Compliant ICOs? Bitcoin OGs Launch Regulated Token Sale Service
Mason Borda has been into initial coin offerings (ICOs) since the beginning.
Yet, the former BitGo software engineer, who helped set up Augur's wallet for its token sale in 2015, was hesitant to enter the market himself until last summer. That's when Borda, and security veteran James Poole, started building TokenSoft, a platform for helping projects manage their initial coin offerings (ICOs).
Revealed exclusively to CoinDesk, the project is officially launching today, and with the news, Borda is detailing for the first time a number of the platform's features that are aimed to combat what he sees as prevailing industry issues and pain points.
For one, the white-label software solution is all about compliance, treating every token sold as a security per guidelines laid out by various SEC regulations (such as Reg D, Reg A, etc.).
This will likely attract many clients amid rumors the SEC has undertaken a sweep of the ICO industry, sending out subpoenas and requests for information to all kinds of stakeholders.
"People are starting to err on the side of compliance, rather than trying to figure out how to make their token sale a utility token sale," Borda said. "We've always known here, at least, that you can't really do a full utility token sale."
And while TokenSoft is entering a hot market with a fair share of competition, Borda believes his past while help him differentiate the platform and make sure it's prepared for anything the token industry throws at it.
He told CoinDesk:
"Regulations are really important to me and if you see what happened with the previous blockchain companies, the ones that survived are the ones that embraced regulations."
With the focus on compliance, Borda told CoinDesk the platform can handle just about any token offering, including those that want to target U.S. customers - they just have to follow the rules.
The U.S. regulatory environment is notoriously cumbersome, and with the SEC yet to issue any formal guidance on the industry, some token issuers have decided to cut off investors in the country rather than deal with any possible regulatory repercussions.
TokenSoft, though, is for issuers that don't want to circumvent rules and regulations, but be proactive about building their tokens with existing regulations as guidelines.
And that's not just in the U.S., but throughout the world, where quirky legalities also exist.
For instance, Borda mentioned fund-of-funds client Apex Token Fund, which had a requirement that their investors needed to adhere to the disparate securities laws of the countries they were in. As such, TokenSoft built their platform to take that into account, automating the addition of compliance mechanisms, such as know your customer (KYC) and anti-money laundering (AML), that vary by country.
"If in other countries there are different requirements, we can help do that," Borda said, although he didn't disclose how exactly TokenSoft does this.
It's currently serving 50 countries for Apex Token Fund.
Looking forward, the company sees opportunities in further automation.
"There's a lot of new technology that allows the enforcement of these rules we keep talking about, but by pushing that down to the blockchain itself," said Poole, an alum of prominent security companies like RSA and Symantec.
For example, say a security token needs to be traded only with other regulated investors, a smart contract could white list all the wallets that could possibly trade that token and block trades that sent tokens anywhere else.
Borda said this could create a global mesh of compliant channels, which could increase liquidity for these assets while eliminating the friction of abiding by the law.
Engineering good experience
But there's more than just compliance.
Another area TokenSoft looks to improve is the user experience for investors. Poole believes TokenSoft's white-label software, in which all the issuer's branding and precise legal language can be easily adapted, will help there.
"All the investors know that they go directly to our client to be the face of the sale," Poole said.
But because TokenSoft handles the infrastructure that supports that page, the instances of those websites crashing due to significant traffic is limited. The benefits of this were displayed when Overstock's tZero switched platform providers in the midst of their $250 million token sale, dropping SaftLaunch because of its time-consuming and complicated compliance.
TokenSoft has also added mechanisms for making purchasing cleaner.
For instance, when a typical sale goes live that accepts ether, bitcoin or another cryptocurrency, the same public address is usually given to all investors, leading to higher transaction fees.
But Borda believes that's a waste of money. So, on the TokenSoft platform, investors are queued up using a unique ID as they come into the sale. In this way, their place in line is already set, eliminating this practice.
Still, given the somewhat murky nature of ICO regulations, it's natural to ask, what exactly convinced Borda and his team the timing was right?
First, Borda said he began seeing entrepreneurs who already had successful companies move to launch token sales, putting their reputations on the line. And second, Borda saw a spate of high-profile law firms starting to take on ICO clients.
TokenSoft only works with companies with counsel from one of four law firms, for now: Perkins Coie, Cooley, DLA Piper and WSGR.
And for Poole? Seeing crypto tokens start to find uses beyond just raising money, such as decentralized governance, was the turning point for him.
"This actually is something that could change a lot of the finance industry," he said.
TokenSoft's first two sales - Doc.ai and Swarm Fund - ran on Sep. 9. Since then, the company has worked with six more clients and currently has five sales active.
"There's a lot of new companies entering the space that haven't necessarily been in production," Borda said, adding:
"We've been in the space for a while. We're doing interesting things like helping people adhere to global securities regulations."
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in BitGo.
Plastic balls image via Shutterstock.