November 29, 2018
Jesse Soslow
Head of Legal and Finance
Blockstack Token LLC
111 Town Square Pl Ste 1203
Jersey City, NJ 07310
Re: Blockstack Token LLC
Draft Offering Statement on Form 1-A
Submitted September 13, 2018
CIK No. 0001719379
Dear Mr. Soslow:
We have reviewed your draft offering statement and have the following
comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information
and either submitting
an amended draft offering statement or publicly filing your offering statement
on
EDGAR. Please refer to Rule 252(d) regarding the public filing requirements for
non-public
submissions, amendments and correspondence. If you do not believe our comments
apply to
your facts and circumstances or do not believe an amendment is appropriate,
please tell us why
in your response. After reviewing your amended draft offering statement or
filed offering
statement and the information you provide in response to these comments, we may
have
additional comments.
Form 1-A filed September 13, 2018
Part II
Cover Page, page 1
1. In your next revision, please include your telephone number and website
address on the
cover page of the offering circular. Refer to Item 1(b) of Part II of
Form 1-A for
guidance.
2. Please revise the cover page to state when the general, App Mining
program and Grant
allocation offerings of Stacks Tokens will commence.
Jesse Soslow
FirstName LastNameJesse Soslow
Blockstack Token LLC
Comapany 29, 2018
November NameBlockstack Token LLC
November 29, 2018 Page 2
Page 2
FirstName LastName
3. Please revise the cover page to disclose that payment for tokens in
the cash offering may
be made in US dollars, Bitcoin or Ether. Also state that once
submitted, an investor's
subscription is irrevocable. In this regard, we note your disclosure
in the second
paragraph on page 136 under the heading Plan of Distribution--The cash
offering.
4. We note your disclosure in Footnote 1 to the fee table that the $0.15
price per token may
fluctuate for Stacks Tokens distributed under the App Mining program
and the Grant
allocation. Please provide your legal analysis as to how this offering
complies with the
requirements in Rule 253(b) of Regulation A to provide a bona fide
range.
5. We note your disclosure in the 4th paragraph following the fee table
that you expect to
issue the Stacks Tokens sold in the cash offering 90 days following
the commencement of
the offering. Please revise, here and throughout the offering circular
where you have
similar disclosure, to disclose that the release of tokens purchased
in the cash offering is
subject to the time lock described under the section headed Offering
Summary--Terms of
this Offering--Unlocking of Stacks Tokens on page 3.
6. Please provide your legal analysis supporting your conclusion that the
investment
limitation described in Rule 251(d)(2)(i)(C) of Regulation A does not
apply to Stacks
Tokens offered for non-cash consideration through App Mining or the
Grant allocation.
7. We note that you define the company together with its parent,
Blockstack PBC, and
affiliates as "Blockstack." Please clarify whether the entities you
collectively refer to as
"Blockstack" are co-issuers of the Stacks Tokens, or whether the
company is the sole
issuer of the Stacks Tokens.
Terms of this Offering--Summary, page 1
8. Regarding your election to make up to 120 million Stacks Tokens not
sold through the
voucher program available through the general offering, please
disclose how you will
determine how many unsold Stacks Tokens to make available in the
general offering and
what will happen to unsold voucher program Stacks Tokens that are not
made available in
the general offering. Please also tell us why this does not amount to
a delayed offering of
these tokens. This appears to be a separate offering because you will
offer the tokens to
a different group of investors at a different price than originally
offered. We understand
that the offering period for the voucher program will end 21 days
after commencement of
the offering, and assume you would make this election at that time, or
at least later than
the two calendar days after qualification required for commencement of
a continuous
offering under Rule 251(d)(3)(i)(F).
