Launch HN: Stacks (YC S14) – The first SEC-qualified crypto token offering

There is no one year lock on the Reg A. The Reg D offering (which we did earlier in 2017) and which is limited to Accredited Investors has a year and a day lock. We do have a monthly unlock over 2-years but that was our design decision, not a regulation.

Really interesting question about no longer being considered a security. We spent a lot of time on this. There is an entire discussion about decentralization in the offering circular. Our stance is that this is a utility token and due to an abundance of caution we're complying with securities regulations. However, upon further decentralization of the network (and we discuss certain metrics for this) the Stacks token may no longer be considered a security.

Pasting relevant info from the offering circular:

"Blockstack’s long-term strategy is to decentralize development and governance of the Blockstack network such that no single entity, including Blockstack, is in control of the network. At some point when this decentralization process is complete and there is a healthy ecosystem of applications and users on the network, Blockstack PBC expects to develop new business models, which may include the development and commercialization of premium versions of open-source software, enterprise licensing for blockchain technology, and development of new applications for the network. Blockstack may also dissolve Blockstack PBC and distribute the Stacks Tokens in Blockstack PBC’s treasury to Blockstack PBC’s stockholders. We do however intend to continue operating for a minimum of two to three years and likely until one of the following occurs: the Stacks Tokens are no longer deemed to be securities, we are no longer deemed to be the issuer of the tokens, or the Stacks blockchain undergoes a hard fork without Blockstack’s consent that effectively results in Blockstack no longer driving the governance of the network. Blockstack also intends during this time to encourage independent entities to contribute to the development of Blockstack Core, the core open-source software governing the network as well as contribute to the growth of the eco-system."

With that said, I'm optimistic as all signs seem to point to the fact that security and privacy are going to become more and more critical. Facebook Libra is a great example. Even FB wants to enter this space and rightly so. They have the userbase and are trying to build a decentralized (well federated really) network. Blockstack is open vs. permissioned (Libra). We've done 4+ years of R&D work and are now in the developer traction phase. We want thousands of experiments to happen and organic usage of apps to emerge.

Its easy to say that while completely ignoring the lopsided economic incentives of launching your own thing

If there is a single 1 incompatible thing then the team and network wont let you launch on their network, wont give you any of the partner tokens or subsidies

And you did all that when you could have just used your clout to launch your own thing collecting literally 8, 9 or 10 figures of USD and the majority ownership of a precreated asset you granted yourself.

50 years of salary, taxed way lower, for any software engineering founder.

If you’re ignoring this just because “crypto”, while working on someone else’s adtech has-been, you are doing yourself a disservice.

The issuer side of all markets is heavily misunderstood. But especially in crypto markets. People view the whole concept from the speculator’s side.

For any readers that are intrigued by what is Clarity, it's Blockstack's smart contract language that is different in two mains ways:

a) Clarity is a decidable language i.e., it is intentionally Turing-incomplete. This allows for complete static analysis of the entire call graph of smart contracts.

b) Clarity is interpreted. The contract source code itself is published and executed by blockchain nodes i.e., no compiler.

More details on Clarity are here: https://blog.blockstack.org/introducing-clarity-the-language...

(That's Urdu in case anyone is wondering.)

Appreciate your support! Crypto is generally a wild west and we're trying to help mature this industry.

By the 2017 "crypto mania" the infrastructure was barely there. Imagine that even a single app/smart-contract on Ethereum could not scale beyond 500K users without choking the entire network. Cryptokitties comes to mind.

Just building infrastructure is not a magic solution. You need to iterate over developer tools, give developers the right tools, have educational resources, raise awareness around why decentralized apps are important etc. That's generally the developer traction phase where I believe Blockstack is now (we've had 170 independent apps/startups built on top -- most in the last 6 months).

With an active community of developers organically building decentralized apps and playing around with tools, you can see a lot of experiments but can still end up with a graveyard of apps that no one uses. That's the user traction phase which I do not think we're in yet for Web 3 / decentralized apps. I remain confident that as the UX of these apps gets better and as security/privacy becomes more and more imp, we'll start seeing "killer apps". Some of these will be "crypto native" meaning they are not just "decentralized X" but they'll have some crypto native functionality that was simply not possible in web 2.0 and the traditional client/server model.

Regulation A+ is technically an exemption from registration requirements. Although in practice it works closer to a fully registered offering. Just pointing it out because the Stacks tokens are not "registered".

Transfers can take place between users/peers and do not need to be registered. Trading in the US needs to be on a regulated securities exchange while the token is treated as a security. See our FAQ question on exchanges: https://stackstoken.com/faq/

Trading in international jurisdictions depend on appropriate local law.

Finally, this is decentralized open-source technology and Blockstack PBC cannot control activities on the network.

"Why were Stacks Tokens valued/sold at $0.00012 prior to the 2017 accredited sale at $0.12? Founders and early employees of Blockstack PBC received tokens at $0.00012 per token in October 2017 based on an independent valuation from Foresight Valuation Group, LLC when the Stacks Token was still in its earliest stage of development and before the publication of the token white paper at the end of that month. This grant was subject to a three-year time lock commencing upon the introduction of the genesis block to the Blockstack network in November 2018, and the nominal price reflected the early, high-risk support of founders and early employees.

