Republic is “Testing the Waters” of the SEC’s Reg A Exemption by Giving a Revenue-Sharing Token Away— for Free

As of April 5th 2019, crowdfunding platform Republic has announced the launch of a blockchain-powered token. The token will be given away to users of its platform for free, but by the end of the year, will feature revenue distribution. Republic claims to be “testing the waters” of the SEC’s Regulation A registration exemption for an “eventual offering of its securities”.

Republic’s Revenue-Sharing Token— The Note— Explained

New-York based equity crowdfunding platform and AngeList spinoff, Republic, has announced the launch of its blockchain-based token: the Note.

As a FINRA-licensed fundraising portal, Republic allows for early-stage companies to raise capital from a variety of investor types.

Per the terms of a successful raise on the platform, Republic acquires a small equity stake in each company. After nearly three years in business, Republic has over 80 companies in its portfolio.

Now, through its own token, Republic is allowing anyone to own a piece of the platform. For free.

Starting Monday April 8th, anyone who signs up via Republic’s website can receive Notes.

According to Bryan Myint, managing director of Republic’s token-fundraising division,

“Notes are earned through specific actions and provide users with a bunch of perks, such as early access to investment opportunities, events, and stuff like that….But the cool part here is, Republic aims to eventually link the Note to Republic’s equity interest in every company that raises on Republic, which allows Note holders to have a stake in the potential upside on Republic’s entire portfolio.”

More specifically, 10 Notes are provided after registering an account, while referring a startup to raise capital through the platform earns 1,500 Notes.

How the Blockchain Industry has a Growing Concern for Securities Violations

With increased regulatory bodies entering the digital asset space, many companies are leaving the Initial Coin Offering (ICO) behind and turning to the Security Token Offering (STO) instead.

U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton has said that virtually every ICO he has seen, constitutes a securities offering. They therefore must abide by the commission’s existing securities laws.

Yet SEC regulated securities typically feature stringent requirements and are confined to accredited investors.

This certainly isn’t the case with The Note, as any user who interacts with the platform seems to be eligible.

Yet still, Republic plans to add revenue-sharing capabilities to its token sometime between September — December 2019.

According to Myint, token holders will be part of a “mutual fund of everything on Republic… [an] evergreen ETF.” Whenever a Republic-funded company is acquired, or even after every successful raise on Republic’s platform, Note holders will receive a certain revenue distribution.

Is Republic’s ‘The Note’ a Security?

For many, such a scenario looks like a blatant security. But Republic claims everything is being done with respect to federal securities laws and regulations.

Republic has four in-house lawyers, and is led by Kendrick Nguyen, a securities litigator and former general counsel for AngeList. Republic’s fundraising portal designed for blockchain-based startups— Republic Crypto— has historically leveraged the SEC’s Regulation CF exemption to sell digital assets to non-accredited U.S. investors— all in an SEC-compliant fashion.

Further, Republic disclosed precisely what they have in mind directly on their website:

“Although the Note may not at this time constitute a ‘security’ under our view of applicable laws and regulations, Republic is conforming to the standards of testing the waters under Regulation A of the Securities Act of 1933, as amended (“the Act”). This process allows companies to determine whether there may be interest in an eventual offering of its securities.”

To clarify, Republic seems to be saying that as of right now, the Note has no monetary value. It also has no guaranteed value in the future, and the token’s purpose in the future will depend on a variety of factors, including what happens between now and then. A bit ambiguous, but definitely on the safe side.

If Republic is successful in pulling off a revenue-sharing token exempt from SEC registration requirements, it could go on to establish an industry-wide blueprint for others to follow in the digital asset space.

What do you think of Republic giving away the Note for free? Will the crowdfunding platform pull off a successful exemption through the SEC’s Regulation A? We’re curious to know your thoughts in the comments section below.

Image courtesy of Republic.