9. You state that the tokens to be sold in this offering will be
introduced as part of the
genesis block, except for tokens to be issued in the App Mining
program, which will be
introduced in a hard fork to the network at the closing of the cash
offering. Please help us
understand when the genesis block tokens will be introduced in
comparison to the App
Mining program tokens, and whether your reference to 'closing of the
cash offering' means
Jesse Soslow
FirstName LastNameJesse Soslow
Blockstack Token LLC
Comapany 29, 2018
November NameBlockstack Token LLC
November 29, 2018 Page 3
Page 3
FirstName LastName
the end of the offering period for the cash offering (28 days after
commencement of the
offering) or the "Cash Offering Closing" (approximately 90 days after
commencement).
Please also address why the offering of the App Mining tokens is not a
delayed offering, if
the tokens will not be introduced until the closing of the cash
offering (whether that is 28
or 90 days after commencement). In your analysis, please also
specifically address the
mechanics of the App Mining program and, in particular, why the tokens
under this
offering will only be distributed on a monthly basis.
Terms of this Offering--App Mining program, page 3
10. Please revise to disclose how you will determine the amount of the
reward to pay to
participating application developers and reviewers. Please also
disclose whether your
officers, directors or related parties will be eligible to receive
awards under the App
Mining program.
Terms of this Offering--Unlocking of Stacks Tokens, page 3
11. Please revise to clarify that you will require and accept full payment
from participants in
the cash offering on a rolling basis during the term of the offering
rather than
incrementally as the tokens are unlocked and released. Also describe
investors' rights to
repayment in the event you are not able to deliver their tokens.
Terms of this Offering--Grant allocation, page 4
12. Please disclose whether your officers, directors or related parties
will be eligible to receive
distributions under the Grant allocation.
Terms of this Offering--How to Subscribe (cash offering), page 6
13. We note you will accept Bitcoin and Ether for payment in this
offering. Please revise to
describe:
Whether the 'time of purchase' that is the valuation date for the
Bitcoin or Ether is
when you accept the subscription, receive payment from the
investor, or deliver the
Stacks Tokens at the Cash Offering Closing. In this regard we note
disclosure in the
Plan of Distribution that investors will become owners of Stacks
Tokens on the date of
the Cash Offering Closing;
How payments made in Bitcoin and Ether will be held until release of
Stacks Tokens
to purchasers;
In the event subscriptions are rejected, the form refunds will take
to purchasers who
paid using Bitcoin or Ether; and
If rejected subscriptions are paid for using Bitcoin or Ether, how
you will determine
the amount of the refund if the value of the Bitcoin or Ether has
changed.
Please make corresponding changes to the Plan of Distribution.
Jesse Soslow
FirstName LastNameJesse Soslow
Blockstack Token LLC
Comapany 29, 2018
November NameBlockstack Token LLC
November 29, 2018 Page 4
Page 4
FirstName LastName
Terms of this Offering--No Debt or Equity Provisions, page 8
14. We note your disclosure that you "do not believe the Stacks Tokens
should be
characterized as either debt of equity under the securities laws."
However, on page 128,
you indicate that the tokens "will be classified as debt for purposes
of the federal
securities laws." Please revise all references throughout your
offering statement that
characterize the securities you intend to offer as neither debt nor
equity and instead ensure
that you have discussed all material terms of the Tokens and provided
an appropriate
summary thereof.
The Blockstack Network--Overview--Future development of the Blockstack network,
page 11
15. We note you anticipate that the Blockstack network will become
decentralized, that you
will no longer have control over it and, as a result, the properties
of the Stacks Tokens
may change, and Stacks Tokens may no longer be securities of
Blockstack Token LLC.
Please expand your disclosure to describe how the determination will
be made that the
Stacks Tokens are no longer securities, who will make that
determination, how
tokenholders will know when this happens, what notice they will have
in advance of it
happening, what rights, if any, they will have in determining whether
or not it happens,
and, if known, when you expect it to happen.
Other Token Sales, page 12
16. Please expand your disclosure to identify when the private offerings
described occurred.
