ProjectICO, a turn-key ICO solution based in Releigh, NC held an AMA on the NEO subreddit today. ProjectICO have a team of engineers, partnered law firms and marketing staff that assist clients in running properly regulated token sales that use SAFTs (Simple Agreements for Future Tokens).
A SAFT is a form of investment contract that is not dissimilar to a SAFE (Simple Agreement for Future Equity), which is used in traditional venture capital funding. When issuing a SAFT, developers use the money raised through the crowd sale to build their project and deliver tokens to investors once the product is functional. By digitizing this agreement and utilising NEO’s digital identity, ProjectICO can help their clients run legally compliant token sales.
Historically, ProjectICO have used Ethereum, but since announced that they are shifting across to NEO. When asked during the AMA why they switched the NEO, Founder and CEO Stephen Hydachak replied,
“Neo is forward thinking with blockchain as are we. Their protocol was not designed to be an ICO portal but digitization of assets and so much more. This is laid out clearly in the example of the GAS threshold to even deploy a smart contract and this is what we LOVE. We are coupling this framework with our engineers and using it to digitize traditional legal agreements like the SAFT for token sales and allow an avenue and trust for participation across the globe. This allows U.S investors to adhere to the SEC and Chinese to adhere to the CSRC as an accredited investor.”
Stephen then went onto clarify that they are not trying to ‘replace’ ICOs through the use of SAFTs, but instead trying to ‘reclassify’ them for what they are.
Another big reveal from the AMA is that the first of ProjectICO’s clients to use the NEO platform would be Universal Health Coin, for whom Stephen Hydachak is also an advisor. The ProjectICO team have been involved in around 10 token sales, and are very selective about the clients they take on.
You can read the AMA questions below or visit the thread at the following link – https://www.reddit.com/r/NEO/comments/7dd3s0/ama_on_20_nov_projectico_a_us_based_turnkey_token/
What are the main reasons that your team has decided to switch from Ethereum to NEO?
Neo is forward thinking with blockchain as are we. Their protocol was not designed to be an ICO portal but digitization of assets and so much more. This is laid out clearly in the example of the GAS threshold to even deploy a smart contract and this is what we LOVE. We are coupling this framework with our engineers and using it to digitize traditional legal agreements like the SAFT for token sales and allow an avenue and trust for participation across the globe. This allows U.S investors to adhere to the SEC and Chinese to adhere to the CSRC as an accredited investor.
Wow, that’s amazing ! If that really works, it would replace icos and make it available even for chinese and americans, that’s it ?
Edit: Read your answer a little lower that confirmed this. Keep up the good work, and thanks for the AMA !
We don’t mean to replace ICOs but rather classify them to what they are and use the blockchain to benefit investors and entrepreneurs. One of the largest barriers to entry we saw in this space was legal fees. To create a SAFT, it cost over $125k just for the paperwork and structuring. Our partnership with Stradling does this for an enormously lower cost. But we are taking it to the next step and with legal support, we will be digitizing these legal agreements through immutable smart contracts, which will save time and costs. So although NEO gas fee is in place to deploy smart contracts, we will save clients over $90k on average on a barrier to entry into the market. This will help us as a company weed out the “sh*t coins” all while saving the bottomline of the original project. This is our solution and will help bring many more users to the NEO blockchain.
Wow, I really like it !
I’m sorry the spotlight kinda got stolen from you will all the mess around “Moon!” and “news” from the council. I’m sharing this everywhere I can, cause this is really amazing 🙂
Glad you like! And that is no problem, Neo created this great platform and the team deserves the attention. We simply want to make this better and more attainable for more participation. I saw so many great ideas slipping through the cracks because they couldn’t afford our competitions or our fees to build the initial token sale. We are going to change that and will be done using Neo.
Will…. There be an ICO…. For you? And ICO for ICOs? Is this ICOception!
Edit: After going through your site, I understand now. (I could be off base, so correct me if I’m wrong)
You intend to be an ICO curator essentially, where you manage business, companies, entrepreneurs, and other entities who would like to do an ICO, but aren’t certain about how to do it legally, technically, and/or Market themselves.
That sounds like a good idea, and welcome to the NEO blockchain. I look forward to your ama, and I’ll try to think of some fun questions.
I wanted to answer this question first as I felt it was most important to our mission and to make this very clear. ProjectICO is NOT launching an ICO nor a token. We are a service that helps others launch a token sale if it is right for their cause and will be using NEO in most instances going forward.
We have created a foundation that is bringing compliance and trust to the marketplace for ICOs and allowing international people to still participate.
