Siafunds token opts to be classed a security under SEC regulations

By February 22, 2018Ethereum
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Sia CEO David Vorick talks about his eventual decision to follow the accredited investors route for the Siafunds token sale.

Decentralised storage network Sia is doing a token sale for its Siafunds revenue asset, which will be classed as a security under the SEC's purview.

When Sia was launched it comprised two assets, the Siacoin and Siafunds (SF). The latter is used as a "real-time dividend" to create revenue on the network; every time that someone creates a file contract on the Sia network, a small fee is taken from that file contract, and distributed to the Siafund holders.

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When the network launched the Sia team held some 8750 Siafund tokens and 1250 were distributed to the community. The token sale will see some of the Siafund tokens sold.

The sale which will be structured as a modified Dutch auction will be open to accredited investors only (somewhere between 5,000 and 10,000 of them are expected). David Vorick, CEO of Sia, explained that this was a difficult trade off; he desperately wanted the sale to be as open as possible, but concluded it would be inappropriate not to preserve decentralization of all Sia's meaningful infrastructure.

Vorick said: "We really wanted our token sale to be available to the general public and be sold to retail investors. The SEC has a framework for doing this called a Regulation A-Plus.

"But at the same time, we're extremely focused on decentralization and making sure that no meaningful part of our infrastructure falls under one centralised entity, or even a small collective.

One of the requirements of the Reg A-Plus today is that your asset has to be listed on a central exchange. It has to be traded exclusively through that exchange and the exchange has to sign off on all transactions, and can reverse transactions. In addition, every holder of the asset, whether they are on the exchange or not, must have their name and address registered.

Vorick said: "Because Reg A-Plus requires this centralised component in your infrastructure, we felt that complying with that was inappropriate and just a poor fit for what we are trying to achieve overall."

It's for this reason that Sia chose the Regulation D instead, an exemption which means accredited investors only.

"We hope that in the future, regulatory frameworks open up and that regulators find alternative means to protect retail investors while also allowing us to remain decentralized," he said.

Like most of the developer community, Vorick believes in the tokenization model for fundraising. However, the previous year has seen such a rush to ICO, the whole thing has garnered a rather bad reputation.

"I think when token sales try to bill themselves as selling utility tokens this is misleading. The buyers of these tokens don't really have an intention of spending $20,000 on Ethereum transaction fees or however much they bid. They have an expectation of making returns.

"So we feel it's important to acknowledge the asset that we are selling as a speculative vehicle as a way to make money. That means we have to fit into these regulatory frameworks that exist to protect investors. And that's something we have chosen to embrace."

As alluded to, Sia has chosen to structure the sale as a modified version of a Dutch auction. This was kind of inspired by the Google IPO, often praised as being one of the fairest stock offerings; it's also an approach looked on favourably by the SEC.

"Basically we have a bidding process where people say how many Siafunds they want to buy and what price they want to buy at. Then when the auction closes we find the lowest price where we sell as many as we want to sell, but not more.

"Everybody who bid above that price gets Siafunds at that price. So if some people bid really high and then the clearing price is low they don't have to pay that really high price, they can pay the lower price."

Vorick says another important mechanism in the sale is a shift away from what he calls "the fast click game", where everything gets sold in the first five minutes of the sale.

"Out sale is going to be open for several days and at any point throughout the sale you can change your bid or reduce your bid, or withdraw and so there is no pressure.

"The first 24 hours of the sale it's going to be open and there is no risk of you getting boxed out; if you are slow to bid or if you want to change your bid later, it's not going to damage your prospects. We feel that's more investor friendly, and ensures that people aren't going to make decisions that they are going to regret."

The majority of the funds raised will go towards software developers of some type, but there will also be onboarding of community managers, community developers, specialists in marketing and branding materials enterprise sales.

Sia is going along swimmingly. Two months ago it moved from unstable beta network to cross a reliability threshold, says Vorick. "Now when you put files up, they are going to stay there, and you can get them down later and the whole platform is much more stable."

Sia is currently targeting cold storage, disaster recovery and protecting sensitive and important data protected in a decentralised way. It's worth noting that Sia can do cold file storage at 10x cheaper than cloud services today. As such, it seems inevitable that blockchain is going to take a large market share, at the very least from the cold storage market, which is expected to be a $200bn market in the next five years or so.

Vorick added: "Starting next year and going forwards we are looking at getting the platform to do more and more hot storage type applications."

Decentralised storage network Sia is doing a token sale […]

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