17. We note from your disclosure in the section headed
Business--Developments of the
Business--Token Sales, on page 97, that your receipt of the proceeds
from the Stacks
Tokens sold in the private offerings is subject to you meeting certain
conditions. Please
expand your disclosure to describe the material terms of those sales
and these conditions,
and discuss your progress toward meeting the user milestone. Please
make corresponding
changes to the risk factor At current growth rates, the Blockstack
network will not have
reached one million users by the second milestone date, and we will
not achieve the
second milestone on page 35.
18. Regarding the conditions in the private offering, please also clarify
whether you have
received the funds and they are subject to return, as suggested in
Note 1 to your audited
financial statements, or whether you have only received the
non-contingent part of the
consideration, the remainder of which you expect to receive upon
satisfaction of the
milestones, as suggested in disclosure on page 98. Please also clarify
whether, if the
milestones are not met and full payment will not be made, you will
issue fewer Tokens to
the private investors, commensurate with the amount of consideration
you ultimately
receive.
Jesse Soslow
FirstName LastNameJesse Soslow
Blockstack Token LLC
Comapany 29, 2018
November NameBlockstack Token LLC
November 29, 2018 Page 5
Page 5
FirstName LastName
Risk Factors
Risks Related to an Investment in the Stacks Tokens
The value ascribed to the Stacks Tokens by its holders may fluctuate based in
part on the number
and scope of additional features..., page 21
19. Please expand your disclosure to describe what rights tokenholders
will have in
determining whether new features are introduced to Stacks Tokens or
the Blockstack
network.
Risks Related to Blockchain Technology
Blockstack holds significant amounts of Bitcoin and other cryptoassets..., page
28
20. Please expand this risk factor to disclose the amount, both in terms
of the dollar value and
as a percentage of your total assets, of the Bitcoin and other
cryptoassets you held as of
the most recent period presented in your financial statements and as
of the latest most
practicable date.
Risks Related to Regulation, page 56
21. We note your disclosure under various risk factors appearing under the
subheading Risks
Related to Regulation that you believe:
Miners are not broker-dealers though they receive fees for recording
transactions (page
57);
Neither you nor miners need to register as transfer agents or
clearing agencies (page
59);
Neither the Blockstack network nor browser extension are required to
register as an
exchange or ATS (page 59);
No Blockstack entity is a money transmitter or money services
business (page 60);
You are eligible to conduct this 1-A offering without engaging the
services of a
registered transfer agent (page 60).;
Transactions of Stacks Tokens to pay fees on the Blockstack network
do not violate
Regulation M (page 62); and
You do not meet the definition of "investment company" under the
Investment
Company Act of 1940 because the Tokens will be "non-securities" in
your hands
(page 107).
Please provide us with your legal analysis with citations to proper
authorities supporting
your conclusions with respect to each of the above. We note your
disclosure in the section
headed "Business--Government Regulation" beginning on page 103.
It is unclear when and if federal or state regulators will allow registration
of a token exchange...,
page 58
22. We note your disclosure in the first paragraph under this heading that
you are aware of
Jesse Soslow
FirstName LastNameJesse Soslow
Blockstack Token LLC
Comapany 29, 2018
November NameBlockstack Token LLC
November 29, 2018 Page 6
Page 6
FirstName LastName
"certain developments" related to the potential registration of a
national securities
exchange or ATS that would facilitate trading of Stacks Tokens on the
secondary market
and provide liquidity. Please revise to elaborate on the "certain
developments" of which
you are aware.
23. Please revise to clarify your disclosure in this risk factor and in
the section "Description of
the Stacks Tokens Being Offered--Is there a secondary market for the
Stacks Tokens" on
page 129 that with respect to ATSs, the SEC does not approve or
authorize ATSs or the
types of securities that trade on them.
Use of Proceeds, page 66
24. Please revise your disclosure to describe the approximate amount of
the net proceeds to be
used for each identified purpose in the order of priority of such
purposes. Additionally,
please discuss your plans if substantially less than the maximum
proceeds are obtained. In
this regard, please include a table illustrating your planned use of
proceeds if 25%, 50%,
75% and 100% of the offering is sold. Refer to Item 6 of Part II of
Form 1-A and
Instruction 3 thereto for guidance.
