21.10.2020

Openfinance Warns It Will Delist All Security Tokens Without New Funds

The company has not seen transaction activity on its platform grow quickly enough to cover operating costs, according to an email sent to the alternative trading system’s (ATS) users and shared with CoinDesk on Wednesday.

Security token trading platform Openfinance is threatening to delist all tokens and suspend trading next month unless issuers cough up more funds to cover its costs.

The email is asking issuers with tokens listed on the site to cover these costs with new contracts. If it doesn’t receive new fees, it will delist all existing tokens on May 21 and suspend trading.

Non-tokenized securities will continue trading, the email said, although it’s not clear how many traditional instruments Openfinance actually lists.

“We have asked the issuers currently listed on the platform to renew their listing agreements and cover a portion of our costs, including through annual listing fees, as are common in large, public markets, where issuers pay exchanges for listing services,” the email said.

A company representative did not immediately respond to a request for comment.

Openfinance launched its ATS in August 2018, allowing accredited investors in the U.S. and investors outside the country to trade and purchase security tokens.

Tokens listed on Openfinance include or at some point included Blockchain Capital’s BCAP token; SPiCE; Current Media’s CRNC token; Lottery.com’s LDCC token; and Protos’ PRTS. Openfinance is also supposed to list NBA guard Spencer Dinwiddie’s personal token when it launches.

Openfinance has raised over three rounds from Sharpe Ventures, M25 and Huobi, according to Crunchbase. Its last round saw the company raise $8.6 million.

Kyle Sonlin, CEO of Security Token Market, told CoinDesk that Openfinance closing its security token platform would be “a loss for the industry,” particularly in the U.S.

“It’s worth noting, however, that these security tokens can simply be self-custodied and eventually moved to another platform, which is a testament to the functionality and efficiency of security token technology,” he said.

The securities themselves would not experience any disruption in ownership, the email from Openfinance said. The issuers and their transfer agents will still maintain ownership records. Users can also maintain the tokenized records in their own digital wallets.

The email notes that users could transfer security tokens directly to buyers and sellers. User funds will be maintained at Evolve Bank, an FDIC-insured institution in West Memphis, Arkansas.

“We remain hopeful that existing listing agreements will be renewed and any delistings can be avoided,” the email said. “If that is not possible, we will work with our issuer partners to minimize any disruptions and Openfinance will move forward, continuing to enhance its efforts to improve secondary market trading of digital (non-tokenized) securities on our ATS.”

OpenLaw Launches First ‘Legal DAO’ for Distributed VC Investments

A new decentralized autonomous organization (DAO) on Ethereum has legal protections baked right into the cake.

OpenLaw’s LAO, or “Limited Liability Autonomous Organization,” opened Tuesday for investors looking to compliantly earn returns on the next wave of Ethereum-based projects.

By creating a distributed group of investors, initially capped at 100, the LAO seeks to legitimize new forms of venture capital investment, OpenLaw CEO Aaron Wright said in an interview.

“People can begin to explore what it’s like to band together online and collect capital and make investments and operate purely digital,” Wright said.

While the project is open to international participation, only accredited investors in the U.S. can join in.

First announced in September at ETHBerlin, the LAO starts with an LLC wrapper registered in the U.S. state of Delaware. Users can put ether (ETH) – at a minimum of 120 ETH (roughly $23,000 at current prices) – into the smart contract, vote and perhaps accrue payout based on those investments. For Wright and OpenLaw, the takeaway lies in how the market moves money out of investors’ hands and into promising cryptocurrency projects.

If Coinbase legitimized the model first put forth by Mt. Gox, Wright said, the LAO could do the same for DAOs, which have seen a relative comeback in the past year.

Technically speaking, the LAO will host multiple projects, which will sign over tokenized shares of stocks in exchange for investors’ ETH. Only accredited investors in the U.S. can take part in the LAO. The original DAO – which was drained 3.6 million ETH in an infamous 2016 hack – faced legal scrutiny due to concerns it constituted an unregulated securities offering.

Shares can be purchased in what Wright called “blocks” of 1 percent of 120 ETH. Up to 9 percent of shares can be purchased worth 1,080 ETH, according to U.S. Securities and Exchange Commission (SEC) regulations.

Wright said the firm will spin up many LAOs depending on demand with each one eyeing $2.5 million in funding.

Compliance with regulation is one way to fix perception issues with DAOs. The capital pooling method soured after the 2016 hack, which then spurred a major fork in the Ethereum ecosystem, leading to the creation of both ethereum and ethereum classic (ETC).

One interesting variation in these capital projects versus traditional finance is the ability to “Rage Quit,” or pull out funds whenever an investor chooses. Wright said the governance tool (first pioneered by MolochDAO) gives users a chance to control their investments from beginning to end.

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