Eth is full of garbage icos that will be cracked down on. I think neo is gearing up to be the blockchain standard of the world
Couldn’t agree more here and it has become a sea of weeds. Being on both sides as an investor and token sale consultant firm it is frustrating. We are seeing so many companies created now to help market and pump up ICOs. These things include sites to announce ICOs, paid campaigns on Facebook, Twitter, Reddit, Bitcointalks and more. So my point is that everyone is launching an ERC20 token now and the community is being bombarded with bought and paid for news about the next great token sale. This creates even more angst and will take advantage of investors who aren’t as familiar as others with this space and properly vetting a team. We can proudly say that Neo has not paid us and we are funding the development of our coded legal smart contracts and identity verification protocols on Neo blockchain out of our own company profits and doing this all without a token sale.
“Though our engineers code in Solidity and have been using Ethereum for our clients, we will be shifting by use-case our clients to use the NEO blockchain and have been in communications with the NEO team and developers for support and we are excited to support NEO as in many instances it provides more benefits than Ethereum.”
When you say you are in communications with the NEO team, are you in contact with the NEO Council and/or CoZ?
I can say that the NEO team and our team have a relationship and they are a great resource for furthering development of their platform. We will be at the Meetup in Manhattan on the 27th and hope to meet others there as well. My company, ProjectICO is also working with another great Chinese based company that has partnerships with Neo and look forward to bringing that to global investors as well.
Could you name that company?
I am under an NDA currently until the news is public. So please stay tuned and we will post the news as soon as we are allowed.
Who are the partnered law firms you mention in the OP?
What are the exact benefits of NEO over Ethereum in your professional opinion?
Our partner law firm is Stradling Law and Amit Singh who does a great job on other token sale structuring. He has deep experience and was one of the best in the Indiegogo/Kickstarter space for legal advice.
Most importantly is Neo mission, transaction times and common programming languages make them our preferred chain going forward.
Many thanks and interesting that a partner of a law firm is on Reddit, must be an interesting experience for him as well.
Do you make use of NEO’s anticipated Q4 launch of its “legal framework” that should aid to have ICO’s in a legally compliant framework?
We plan to and to continue to utilize the tools that City of Zion and Neo share with the community. Our visions align very closely and will bring some great new, compliant token sales for Neo.
You said you feel most ICOs are securities. Does this mean that your legal team is contacting the SEC ect to register them as such? If so is that on all Your ICOs or just on an as needed?
Our legal group and myself look to the Howey test for guidance because it is the best we have right now. If you look at most ICOs currently, we see them as an “idea” and want funding for that idea. So as an investor, you buy their token with the hope of % return (profit) on that token. This is a strong arm that in my opinion lands as a security. The utility agreement is there and strong but only when there is an existing platform. When there is a service or good that can already be given or received from the purchase of that token you lead into more of a grey area. But that is really the first things we look at when evaluating these decisions.
Please explain the framework in which one can legally fundraise through ICO in United States. And how your firm can contribute to this? And why NEO has advantage over Etherum for this?
I’ll let Stephen discuss the advantages of NEO over Etherum as he is the expert. But, with respect to how to conduct an ICO in the US, there are several ways.
A. Avoid selling a security. If your coins/tokens fail the US Supreme Court’s Howey Test (http://www.startupblog.com/blog/what-is-the-howey-test), then you are not selling a security and you can avoid complying with the registration requirements of US law. Of course, commodity rules, anti-money laundering rules/KYC and payments laws still need to be looked at. Under the test, a transaction is a security if:
1. It is an investment of money
2. There is an expectation of profits from the investment
3. The investment of money (includes anything of value) is in a common enterprise; and
4. Any profit comes from the efforts of a promoter or third party
If what you are offering fails any prong of this test (e.g., the primary driver is not a profit, but the use of what is being sold on the network), then it is not a security. Under this test, the token could still arguably be a security even if it is only meant to be used on a network because, though the tokens will have functionality once the network is launched, before the launch the real risk/reward derives from the promoters’ ability to execute and launch the network. If the network never launches, the tokens will never have functionality/value. If the network was fully launched before the tokens were actually sold, then you’d have a much better argument that they are mere utility tokens and the desire to have access to the functionalities represented by the tokens on the network, rather than a desire to profit from the efforts of others in launching the network, is the main motivation in purchasing tokens; so, the tokens may not be securities because they fail 2 prongs of the Howey Test. This is the best use case for issuing SAFTs. The SAFTs would be issued as securities under 506c (see below) to accredited investors and won’t convert into tokens until the network is fully functional. Note that the SEC Chair recently said he’d never seen a token that wasn’t a security. So, that calls into question this entire structure. So, a conservative approach would be to assume all tokens are securities and either register them with the SEC or find an exemption from registration.
