[STO] Security Token Offerings: What is the difference between Reg A+, Reg D, Reg S and Reg CF?
If you’ve mainly been a cryptocurrency investor, like me, and want to start to take a look at tokenized securities, it’s a bit of an uphill learning curve.
It gets more (unnecessarily) sophisticated if you’re not a traditional investor. So to cut your learning curve down a bit, as someone who is bullish on tokenized securities and actively spending hours and hours researching the space, I’m going to share what I learn with you so we can get up to speed and take advantage of this huge opportunity.
When it comes STOs or Security Token Offerings, they are structured a bit differently, with what seems like different types of tokens on offer, terms you may have heard before and may sound a bit legal, however in this post I want to demystify things so you have a better idea of what you’re looking at.
Typically, there are 1 of 4 tokens or a combination of the 4, available to acquire; Reg D, Reg S, Reg A+ and CF. Now these are effectively all the same as far as company ownership is concerned. It does not affect the right to equity or cashflow, etc, but what these do describe are who can invest and hold and where people can from– I’ll briefly run through them here.
Firstly, let me disclose — I’m not a lawyer, this is not legal advice so please consult a legal professional for accurate information on securities law.
Now let’s get into it
Reg A+
This is the most investor friendly token. Accredited and non-accredited investors can invest in this type of token, which can be offered via a public sale, with a max cap of $50 million to the public. There’s typically a 12 month lock up for US investors and no or 30–40 day lock up for non-us investors.
Reg D
This type of security is available via private sale only and available to Accredited Investors with a cap of around 35 non-accredited investors. This security is more available to US investors with a 12 month lock up on tokens. There’s conflicting information on the transferring or selling of these tokens, which apparently should only be to other accredited investors, however if non-accredited investors can participate are they not able to sell their tokens to other retail investors on the secondary market? Some say yes, some say no, we’ll have to watch the space and see how it develops.
Reg S
This security is the non-us investor version of the Reg D token. Private sale only, accredited investors unlimited and cap on non-accredited investors and a shorter lock up of up to 40 days, typically with similar transferable restrictions.
Reg CF
Now these are tokens available to the public with a max cap of $1mln on the public sale. Accredited and non accredited investors can invest, however there are limits on how much you can invest in all Reg CF sales over a 12-month period, depending on your income and net worth.
Here’s an illustration:
Bottom line…there is some red tape. Non-accreditation limitations prevent retails investors getting in and accredited limitations affect liquidity and opening up projects to truly global markets.
I think that we will still feel our way through these regulations as tokens start to be issued, traded and over time, we may see some new creative STO structuring to resolve these issues. In my opinion, Reg A+ tokens will benefit projects and that market the best in the long run, but they require more paperwork and take more time to set up - time will tell.
Let me know what you think about this post and if I have got anything wrong, please let me know and I’ll get it updated.
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Disclaimer: Any information in my blog posts are for educational purposes only and are not to be taken as financial advice. The views expressed are my opinion only. Please remember investing in cryptocurrencies is very risky and you can lose all your money. Please consult your own licensed financial advisor and operate within the laws of your country of residence. I may or may not have positions in the cryptocurrencies mentioned in my blog posts.