Holders of Blockstack's Series A convertible preferred stock who had invested a total of $5.1 million as of late 2016 and funded Blockstack's early growth and development before the decision to create a token, or the drafting or publication of any white papers—were also provided an opportunity to purchase tokens at the $0.00012 per token price. This opportunity to participate at a nominal price was given in return for their early support and in proportion to their equity ownership, and it was based on their reasonable expectation as early investors that they would receive tokens if Blockstack ever decided to create a digital token. These tokens are subject to a three-year time lock, commencing upon the introduction of the genesis block to the Blockstack network in November 2018."

Now more context here:

I purchased my shares in Blockstack PBC in 2013 for $42, as does any other startup founder. Will I get a 23809x return if I sell my shares for 1,000,000? No, I'm earning these by the 5+ years of work and no reasonable person would assume that it's a 23809x return. The grant is "free" or at "$0" and the $42 number (standard practice in startups) is there for a tax cost basis.

Exact same logic applies to founder/employee token grants, as we structured our token grants after equity grants.

We did not sell "discounted tokens" at $0.12. That was the price the market was able to bear in Fall 2017. If you consider that a "Series A" price. A 2.5x multiple for a "Series B" is, again, totally standard and rather at the low end for traditional startups. Same thing applies here.

Finally, we are disclosing all this information so investors can make informed decisions. Not the standard practice in other token offerings. I believe disclosures and transparency is a good thing and that's why we took this approach and worked with regulators.

My one request would be to view this from a "what would it look like in a traditional startup?" angle vs. a "how is this project trying to scam me with a pyramid scheme?" angle. Thank you!

You can argue that the developers make the Blockstack ecosystem more valuable by spending their time and effort to build apps for it in return for newly minted Stacks tokens. Kind of similar to how Bitcoin mining works where miners provide computing resources to the network and do some "work" and earn newly minted tokens.

Thanks for the Dmail feedback, we'll look into it!

I worked on this for free until we could raise venture capital to support the open-source development. Without venture capital, I'd probably be working on it in academia but I think that'd be less impactful given limited resources. Developers have been building apps on Blockstack since 2017, the App Mining program was introduced in late-2018. There is a genuine community of developers who'd work on this for free because they believe in the mission.

Users don't have any strings attached. There is a free username registration service for them (the default method) and the apps on https://app.co/blockstack provide real utlity while hiding blockchain-complexity. I don't think most users even realize that there is any blockchain involved.

Finally, no user is being paid to use any app. The App Mining program for developers is the only component in the ecosystem where any incentives/payments are involved. Apple had developer incentive programs for iOS for example. When launching a new platform you have the chicken & egg problem of users and apps. We're trying to get enough high-quality apps so users can get real utility. The App Mining program stops after the initial years.

EDIT: providing more context below:

The reason Blockstack appeals to me is because I think it is one of the few projects with a reasonable, sustainable architecture for ensuring that users own all their data. In particular, Blockstack apps with the same performance characteristics as traditional Web applications _while also_ ensuring that users (1) don't have to run their own servers if they don't want to, and (2) don't have to keep their personal devices online 24/7. The storage layer, Gaia, achieves this by leveraging any/all existing storage media for hosting and serving the data, including commodity cloud storage and CDNs.

Because users provide the primary replicas of their data, they retain control and ownership of it even if the application goes away, or if they switch applications. Indexes and aggregations of user data -- such as the notions of a Twitter feed or a comment thread -- are treated as downstream, soft-state replicas derived from user data, and can be independently reconstructed by anyone. Blockstack apps nevertheless can easily create such indexes and aggregations with Radiks -- https://github.com/blockstack-radiks.

The blockchain component is buried deep in the stack, and is used today for user discovery: user A can discover user B's public key and URLs to their data. By running a Blockstack node, you learn every user's public keys and URLs. This enables Blockstack apps to encrypt data end-to-end so only its intended recipients can see it (Gaia and its underlying storage media only see ciphertext). Users don't directly interact with the blockchain; this is all handled through the user's Blockstack authenticator (https://github.com/blockstack/blockstack-browser) and through blockstack.js.

The system can handle a large number of users today. Most user registration is handled through a batching mechanism, whereby ~160 name/pubkey/URL triples are announced and replicated to the Blockstack peer network per blockchain transaction. At 8 transactions/block, this yields over 180,000 registrations/day.

The reason to introduce a token is to implement smart contracts, which in turn are meant to allow applications to implement small programs to manage a small amount of global state without needing a dedicated, trusted server. Not all applications will need smart contracts -- in fact, all Blockstack apps today that I know of (see https://app.co/blockstack) get along just fine without them. However, there are a few cases where having a small amount of global state is useful -- for example, if you were to build Reddit on Blockstack, you might have a smart contract that lists a directory of all subreddits and the list of admins who curate them.

A lot of thought, time, and energy has gone into the design and implementation of Blockstack's software stack prior to this sale, and the system has been running successfully in production for 3+ years.