In this post, I will scrutinize Blockstack’s Reg A+ offering in response to John Carvalho. Myself, along with other “Bitcoin maximalists”, find the widespread acclaim of the SEC’s approval of Blockstack’s Reg A+ offering to be naive. I wanted to examine the claims of Blockstack CEO, Muneeb Ali, that the token “will be used as fuel on the network to register different types of digital assets or if you’re running smart contracts…” The goal of this post is to provide evidence and critically evaluate whether the token sale is to distribute “fuel” or more than likely an afterthought grafted onto a “decentralized network” primarily for the purpose of extending the startup’s runway. Co-CEO, Ryan Shea’s, departure should further prompt the need for due diligence by unaccredited investors interested in participating as this is not Blockstack’s first token sale either. Benefitting from the SEC’s information representation and disclosure requirements, we as a community can now crowdsource analyses and reviews that were otherwise useless when done on ICO whitepapers in 2017. The goal of this post is to simply provide readers with screenshots directly from the SEC filing so that they can directly address any concerns with the Blockstack team. Don’t trust, verify screenshots with the filing’s page numbers and decide for yourself what to do with the information.
Brief History of ICO’s & Venture
In 2017, many attempted to create a token for anything under the sun in order to raise “easy” capital with complete disregard for the potential long term impact to distributions and liquidity for shareholders. Some even raised funds in tokens citing false “liquidity” benefits for their LP’s. In 2018, NVCA updated its legal docs with veto rights in protective provisions for Cryptocurrency / Blockchain issuances. This was in response to a potential loophole that founders could have abused to fund ICO consultant fees with SAFE’s. In theory, founders would be able to pay their investors’ nonconverted debt back with cash proceeds from an ICO because it was not a debt or equity financing but instead “product” revenue ultimately yielding zero dilution to their cap table. Some investors continued to encourage founders to do token sales citing the nondilutive benefits, but ultimately fractured otherwise sustainable non-token business models in the process. While the wild west phase of ICO’s has passed, it appears blockchain startups are still using questionable tactics that potential unaccredited investors should be made aware of.
Control & Economics
Token Sale(s)
Blockchain Mechanism
Blockstack Whitepaper 2.0 presentation by Aaron Blankstein
Conclusion
Blockstack’s Reg A+ offering is insulting. While the narrative is that the token will be used as “fuel”, it is clearly for the team’s compensation and network’s operating expenses. The real narrative is more along the lines of retail investors bailing out Blockstack as its accredited investors in a previous token sale will likely be paid back. Not only do prior token holders have a much larger quantity of significantly lower priced tokens, but they also have no restrictive provisions on transfers during the time of offering to retail investors. Blockstack raised over $50 million and stack’s blockchain only has 9,555 verified “social proof” users as of publishing. Do they really need more capital and compensation to write software no one is using?
DISCLAIMER:
The information provided is not intended to constitute investment advice and under no circumstances should any information provided be used or considered as an offer to sell or a solicitation of an offer to buy an interest in any investment.
Information provided are views held by the author at the time of writing and are subject to change without notice. Any forward looking statements or forecasts are based on assumptions and actual results may vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. The author makes no representations or warranties as to the accuracy, reliability or completeness of the information presented.
Any forward-looking statements are based on current expectations, beliefs, assumptions, estimates, and projections about the industry and markets. Forward-looking statements contained herein are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. I am under no obligation, and do not intend, to update any forward-looking statements to reflect changes in the underlying assumptions or factors, new information, future events, or other changes.
