Israeli co INX set for $117m security token IPO

Shy Datika  / Photo: Eyal Izhar, Globes
Shy Datika / Photo: Eyal Izhar, Globes

This will be the first ever Security Token Offering (STO) - cryptocurrency traded as a security - and will be supervised by the SEC, the US Securities and Exchange Commission.

Israeli blockchain company INX Limited will hold its long awaited IPO in the US this Tuesday. This will be the first ever Security Token Offering (STO) - cryptocurrency traded as a security - and will be supervised by the SEC, the US Securities and Exchange Commission.

According to INX's prospectus, the company will issue 130 million INX Token coins in its IPO, a security token based on Ethereum blockchain technology, with a maximum price of $ 0.9 per token, aimed at raising up to $117 million from investors. After deducting IPO expenses, including underwriting and consulting fees, INX anticipates the IPO will net up to $111 million.

Shy Datika is the founder controlling shareholder and president of INX, which is launching its US IPO almost a year after issuing its preliminary prospectus. If INX succeeds in raising the targeted $117 million, this will be the largest IPO to date for a blockchain and cryptocurrency industry company.

However, this is an extraordinary offering for the capital market, given that INX does not yet have an operational product or service generating any revenue; it is a startup, with 14 employees. In addition, currently no US stock exchange trades in STO tokens, so investors who decide to purchase INX Tokens in the IPO will be limited in their ability to trade them. They will have to settle, at least in the near future, for over-the-counter (OTC) trading.

"There is currently no market for INX Tokens"

The test facing INX is twofold: First, the company must prove that it has succeeded in gaining investor confidence and in raising the target amount set out in this week’s IPO. Then, if the IPO is successful, the company will face an even more challenging task: fulfilling its main goal and establishing a digital currency exchange in the US.

The stock exchange that the company wants to develop is called INX Trading Solutions, and would include two platforms: one, for trading cryptocurrencies (such as Bitcoin or Ethereum) and their derivatives, and the other for trading STOs (like the INX Token). Another purpose for which the capital raising is intended, according to INX's prospectus, is to establish a cash fund, which would serve as a "safety net" for the company and its customers in the event of a security breach, trading malfunction, or any other operational threat to INX’s digital exchange.

Meanwhile, the INX IPO is already a milestone for the blockchain industry. This is the first STO issuance made with SEC approval; INX Tokens will therefore be categorized as securities allowed for trading in the US. Previous STOs were conducted without regulatory approval and limited to wealthy investors only. By contrast, Initial Coin Offerings (ICOs, the cryptocurrency equivalent of an IPO), made in 2017-2018, were conducted with almost no regulatory oversight and without being required to comply with securities laws in the countries where they took place.

According to the company, the INX Tokens that will be issued combine two types of digital currencies: STOs and Utility Tokens. Investors who purchase INX Tokens will be able to use them to pay transaction fees on the platforms INX intends to establish. In addition, the tokens will entitle their holders to a share of the company's profits.

According to the prospectus, the minimum investment in the INX offering is $1,000. Each INX Token, or a portion thereof, will entitle its holders to participate once a year in a proportional distribution of 40% of the company's cumulative cash flow from its activities, excluding cash compensation from the IPO.

In its prospectus, INX states hat, "The INX Tokens we are offering through this prospectus are suitable only as a long-term investment for persons of adequate financial means and who have no need for liquidity in this investment. There is currently no public market for the INX Tokens and there is no plan to have the INX Token trade on a national securities exchange or any other exchange or trading platform, whether within or outside the United States."

The holding and transfer of INX Tokens will be done using digital wallets that support the Ethereum ERC-20 blockchain standard. Know Your Customer (KYC) identification procedures and registration of transactions in INX Tokens for the IPO will be performed by the U.S. company Tokensoft Transfer Agent, which operates a platform for trading in STO currencies.

Cutting A-Labs a check of up to $8 million

As reported by "Globes" last week, Israeli consulting firm A-Labs Finance and Advisory has been chosen as the underwriter for the INX public offering. The choice of A-Labs to execute the underwriting was not by chance: its owner, Doron Cohen, is also a founding partner of INX.

A-Labs also served as a consultant in biomed company Nanox’s IPO, which last Friday raised $165 million on Nasdaq.

According to the prospectus published by INX, A-Labs received an underwriter fee of $500,000, and will receive an additional fee at the same amount if more than $10 million is raised in the IPO. If the offering succeeds in raising the target amount of $117 million, Cohen's consulting firm is expected to cut a check totaling $8 million. According to the prospectus, A-Labs will be able to market the INX offering exclusively to non-US investors.

INX Limited was founded in 2017 by Datika and Cohen, and operates offices in Israel and Gibraltar, where it is incorporated. In the US, the company operates through two Delaware-registered subsidiaries: INX Digital and INX Services. Datika holds a 31% share of INX through his wholly owned company, Triple-V, and Cohen owns a 10% share through A-Labs. INX currently has 14 employees.

Ahead of the IPO on Tuesday, Doron Cohen, owner of A-Labs and one of the founders of INX, said: "INX is making the exciting world of crypto and blockchain trading legal and safe for anyone interested in investing in it. This is the first digital currency IPO in the world to receive SEC regulatory approval for marketing this currency to both investors and the general public. We believe the company will be recorded in the annals of history as the company that made digital currency trading available and open to all."

Published by Globes, Israel business news - en.globes.co.il - on August 24, 2020 © Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Shy Datika  / Photo: Eyal Izhar, Globes
Shy Datika / Photo: Eyal Izhar, Globes
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