As unfettered initial coin offerings (ICO) seize the attention — and pocketbooks — of some investors, a B.C. tech firm is attempting to break new ground by working with regulators.
Vancouver-based Kabuni announced Tuesday (February 13) it’s signed a memorandum of understanding with the Canadian Securities Exchange (CSE) to issue what it describes as the world’s first security token offering (STO).
Companies use ICOs to raise capital, offering investors new cryptocurrencies in exchange for either money or more established cryptocurrencies like Bitcoin.
“The ICO market is unregulated right now and all the news is headed towards regulation,” said Kabuni CEO Neil Patel, whose company specializes in 3D printing and blockchain technology.
“The STO is an equivalent to an ICO but regulated. And it’s a security token offering, so it actually has equity tied to the token offering.”
The STO plan has the backing of Kabuni’s new executive chairman, Jeff Booth, who previously served as CEO of Vancouver-based BuildDirect before resigning last fall.
“As I left BuildDirect I actually had no idea what was the next step,” he told Business in Vancouver.
“I looked deep into [Kabuni's] idea and it dawned on me [BuildDirect] built one of the most efficient supply chains around.”
BuildDirect was often described as the Amazon (Nasdaq:AMZN) of home-building products.
It was once considered one of Vancouver’s tech darlings, raising more than $100 million in venture capital, before the company filed for creditor protection shortly after Booth’s departure in October 2017.
“I want to build something real,” Booth said.
“As I investigated this further and further and saw where the technology on additive manufacturing/3D printing was today, I thought ‘Wow. The supply chains are going to completely change."
Kabuni uses blockchain technology to ensure designs and payments for products manufactured through 3D printers remain secure. The company plans to open a 36,000-square-foot facility in Richmond next month.
Following the launch, Patel and Booth said the company will begin setting milestones for generating revenue. The pair also said the company's market will be global and the Richmond facility is only the first one Kabuni plans to launch.
Kabuni’s plans were announced the same day the CSE revealed it was launching a securities clearing platform using STOs.
The alternative stock exchange said it intends to go through Canadian regulators to get the clearinghouse approved.
“The Canadian Securities Exchange expects to be the first recognized exchange in Canada to introduce a fully developed blockchain platform for trading, clearing and settling tokenized securities," Richard Carleton, CEO of the CSE, said in a statement.
“Our platform represents an intersection between blockchain and the capital markets that delivers on blockchain's promise to disrupt conventional transaction and record-keeping mechanisms, thereby providing tangible benefits for market stakeholders.”
In Kabuni’s own STO announcement, the company said it intends to file a prospectus with the B.C. Securities Commission to get approval to sell tokens to investors.
Its tokens would in turn be traded on the CSE’s platform.
Patel said response from B.C. regulators has been “warm and receptive” while both sides recognize there is a lot of work ahead to make regulated STOs a reality.
“Regulation is needed in this space,” Booth said.
“Everyone is on side with just doing this right.”