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Businesses seeking to crowdfund via security token offerings (STOs) may soon get some relief from regulatory requirements

The Securities and Exchange Commission (SEC) recently proposed amending its capital formation rules for early stage startups. If adopted, the rule changes would raise the cap on the amount companies can raise to $75 million from $50 million for Regulation A+ security offerings and to $5 million from $1 million for Regulation CF (crowdfunding) deals. It all stems from the Jumpstart Our Business Startups (JOBS) Act of 2012, which allows companies to raise funds from the public without having to register as a public company – but more importantly for those interested in crypto, the proposed amendments may signal that the SEC is changing their views on tokenization and blockchain technology.

These proposed rule changes have great potential to help businesses of all sizes in the crowdfunding fintech industry, but especially those in the blockchain space because it could expand the number of security token offerings in a compliant manner. Blockchain technology is still obviously in its infancy, but it’s gaining traction and interest every day as a capital-raising solution. Unlike Initial Coin Offerings (ICOs), where many failed to comply with securities laws and had nothing tangible backing their valuation, STOs are different because they must be qualified by the SEC where the process itself is the fractional “tokenization” of a physical asset or assets. In essence, Security Tokens represent traditional securities (built on the blockchain) and as such are sold in a manner compliant with federal laws.

Many see Reg.A+ as a perfect mechanism for digital securities. The regulatory relief the SEC is proposing would make it easier for businesses to create their own security token offerings. The impact of the proposal would be that via Reg.CF and Reg.A+, you’ll be able to create a tokenized security offering through the crowdfunding excemption up to a $5 million cap. In addition, companies may see a greater return on their legal fees and overall crowdfunding efforts. The proposal may even solve the issue of the “blockage of approvals” for Reg.A+ deals already in the pipeline waiting for SEC qualification.

Other proposed amendments include a “demo day” which would allow companies to pitch to potential investors without violating any “general solicitation” rules, and also addresses “Simple Agreement for Future Tokens” (SAFTs) and “Simple Agreement for Future Equity” (SAFE) possibilities as well.

It’s a positive sign that the SEC is highlighting crypto and helping to regulate the industry to protect issuers and investors alike from fraud. The JOBS Act original intent was to give investors access to startup and small business investment opportunities, and it’s clear the SEC sees crypto and blockchain technology as something to be leveraged towards that end.

Despite all this, the impact of CoronaVirus looms heavy on the world’s economy. Eventually, we’ll see a recovery, but for now, the SEC’s proposed changes are definitely laying the groundwork for easier crowdfunding in the future.