Convincing the U.S. Securities and Exchange Commission (SEC) that the Ethereum blockchain is an acceptable medium to store regulated investment funds was no easy task for Mason Borda of Tokensoft.
The CEO of this Bay Area tokenization firm spent over two years crusading for a peer-to-peer tradeable fund. Borda developed compliance-appeasing token standards, hired regulatory veterans to lead his transfer agent subsidiaries and even moved Tokensoft into the same San Francisco high-rise as the SEC’s West Coast enforcement wing (albeit on a different floor).
The effort paid off earlier this month: in early July, the SEC granted a notice of effectiveness to ArCoin, a cryptographically-traded U.S. Treasury Fund pursued by digital asset manager Arca Labs and designed by Tokensoft. It’s the first Ethereum blockchain-native investment fund registered under the Investment Company Act of 1940 (a so-called ‘40 Act Fund).
ArCoin’s registration marks a shift in the regulator’s tolerance for public blockchain investment vehicles, Borda said. He and Arca CEO Rayne Steinberg both said ArCoins could light the way for future offerings with similarly decentralized structures.
But regulatory filings capture just how hard-fought first that victory was.
Arca signaled its earliest interest in offering a U.S Treasury Fund in an SEC filing from November 2018. Over the next 605 days, it filed volleys of prospectus amendments as nearly 10 different evolutions of what would eventually become ArCoins repeatedly hit a regulatory wall.
Steinberg said there was no guarantee his firm’s costly regulatory campaign would ultimately prevail.
Tokensoft signed on as Arca’s tokenization specialist in July 2019, Borda told CoinDesk. Even then, a full year passed before ArCoin finally cleared that regulatory wall.
“This took a lot of backchanneling with the SEC,” Borda said.
10 floors apart
Borda said on...