B. Regulation S. If the investors/offerees are all outside the US, you can rely on Regulation S – the offering cannot be directed at US persons and the investors must agree not to transfer the “security” back to the US. C. Rule 506(b). You can issue the tokens to only accredited investors, but the offering must be a private offering, which requires some kind of relationship with all offerees outside the offering. This could be used for issuing SAFTs to institutional investors or angel investors. There are no specific disclosures that need to be made (other than a Form D filing), but the anti-fraud rules still apply (no material misstatements or omissions), so a proper offering memorandum with risk factors is highly recommended. D. Rule 506(c). You can issue the tokens as securities to only accredited investors and you must verify they are accredited, which can be difficult with digital wallets. Note that this does not require a private offering, which is a big advantage over 506(b), but the verification requirement is a hurdle. Like 506(b), the anti-fraud rules apply. E. Regulation A+. This is really a mini-IPO. I’m not going to discuss Tier 1 of this regulation as it doesn’t preempt state blue sky laws, so you must comply with each state’s laws. Instead, I’d look to Tier 2, which allows a $50M raise from any type of investor (with certain limits on the amount that can be invested by unaccredited investors), but it is relatively expensive as it requires a Form 1-A filing with extensive disclosures and audited financial statements. For more details, see http://www.startupblog.com/blog/regulationaplus.
Note that, given this limited format, this is merely a brief overview and an attorney should be consulted before choosing any specific path as each circumstance is different. Please excuse any typos.
Does this mean China will be able to participate? Will it be ICO on NEO’s platform?
Yes, Amit and our legal group is very familiar with structuring Chinese and other foreign peoples an avenue of participation. Structuring a U.S corporation or LLC and not being a citizen is done very commonly and we are using this approach as well. Coupling this with soliciting to only accredited investors in most instances will allow a higher standard of care and adhere to regulations currently in place and forward thinking what may be to come. Our in house automation tool allows targeting for accredited investors very efficiently and adheres to 506(c) of the JOBS Act. Our Otto tool will allow and reach a lot of new investors and will be great for the NEO community.
Have you OR can you work with https://www.hyperledger.org/ ?
We have not explored working with or using HyperLedger currently.
Hi, welcome to Neo and good luck with your forthcoming ICO. How many ICO launches/advisory roles have you advised on so far and are in the pipeline? How do your fees compare to competitors and whats is your biggest USP compared to them?
Our company as a whole has been involved in over 10 projects with our head advisor Sean Brizendine. I have personally been involved with two token sales (Loci and Knowledge) and now am helping on Universal Health Coin which will be our first on Neo. I do not have 100 ICOs under my belt but we are selective and only want to work with clients who aren’t here just for a quick money grab. I personally get involved in each project and pride myself on seeing them succeed.
Will you host a blockchain/crypto meetup at your office? I feel like the community here in Raleigh is small and should get together!
Thanks for reaching out! I have had some interest for ICOs in the Raleigh over the last few months but you’re right it has been very limited. Would love to put something together for the area and get the community involved. Nice to meet a fellow Triangle resident in the blockchain space! -Steve
Ah, great to hear! Had no idea you were in Raleigh. I’m just down the road and will join as well.
Great! Looking forward to linking up with everyone after the holidays!
What are NEO’s benefits over Ethereum?
Do you believe regulation will be key to growth in ICOs?
Regulation is key to receiving institutional investors. I am like most here and am a crypto enthusiast and a millennial. We can all safely agree that we compile most of the space currently. If we want our parents and grandparents to get involved and make it easier and safer than we need to self regulate now and build the trust within our community. Creating a self regulating firm help to high standards, verifying accredited investor participation through a smart card or digital wallet is what we are working on now. Coupling this with forward thinking to future regulations using SAFT will allow us to be the community and example that other blockchain protocols follow. Neo has created this framework and we want to continue to bring this to everyone.
Stephen, why are you limiting your ICOs to securities offerings and therefore only for accredited investors? I can imagine the reasons, but would like to know yours. thanks!
Great question – I do not believe that every single token sale should be a security, but most act as such. I am a realist and believe that until acting as a regulated sale we will continue to stay small in our communities. We are going to be using NEO as our backbone to integrate legal smart contracts and digital verification of accredited investor status. This will allow institutionalist investors an extra layer of protection and encourage more participation.
I think this is an interesting idea. However, there is a point I’m missing. You do offer a “Technology Solution” helping projects with their technical setup.
Why would anyone invest in a company (one of your clients) using the blockchain that doesn’t even know how to develop upon it ?
Our engineers do know how to develop on Neo and C# and Java are something they are very familiar with. The learning curve of developing on Ethereum, though not huge with Solidity was something frustrating for our engineers. The NEO team has been a great resource for all things development and the community on GitHub is growing stronger everyday.
Sorry I wasn’t clear enough. I have no doubt about your blockchain development skills. I’m talking about the companies that you will help raising an ICO. I don’t see how these companies can be worth investing in if they need help for their technical setup.