25. It appears the proceeds from this offering will be used in conjunction
with the proceeds
from your private placements. If so, please revise to disclose the
amount and sources of
funds raised from other offerings and state whether those funds are
firm or contingent.
Refer to Item 6 of Part II of Form 1-A and Instruction 5 thereto for
guidance.
Dilution, page 67
26. Please revise the dilution table by disaggregating the "Investors
participating in this
offering" line to summarize the differences between the total
consideration and the price
per token for each class of participants in this offering. Please also
include a separate
comparison to show your offering as if it were sold as described on
the cover page
(i.e., 215 million tokens sold in voucher program and 76 million
tokens sold in the general
offering).
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Components of Results of Operations--Revenue, page 71
27. We note Blockstack does not expect to generate significant revenue
from any additional
sources in the near future. Please revise to describe the Company's
anticipated products
and services and explain how the Company will earn revenues from
sources other than the
sale of Stacks Tokens.
Business
Corporate History, page 96
28. We note your discussion regarding public benefit corporations in
general and the specific
public benefit Blockstack PBC will promote. Please expand your
disclosure to clarify the
Jesse Soslow
FirstName LastNameJesse Soslow
Blockstack Token LLC
Comapany 29, 2018
November NameBlockstack Token LLC
November 29, 2018 Page 7
Page 7
FirstName LastName
role, whether direct or indirect, Blockstack Token LLC will play in
promoting this public
benefit. Please add a risk factor addressing the implications to
investors of investing in a
company controlled by a public benefit corporation.
Development of the Business
Vouchers, page 98
29. Your disclosure indicates that you issued the vouchers to individuals
who, in connection
with your November and December offerings, submitted indications of
interest on your
website and who requested to be included in the sale of tokens at an
undefined future date
at a discounted price. As such, it appears that any communications
soliciting indications
of interest in an offering and the opportunity to sign up for vouchers
may be
communications described in Rule 255, and that you should file such
communications as
Exhibit 13 to your Offering Statement. Please also revise the check
box in Item 4 of Part I
of Form 1-A to reflect that you have used solicitations of interest
communications in
connection with the proposed offering, or tell us why this is not
applicable.
White Papers, page 100
30. We note you have issued two white papers relating to your business.
Please file these
white papers as exhibits to the offering statement pursuant to Item 17
of Form 1-A.
Government Regulation--Exchange Act Considerations
Reporting Company Considerations, page 107
31. Please revise disclosures here and on page 60 under We could become a
"reporting
company" with significant additional reporting obligations ...to
clarify that you are
subject to the transfer agent requirement, or provide us
supplementally with a detailed
legal analysis why a transfer agent is not required as requested in
comment 21 above.
The smart contract for the Stacks token, page 124
32. We note that you have described "certain rules" with respect to the
smart contracts for the
Stacks Tokens. Please revise to disclose all of the material
provisions of the smart
contracts. To the extent that the smart contracts define the rights of
Stacks tokenholders,
please also file the form of smart contract or a written summary as an
exhibit to the
offering statement pursuant to Item 17 of Form 1-A.
Description of the Stacks Tokens Being Offered
What can I use the Stack Tokens for when they are issued?, page 124
33. Please tell us what consideration you have given to the application of
Section 29(b) of the
Exchange Act as it relates to the trading of securities on
unregistered exchanges, and the
role you may play in facilitating the sales of your tokens on such
unregistered exchanges.
