Fundraising on HyFi
There are several blockchain funding models such as:
- Initial Coin Offering (ICO)
In an ICO, investors fund a blockchain project in return for cryptocurrencies which are expected to increase in value over time. The funding is based primarily on information provided by the project’s whitepaper, website, and social media accounts.
- Reverse ICO
In a reverse ICO, an existing, established real-world business issues a token to decentralize its ecosystem, and raise funds.
- Initial Exchange Offering (IEO)
An IEO is very similar to an ICO. The only difference is that the funding is based around a crypto exchange.
- Initial DEX Offering (IDO)
In an IDO, the tokens are launched through a decentralized exchange (DEX).
A DAICO combines the characteristics of a Decentralized Autonomous Organization (DAO) with that of an Initial Coin Offering (ICO). A DAICO can make an ICO more secure by involving investors in the initial project development process. It enables token holders to vote for the refund of the contributed funds if they are not happy with the progress being made by developers.
- Equity Token Offerings (ETOs) & Security Token Offerings (STOs)
In an ETO / STO, the investors get pro-rata ownership in the company as well as dividend and voting rights.
- Simple Agreement for Future Tokens (SAFT)
A SAFT is an investment contract that is considered a security. It is offered by a cryptocurrency project to accredited investors.
The biggest challenge in all these fundraising methods is the legal gray areas. A classic example is Telegram's unregistered offering of digital tokens (Grams), which was held to violate the US federal securities laws.
Telegram (the company behind the famous messaging app) had to return more than $1.2 billion to investors and pay $18.5 million in penalties.
Open Blockchain Token Offering (OBTO)
According to Wyoming Utility Token Act-property amendments, certain open blockchain tokens may be restricted to only be exchangeable for specified consumptive purposes, including services, software, content or property, whether real or tangible personal property, and do not entitle a token holder to a cash payment or a share of profits from the technology developer or business that created the token.
Open blockchain tokens with specified consumptive purposes are similar to loyalty programs operated by many businesses today, in which an individual is provided with services, content or property redeemable from the developer or business in exchange for a specified number of transactions or cash paid to the developer or business.
The open blockchain tokens governed by this act do not constitute securities because a person who is sold a consumptive open blockchain token cannot receive a cash payment or share of profits from a developer or business, but will instead receive a fixed amount of consumable services, content or property.
Because of the consumptive nature of open blockchain tokens and for the other reasons specified above, these tokens are properly classified as intangible personal property under Wyoming law and, therefore, do not require an exemption from securities laws.
Relevant Wyoming laws
- WS 40-29-101: Financial Technology Sandbox Act (Chapter 29 of Title 40).
- WS 17-16-140: Electronic corporate records (Chapter 16 of Title 17). The list of relevant sections is here.
- WS 39‑11‑105: Exemptions of virtual currencies from property taxation (Chapter 11 of Title 39). See 39-11-105 (b)(vi)(A).
- WS 34-29-101 through 34-29-105: Digital Assets (Chapter 29 of Title 34) and WS 34-29-106: Wyoming Utility Token Act (Chapter 29 of Title 34)
- For details on corporate stock-certificate tokens, see 17‑16‑140 (Definitions), 17‑16‑605 (Construction of terms relating to stock and certificate tokens) and 17‑16‑625 (Form and content of certificates) - (Chapter 16 of Title 17)