I will be very honest with you, most companies that come to us looking to have an ICO have no idea about blockchain besides the buzzwords like decentralization, smart contracts, Dapps, etc. But we are here to help them and want to make sure they get involved in this space as it only benefits all of us in the long term. Our first part of our process if they are in the “idea” stage; is Andrew and our engineering team will sit down with them. This space is so exciting because a lot of entrepreneurs have no idea the solutions that the blockchain can provide. Whether that is self governance mechanisms, cross functional smart contracts (NEO) and so much more. That is why we exist and we aim to bring responsible solutions that bring value to the community and our customer.
Are there any active/future projects you are currently working for?
I was going to save this bit of news for the end but am very excited to share that Universal Health Coin – www.universalhealthcoin.com; a program I am the lead advisor on will be switching our original concept & development to Neo! White-paper released shortly after this AMA and token sale will be the first week in January.
Can you give a little more information about what an accredited investor is? And don’t you think this will hurt the raise amounts that companies will be able to bring in for their ICO?
Yes and no. Accredited investors in the United states have a net worth of over $1,000,000 not including primary residence and/or made $200k for the last two years consecutively. This can hurt raises initially because you are isolating a lot of the smaller investors. But the Neo framework and our core values align here. If we want any government adoption and regulation officially in pace, which is good overall for us as a community then we have to maintain and adhere to these already in place standards. Our client Loci in Pre ICO raised multi-millions using our tool to find accredited investors and it was a great amount and responsible start to build their platform going forward.
I’d love to know if there are any examples token sales you’ve seen that have been done well, from a legal point of view, and if you have any examples of any that you consider to have been done really bad.
Great question – one of the most recent flops was of Tezos and REcoin. The prime example of something in the idea stages that left investors holding the bag on their promises. We will fix this will our vetting and identity verification to even participate in the token sales that are acting as a security.
Using the SAFT is a new way of thinking and fostered in through Cooley law firm. My client Loci (www.locipro.com) has raised multi millions in Pre ICO and this is great for being one of the first to use this method. Our accredited investors in Pre ICO were new to the space and loved the vetting and trust the SAFT provided to a blockchain company. Overwhelmingly, saw investors even refer their past business colleagues to participate because of the disclaimers and transparency this form provides.
Does this relate to the ‘global legally compliant framework’ that’s in the NEO roadmap? Is that sentence based on the partnership with ProjectICO or are these two separate things?
If yes, did the Chinese ICO ban (and the SEC one before) serve as a catalyst for you and NEO to work out this solution?
We will continue to utilize all resources that the Neo team provides especially regarding legal compliance. I wouldn’t consider the ICO ban the catalyst to all this, but would definitely say that it helped create our niche and solution to serve these customers. It is what governments and more weary investors were looking for. So many token sales don’t use the benefits that the blockchain provides. We saw many things being done the old school way in this new technology. Applying digitized legal contracts and using the blockchain to verify accredited investor participation will allow an audit trail that in our opinion, will make regulators happy because we are doing this even before official SEC regulations are in place.
Wow, that sounds really convincing. Thanks for this, best news of the day IMO. Fully agree on the fact that for mass adoption we need proper regulation and institutional money, in that order.
As you are already an established company and have a working product. Why do you need an ICO? What is your revenue mechanism? And to follow up, is your revenue mechanism not sufficient to do what you aim?
Very fair and please see answer at the top of the thread. Our revenue mechanism is great and we are the lowest to my knowledge in terms of pricing in this space. We are funding the development of ID verification and digitizing legal agreements on Neo out of our own company budget and without a token sale.
So I took a look over your site, and I like the layout.
My next question is, why did you decide to base your fees in crypto currency, rather than traditional fiat? And as bitcoin rises, will you be decreasing your fees to match the value of the product delivered?
Thanks for your ama!
No problem and great question! Our fees are posted to give potential clients a general view of our fees. We do not believe in hiding our costs and to my current knowledge, we are the lowest priced in this field. We absolutely change our fees based on bitcoin and will lower them as the price for BTC increases. We do accept crypto as payment and have before but sometimes clients rather pay with fiat!
So what you are saying is that companies in the U.S. will be able to launch ICOs while managing their token as a security? Why did you choose NEO over Stratis if you mentioned your engineers are familiar with C#?
Yes, the token isn’t the security but the legal agreement (SAFT) is what acts as the security. Amit can much better explain how this all works. We chose NEO because of their mission and transparent team that we love. There is many great platforms out there but their mission really aligns with ours. We also saw a huge need of Chinese citizens wanting to participate in token sales and wanted to create an avenue for them to do so. China outreach in regards to Neo is growing everyday and we want to help further this platform that we and they love.
Do you hire employees from NCCU strictly or open to other educational institutions?
We look at and work with people from all backgrounds. We are in the need for engineers and would be happy to speak to any, regardless of institution that you attend/attended!