Crowdfunding site Indiegogo lets firms issue new cryptocurrencies classed as securities

Key Points
  • Indiegogo is hosting a token sale on behalf of a luxury ski resort in Aspen.
  • Investors will indirectly own equity in the resort's real estate investment trust.
  • The sale is similar to an initial coin offering, but regulated by the SEC.
Pradeep Gaur | Mint | Getty Images

Crowdfunding website Indiegogo is expanding its cryptocurrency offering to allow companies to sell new asset-backed digital tokens classed as securities.

The company's new service is hosting a sale of digital tokens on behalf of luxury ski resort St Regis, in Aspen, Colorado, with the cryptocurrencies being issued by a real estate investment trust (REIT) called Aspen Digital.

The development follows Indiegogo's push into the initial coin offering (ICO) market in December, where start-ups sell new digital coins in exchange for established cryptocurrencies like bitcoin and ether.

The serious investing side of Indiegogo's offering is a small portion of its overall business. But co-founder Slava Rubin said the firm is "hoping to see continued growth if this is what the market demands."

"We have been working on our blockchain offering for a while now," Rubin told CNBC in a phone interview. "It really goes back to our original vision where we wanted to democratize access to capital and bring investment all kinds of people around America and the world."

Blockchain is the technology that underpins numerous cryptocurrencies like bitcoin. It maintains a continuously growing digital ledger of all cryptocurrency transactions, across a decentralized network of computers.

Aspen Digital is working with crypto brokerage start-up Templum to offer the securities tokens, called "Aspen Coins," to investors. With the first offering of its kind on Indiegogo, investors will be able to indirectly own an equity stake in the REIT Aspen Digital, which owns the St Regis resort, Indiegogo said. Investors will be able to purchase the digital assets with U.S. dollars, bitcoin and ether, the digital token of the Ethereum blockchain.

The sale is similar to a crowdfunding method in the cryptocurrency industry known as an initial coin offering (ICO), where blockchain start-ups raise capital by selling new digital assets. Except, in this case, the sale comes under regulatory provisions, according to Indiegogo.

Indiegogo, set up in 2008, already has an equity investing platform for traders wanting to invest in shares of start-ups on the platform. It partnered with equity crowdfunding service MicroVentures in November 2016 to help facilitate transactions for new firms seeking funding.

Crowdfunding services like Indiegogo have seen billions of dollars raised over the last decade. Younger rival Kickstarter has raised $3.85 billion to date, while projects on Indiegogo have raised $1.5 billion since the website was founded.

Indiegogo and Kickstarter charge a 5 percent fee on all crowdfunding projects. Additional fees of between 3 and 5 percent are charged by their payment processors.

What is a 'security token'?

There is increasing talk of "security tokens" and "tokenized securities" among the cryptocurrency industry.

These are digital tokens that represent tradeable securities and are regulated under securities laws. They are pegged to financial assets like stocks, bonds and real estate, with the aim of avoiding the volatility seen in cryptocurrencies.

The trouble with introducing these assets is that start-ups with less financial prowess and regulatory know-how are likely to hit roadblocks with regulators.

Initial coin offerings and cryptocurrencies in general have come under particular scrutiny from the U.S. Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA).

The SEC has sent subpoenas to numerous cryptocurrency firms due to concerns over their practices, while FINRA recently warned of the potential for fraud, highlighting scams in the ICO space.

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The issue with determining if a crypto asset is a security — as an SEC official laid out in June — is whether there is a centralized third party, or "sponsor," to oversee it. In this case, an independent governance body set up by Aspen Digital is acting as the third party carrying out transactions.

If a token is deemed a security, the firm issuing it must comply with regulation, providing assurance to experienced traders that otherwise wouldn't invest in a cryptocurrency.

The security token sale will only be available to accredited traders in order to comply with SEC rules, Indiegogo said in a statement.

Correction: This article has been amended to reflect the fact that Aspen Digital, not Indiegogo, is working with Templum to offer the tokens.

Clarification: It has also been altered to illustrate that an independent governance body set up by Aspen Digital is acting as a third party sponsor for the deal.