Jesse Soslow
FirstName LastNameJesse Soslow
Blockstack Token LLC
Comapany 29, 2018
November NameBlockstack Token LLC
November 29, 2018 Page 8
Page 8
FirstName LastName
Can my Stack Tokens be modified?, page 125
34. We note your disclosure here and elsewhere in the offering circular
that the tokens may be
modified and, in particular, may be modified by third parties through
changes made to the
smart contract, without your approval. Please provide us with
additional detail why you
are unable to control the smart contact such that third parties are
prevented from making
modifications. Additionally, please note that the material terms of
the tokens must be set
at the time of qualification. Please tell us what consideration you
have given as to
whether any material changes could result in a new security. Please
describe the
implications of such a change for existing holders and new purchasers
in the offering. In
your response, please address (without limitation) whether such
changes could result in an
effective exchange of outstanding tokens for the new security, how
such an exchange
would be made, and how it would comply with any registration
obligations. Please make
corresponding changes to the risk factor "We may not be subject to
ongoing reporting
requirements on . . ." on page 24, and your disclosure under the
section headed "The
Blockstack Network--Governance of the Blockstack Network" on page 86.
Plan of Distribution
The Cash Offering, page 135
35. Please disclose how long you expect to take to determine whether to
accept a subscription
or reject it and return the investor's funds, and clarify what would
cause an investor not to
"qualify," as noted in the second paragraph on page 136, resulting in
the rejection of its
subscription.
36. Where you state that investors will become owners of Stacks Tokens as
of the date of the
Cash Offering Closing, please also describe the material terms of the
time lock, and
describe the difference in investors' rights with respect to tokens
that they have subscribed
for but do not yet own and those that they own but that are subject to
the time lock, as well
as tokens owned but subject to the time lock and tokens that have been
released from the
time lock. Please also clarify that the number of blocks processed on
the blockchain used
by your network determines that rate at which tokens will be released
from the time lock,
and discuss the possibility that under these terms, the release of
Stacks Tokens could take
significantly longer than your estimate of 23 months, or that they
might never be released.
37. Please explain how you determined to hold the Cash Offering Closing
approximately 90
days after the commencement of the offering. Please also discuss
whether this date could
be extended for any reason and if so, how you would notify subscribers
of the extension
and whether subscribers would have a right to revoke their
subscriptions.
38. We note that investors in the offering will become owners of the
Stacks Tokens as of the
date of the Cash Offering Closing, that their subscriptions are
irrevocable once submitted,
and that you will accept payment on a rolling basis during the term of
the cash offering.
Please clarify whether this means that the funds submitted in payment
for subscriptions
Jesse Soslow
FirstName LastNameJesse Soslow
Blockstack Token LLC
Comapany 29, 2018
November NameBlockstack Token LLC
November 29, 2018 Page 9
Page 9
FirstName LastName
will be immediately available for the company's use during the term of
the offering,
notwithstanding that investors are not yet owners of the Stacks
Tokens, and discuss the
risks to and the rights of investors during this period. For example,
please explain what
happens if the company dissolves or liquidates, or if the offering is
terminated, prior to the
Cash Offering Closing and/or when the tokens are distributed. Finally,
please address any
contingencies to closings.
39. Clearly disclose that investors may purchase Stacks Tokens using cash,
Bitcoin or Ether,
and explain when they will be required to submit the various forms of
payment.
Disclosure on page 139 suggests that cash payments must be made with
the subscription,
whereas Bitcoin and Ether will be paid only after notice that a
subscription has been
accepted. Disclose how long an investor will have to submit its
Bitcoin or Ether after you
have sent notice of acceptance of the subscription. Please also
clarify whether you will
hold or reject any Bitcoin or Ether an investor might elect to submit
with its subscription.
40. We note disclosure on page 6 regarding the method by which you will
value payment
made in Bitcoin and Ether. Please include similar disclosure in the
Plan of Distribution,
and also clarify whether you will hold these payments in this form or
convert them to US
dollars, and if so when such a conversion would take place. Also
explain what risks the
company and investors bear for fluctuations in the value of Bitcoin
and Ether between the
time investors submit payment and the time these assets are valued and
accepted by the
company, and the time of the Cash Offering Closing. Consider whether
specific risk
factor disclosure is also appropriate. Please also explain how
investors will be made
aware of the use of a replacement service for valuation, the exchange
ratio applied and the
resulting number of tokens that they will receive in such
circumstances.
