INX Limited, a crypto exchange startup, plans to raise up to $129.5 million through an IPO, in the first security token sale registered with the U.S. Securities and Exchange Commission (SEC).

No, that’s not a typo for “ICO,” the initial coin offerings that tested the limits of securities law during the go-go days of 2017. IPO means IPO here: INX, which is domiciled in Gibraltar, filed a draft F-1 (the SEC's prospectus form for foreign issuers) with the agency on Monday and will market the tokens to retail and institutional investors through the initial public offering. 

As such, it's a major milestone since to date, token sales have been unregistered. Some issuers confined their marketing to wealthy investors so they’d be exempt from the registration requirement and filed notices with the SEC. Most didn’t even bother to tell the regulators what they were up to, and over the last year, the agency has brought a slew of cases against ICO teams for illegally selling unregistered securities.

Further, INX's sale would also be one of the very few full-fledged IPOs in the blockchain industry and almost certainly the largest. Last year, mining subscription company Argo Mining raised $32.5 million through an IPO on the London Stock Exchange.

INX's target userbase is largely institutional investors, even though like the INX token itself, crypto trading on the exchange will be available to the general public, provided they go through anti-money-laundering and know-your-customer screening.

"When fully operational, we expect to offer professional traders and institutional investors trading platforms with established practices common in other regulated financial services markets, such as customary trading, clearing, and settlement procedures, regulatory compliance, capital and liquidity reserves and operational transparency," says the draft prospectus.

In this way, INX will be competing with a number of institutionally-focused, regulated trading platforms launching this year – although INX stands out in the breadth of digital assets it plans to list.

"Our vision is to establish two trading platforms and a security token that provide regulatory clarity to the blockchain asset industry. We plan to achieve this [in part] by differentiating between security and non-security blockchain asset classes and providing trading opportunities for each class," says the prospectus, later adding:

This means the exchange will be in the same space as not only Overstock’s tZERO (security tokens) but also Coinbase Prime and Fidelity Digital Assets (spot cryptocurrencies) – and eventually Intercontinental Exchange’s Bakkt (derivatives).

Although it is a security, INX's token could also be described as a utility token, since holders will have the option of using it on the INX Exchange to pay transaction fees.

This is perhaps ironic since, during the ICO boom, many issuers argued that their tokens were not securities because they had a utility, such as the right to use a platform developed with proceeds from the sale.

At the same time, token investors will get a share of INX’s profits, though they won’t be equity holders.

Rather, they will stand in line ahead of shareholders to get repaid, in the event of a liquidation. In this way, the token is akin to preferred stock.

"It is the Company’s intention that the INX Token holders’ claim for breach of contract will be senior to the rights of the holders of the ordinary shares of the Company in liquidation," the document says.

The securities will be represented as ERC-20 tokens on the ethereum blockchain. 

Since crypto assets are such a new and unprecedented phenomenon that does not map easily to old categories, several different regulatory agencies have claimed jurisdiction over different parts of the industry.

For INX, this has meant getting sign-off from multiple agencies. Before it can proceed with the token sale, INX still has to get the SEC to deem its prospectus “effective.” 

The prospectus includes disclosures that are standard for publicly listed companies, but rare if not unheard-of in the shadowy world of crypto, such as the executives’ employment contracts.

That’s just for the fundraising. For the exchange to actually open for trading, several other approvals still must be obtained.

Since INX will be listing security tokens, it will have to first become a broker-dealer, which requires a separate registration with the SEC and acceptance into FINRA, a self-regulatory organization (SRO), and an alternative trading system (ATS), which requires filing additional forms with the SEC. 

On top of securities-related approvals, to operate as a crypto exchange where investors can buy and sell bitcoin and the like, INX will need money transmitter licenses from the individual states where it does business.

INX's management, board, advisors and early investors feature luminaries from both the crypto and traditional finance worlds.

On the crypto side, INX's advisors include bitcoin security stalwart Jameson Lopp, Blockstream chief strategy officer Samson Mow, and Morgan Creek Capital Management CEO Mark Yusko.

The management team includes executive managing director of U.S. operations Alan Silbert, a former commercial banker who ran an early bitcoin startup called Bitpremier on the side. (His brother Barry is the founder of VC firm Digital Currency Group, which is not involved in INX).

The board, on the other hand, includes David Weild, former vice-chairman of Nasdaq, and Thomas K. Lewis, former CEO of the predecessor company to TD Ameritrade.

Investors include Mow, litecoin creator Charlie Lee and prominent monero project member Riccardo Spagni, according to the draft prospectus.

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