit the properties of a security. Congressman Ted Budd, along with the industry advocacy group Coin Center, wrote a letter to Chairman Clayton asking for clarification on whether the Chairman agreed.  Continue Reading

Blockchain Week in Review: Week of March 4-8, 2019

U.S. Developments

Denver to Implement Blockchain-Based Elections for Overseas Voters

Denver moves to become the second U.S. jurisdiction to implement a blockchain-based voting system for overseas voters. Active duty military and other eligible overseas voters will be able to use a mobile phone application in the next election to cast their vote on municipal issues.

Denver plans to use Voatz, a mobile application used by West Virginia in the 2018 mid-term election, where an estimated 144 overseas voters made use of the application. Voatz only runs on newer-model smartphones and verifies a voter’s identity by using facial recognition software and, when available, fingerprint analysis. Voatz records votes by using the HyperLedger blockchain framework first created by IBM and now supported by the Linux foundation. Continue Reading

Blockchain Week in Review: Week of February 25 – March 1, 2019

U.S. Developments

Regulatory Updates

CFTC Plans Public Meeting Addressing Fintech, Including Blockchain Technology

On March 27, 2019, the Commodity Futures Trading Commission (CFTC) Technology Advisory Committee will host a public meeting  at the CFTC headquarters in Washington, DC. The Technology Advisory Committee plans to use the meeting to listen to presentations and consider actionable recommendations from various subcommittees. The subcommittees that will be represented are Automated and Modern Trading Markets, Distributed Ledger Technology and Market Infrastructure, Virtual Currencies, and Cyber Security. For those who cannot attend in person, the CFTC will provide a conference call line and a live webcast. The CFTC will accept written comments through April 3, 2019. Continue Reading

Dying and Private Keys

Cryptocurrency owners must face death—be it their own, or that of anyone else with custody of the owner’s cryptocurrency or other digital assets. We received a stark reminder of this when the Canadian exchange QuadrigaCX recently filed court papers[1] indicating it may have lost access to nearly $200 million USD of its customers’ Bitcoin, Ether and other cryptocurrencies. The exchange claimed to have used cold wallets to store its portion of customers’ vital cryptocurrency offline. After the owner of the exchange died, however, the exchange has apparently struggled to access this cryptocurrency and related fiat deposits, and customers may forever lose their assets housed on the exchange.[2] Continue Reading

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