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World Chess, the company responsible for broadcasting the World Chess Championships, has announced a “hybrid IPO”. First, a Digital Securities Offering (DSO) will take place in 2020, with a subsequent IPO via London’s Alternative Investment Market (AIM).
World Chess is a media outlet and web-based gaming company. Each year, they broadcast the World Chess Championships. Now, the company is turning to digital securities — also referred to as security tokens — to raise capital.
Here’s how it will work: a digital securities offering will take place sometime in the year 2020. During the offering, digital securities will be made available to accredited investors located in the United States and European Union. The digital securities will represent ownership of World Chess shares, and can either be transitioned to shares during a subsequent IPO or traded to other accredited investors.
Digital securities offerings leverage the benefits of blockchain technology to make assets more liquid, eliminate costly middlemen, and facilitate greater asset management than available through traditional structures. World Chess will turn to Securitize, a technology provider for the tokenization of securities and SEC-registered transfer agent. The San Francisco-based firm has successfully tokenized more than ten assets. In this particular case, Securitize will oversee the token offering and vet investors to verify their eligibility.
According to World Chess CEO Ilya Merenzon, the deal represents “a pioneering financial innovation — one, I believe, many companies will use to raise funds in the future”.
The Initial Coin Offering (ICO) was the first widespread use of blockchain technology in fundraising. Throughout 2017 and 2018, companies have reportedly leveraged the ICO to raise a collective $20 billion.
ICOs feature access to a global pool of investors, often times requiring a mere internet connection for access. The buying, selling, or trading of “coins” or “tokens” from ICOs is open 24/7/365. Yet, soon after its popular surge, the ICO came to a screeching halt once financial regulators arrived on the scene.
Raising capital features a number of regulatory requirements. In the United States for example, the majority of these fall under the Securities and Exchange Commission (SEC). Founded in 1934, the SEC was created to protect investors following the Great Depression as a result of the world’s worst stock market crash in 1929.
That’s why the Digital Securities Offering (DSO) — also known as the Security Token Offering (STO) — is now picking up traction. In differing from the ICO, the DSO explicitly declares itself a regulated securities offering, and therefore must abide by the rules and regulations of its jurisdiction appropriate securities regulator.
The DSO then retains all of the benefits seen in the ICO, with one added component: regulatory compliance. In the case of World Chess, Securitize will be one of the key players responsible for that compliance.
What do you think about World Chess launching a ‘hybrid IPO’? Will the initial digital securities offering see success? Will this technique become the future of fundraising? We want to know what you think in the comments section below.
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