Secondary Trading, page 137
41. Please revise this section to disclose that there are currently no
such registered third-party
exchanges or other platforms to support the trading of Stacks Tokens
on the secondary
market. Please make corresponding changes to the section
Transferability of our Stacks
Tokens on page 138.
Consolidated Balance Sheets, page F-5
42. We note that you present restricted digital currency assets of $13.4
million as of
December 31, 2017 on the consolidated balance sheet on page F-5. We
also note that you
present cash outflows of $5.0 million for restricted digital
currencies and noncash digital
currencies invested of $6.2 million on the consolidated statements of
cash flows on page
F-8, which represent $11.2 million in the aggregate. Please help us to
reconcile the $13.4
million included on the balance sheet with the $11.2 million on the
statements of cash
flows. In addition, explain to us what the $6.2 million of noncash
non-controlling interest
digital currencies invested represent.
Jesse Soslow
FirstName LastNameJesse Soslow
Blockstack Token LLC
Comapany 29, 2018
November NameBlockstack Token LLC
November 29, 2018 Page 10
Page 10
FirstName LastName
1. Nature of Business and Summary of Significant Accounting Policies
Token Sales, page F-9
43. Please provide us with your assessment of investment company status
under ASC 946.
Refer to the guidance in ASC 946-10-15-4 through 9.
Basis for Consolidation, page F-10
44. We note your disclosure that the Company is considered to be the
primary beneficiary of
the AI and QP LP Funds, as well as Employee LLC. Please revise your
disclosures to
include the information required by ASC 810-10-50-3(bb).
Intangible Assets, page F-13
45. We note your disclosure on page F-14 that intangible assets with
indefinite useful lives are
measured at their respective fair values as of the acquisition date.
Please clarify whether
you measure them based on their cost to the acquiring entity in
accordance with ASC 805-
50-30-1 through 3 and revise your disclosures accordingly.
Revenue Recognition, page F-14
46. We note that you present $21.8 million of non-controlling interests on
your consolidated
balance sheet as of December 31, 2017, which represent capital
contributions in the
consolidated QP and AI Funds that are subject to distribution in the
event that the
Company fails to achieve the First and Second Milestones; and the
outstanding investment
under Employee LLC that will be recognized upon achievement of the
First and Second
Milestones. Please provide us with your accounting analysis, with
reference to
authoritative literature, supporting the classification as a
non-controlling interest rather
than as a liability.
47. With regard to your revenue recognition policy for the LP Fund
issuances, please address
the following:
Tell us whether you allocated the transaction price for the LP Fund
issuances to the
First and Second Milestone performance obligations in accordance
with ASC 606-10-
32-28 and 29 and if so, how you prepared such allocation. If you
did not do such an
allocation, tell us why you did not consider it necessary.
Quantify the amount of revenue recognized associated with each of
your First and
Second Milestones.
48. We note your revenue recognition policy on page 80 stating that
revenue associated with
your First and Second Milestones is recognized monthly on a straight
line basis from the
effective date of the arrangements to January 2019 and 2020,
respectively. Please
provide us with your accounting analysis, with reference to
authoritative
literature, explaining why revenue recognition on a straight line
basis over time is
Jesse Soslow
Blockstack Token LLC
November 29, 2018
Page 11
appropriate. As part of your response, tell us how you meet the criteria
for performance
obligations satisfied over time in ASC 606-10-25-27 rather than
performance obligations
satisfied at a point in time in ASC 606-10-25-30.
You may contact Michael Henderson at 202-551-3364 or Robert Klein at
202-551-3847
if you have questions regarding comments on the financial statements and
related
matters. Please contact David Gessert at 202-551-2326 or Pam Long at
202-551-3765 with any
other questions.
Sincerely,
FirstName LastNameJesse Soslow
Division of
Corporation Finance
Comapany NameBlockstack Token LLC
Office of Financial
Services
November 29, 2018 Page 11
cc: Robert Rosenblum, Esq.
FirstName LastName