Tend token sale points to a regulated future for ICOs


Peter Lee
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The luxury-asset investment platform is to raise funds by selling tokens that mirror participation certificates under Swiss law, with full KYC and AML checks on buyers.

Marco Abele, founder of Tend

As cryptocurrency markets collapsed in January and regulators threaten to clamp down further on initial coin offerings (ICOs), Tend – the blockchain-powered investment platform incorporated last year by Marco Abele, former chief digital officer at Credit Suisse – announced a new form of token sale.

By providing greater transparency to investors and regulators, and granting rights to token holders that mirror those enshrined in Swiss law on so-called Partizipationsschein (participation certificates), the token sale – which is set to run from February 3 to February 17 – might point the way forward for this new mechanism for financing innovative new companies.

Figures from PwC suggest that from just $236 million in 2016, the volume of funds raised through ICOs shot up to $4.6 billion last year, disrupting traditional venture capital dominance of finance for start-ups.

Tend allows billionaire owners to raise liquidity by tokenizing fractional ownership of luxury assets that combine the promise of capital appreciation with emotional experience, such as luxury cars, vineyards and works of art.

Abele's idea is that millionaires might pay to enjoy these assets occasionally while sharing in investment returns. He explains why he decided to finance the build-out of this business through this new method of early-stage funding.

“Normal start-up founders sit in their offices building the company,” says Abele. “Nobody knows what they’re doing. To get funding they have to ask for appointments with venture capitalists that only a few are ever lucky enough to get.

“Then, after a lengthy period of negotiation, they usually have to give them an awful lot of rights that then lock them into an endless cycle of refinancing through round after round.”


The attraction to entrepreneurs of crowdfunding from a wider base of investors – many of whom could also be customers of the business – through unregulated token sales is obvious, especially when excitement at both the power of blockchain technology to disrupt many industries and the soaring value of crypto assets has allowed start-up companies to raise tens of millions of dollars at a time through such offerings.

A handful of ICOs last year raised more than $150 million, the kind of sums that used to come only with full IPO listings as an exit for early backers after years of supporting new companies on the path to revenue and profit.

Telegram, the company offering a cloud-based messaging service synced to users’ multiple devices at the same time and with privacy features including encrypted voice calls – a competitor to WhatsApp – is running an initial private ICO among select investors that aims to raise $850 million in its first stage before going on to an even larger open public offering. If successful, it will be the biggest ICO yet.

Abele hopes to raise a more modest SFr30 million by selling tokens called TND. These will mirror participation certificates, a popular form of capital for Swiss companies equivalent to non-voting shares that grant owners a proportionate claim on dividend earnings and pre-emptive rights to be notified of and participate in future capital raisings.

Up to now, the ICO market has carried the constant taint of something on the border of legitimacy that had Abele, as an ex-banker, quite concerned.

In September, Switzerland’s regulator the Financial Market Supervisory Authority closed down the unauthorized providers of a fake cryptocurrency E-Coin. It also announced it was investigating ICOs and that when notified about ICO procedures that seek to circumvent financial market law it would initiate enforcement proceedings.

Some company founders have been playing a game with regulators, seeking to raise funding from so-called utility tokens on the basis that if a smart idea takes off for buying any service or asset on a blockchain platform, that will increase use of its native token and so benefit early buyers.

Regulators take the view that this is mere verbiage. Many owners are selling securities in their companies called by another name.

In December, the SEC struck a belligerent note. Chairman Jay Clayton stated that: “Certain market professionals have attempted to highlight utility characteristics of their proposed initial coin offerings in an effort to claim that their proposed tokens or coins are not securities. Many of these assertions appear to elevate form over substance.”

The SEC is not going to stand for such a flimflam.

Clayton says: “Prospective purchasers are being sold on the potential for tokens to increase in value – with the ability to lock in those increases by reselling the tokens on a secondary market – or to otherwise profit from the tokens based on the efforts of others. These are key hallmarks of a security and a securities offering. 

“By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws.”

New format

Abele had already been thinking of a new format to put before subscribers to a token sale.

He now says: “In light of the latest comments from various regulators, including for example the SEC, we are even more convinced that it was a good idea to separate and be clear about the purpose of different tokens on our platform. Tokens for buying and sharing assets are a separate category and for now are denominated in Swiss francs.

“The TND tokens that we will be raising funding through in February to build out the platform, establish its concierge functions and to market the business, represent securities with claims to dividends and the right to seek information on the status of the business.

“We will take it on ourselves to organize disclosure of company information to token holders, who will only lack a right to vote in shareholder meetings.”

Swiss law limits the volume of participation certificates any company can sell to two times its equity capital and Tend will abide by this.

The Tend token sale will be groundbreaking in another important way. Drawing on his background at Credit Suisse, Abele says that a licensed third-party will conduct know your customer (KYC) and anti-money laundering (AML) checks on participants in the token offer.

“Partly that’s an ethical consideration,” he says. “I just wouldn’t feel comfortable building a company with money from people whose provenance has not been checked. Partly it’s a practical question. You see a lot of blockchain-based companies raising money from token sales that they cannot then deposit in business bank accounts because the banks won’t touch it if they don’t know where it comes from. And finally, it will become a regulatory requirement.”

Bank Frick, headquartered in Liechtenstein and with an FCA-regulated branch in London, will act as custodian for participants to buy TND tokens, which they can pay for either in Swiss francs or in ether, the currency of the Ethereum blockchain on which Tend operates.

As opening of the offer approached, cryptocurrencies were falling in January, with the capitalization of the entire market dropping from $832 billion on January 7 to $429 billion 10 days later. How, Euromoney wonders, does the timing of the token sale look after a 48% collapse?

Total cryptocurrency market capitalization

It’s perhaps worth remembering that 12 months ago the combined market cap of all cryptocurrencies was just $17 billion. By January 19 it had bounced back to $587 billion.

Abele doesn’t sound unduly worried, saying: “An enormous amount of value has been created. Ethereum is at $1,065 and, yes, that’s down from the peak of $1,384, but 12 months ago it was $11.

“We have spoken to a lot of potential investors. I like the fact that we get so many questions from them. Many are delighted that this is a real business, not a pure tech play based on a white paper. They’re asking us if token owners will get some kind of price discount when buying asset tokens and we’re looking into that.”

He adds: “I suspect we will see a mix of established crypto investors seeking to diversify their exposure into a new instrument with a different risk profile and some new money, for example from family offices, coming into crypto for the first time and taking a long-term view. I hope to get a globally diverse book of token investors.”

Abele sees the whole ICO market developing in a more regulated fashion quite quickly and is already in discussions with trading venues.

“To start with, tokens can be traded over the counter and peer-to-peer,” he says. “By the summer, we will likely see some of the smaller regulated exchanges, the next-generation more innovative ones, listing tokens. It is interesting to see Gibraltar already moving in that direction, establishing a complementary platform.”

In January, the EU regulated market unveiled its plans for a subsidiary, the Gibraltar Blockchain Exchange (GBX), to become a world-leading institutional-grade token sale platform and cryptocurrency exchange. It hopes to raise a further $6 million to build this out – having already raised $21 million in a successful pre-sale – through its own public token offering running at the same time as Tend’s.

Abele adds: “It’s not just the regulated exchanges that see the opportunity. Some of the bigger pure crypto exchanges may look to gain licences because they see many of the tokens they want to trade will be securities.”