The New Era of Token Financing: A Milestone in U.S. Compliant Financing

Author: Cookie

Monad's ICO on Coinbase is the hot topic of the week. The market is not only discussing whether participating in the sale with a $2.5 billion FDV is worthwhile, but also the "compliance level" of this ICO, which is Coinbase's first, has sparked widespread discussion and is seen as a landmark event for compliance in the crypto space.

Stablecoin issuer Circle mentioned in its recently released Q3 financial report that it is exploring the possibility of issuing a native token on the Arc Network. Coinbase also announced in an interview this October, two years later, by Base chain co-founder Jesse Pollak, that it will launch a Base token. Various signs indicate that asset issuance in the crypto space is entering a new era of compliance.

What has Monad disclosed for Coinbase's historic first ICO?

For this historic first ICO on Coinbase, Monad Foundation's subsidiary MF Services (BVI), Ltd. provided an 18-page disclosure document. This document clarifies Monad's legal structure, financing details, and market-making plans, and includes an 8-page investment risk warning. Compared to past ICOs, this is unprecedented and represents a significant advancement.

In terms of legal structure, Monad clarified the following:

• The seller of Monad tokens is MF Services (BVI) Ltd., a subsidiary of the Monad Foundation, which is the sole director of the company.

• The three co-founders of Monad are Keone Hon, James Hunsaker, and Eunice Giarta. The core contributors to Monad are the Monad Foundation and Category Labs.

• Category Labs, headquartered in New York, USA, is responsible for Monad's technical development, with James Hunsaker serving as the Chief Executive Officer.

• The Monad Foundation is a memberless foundation in the Cayman Islands, responsible for community engagement, business development, developer and user education, and marketing services. Keone Hon and Eunice Giarta are the co-managers of the Monad Foundation. The foundation is overseen by a board of directors, which includes Petrus Basson, Keone Hon, and Marc Piano.

These legal structure disclosures provide investors with stronger protection mechanisms, enhancing accountability and legal recourse for investors.

In terms of financing details, Monad clarified the following:

• Pre-seed financing: The amount raised was $19.6 million, conducted from June to December 2022.

• Seed financing: The amount raised was $22.6 million, conducted from January to March 2024.

• Series A financing: The amount raised was $220.5 million, conducted from March to August 2024.

• In 2024, the Monad Foundation received a $90 million donation from Category Labs to cover operational costs before the public launch of the Monad network. This donation is intended for the Monad Foundation's expected expenditures until 2026 and is part of the $262 million raised by Monad Labs in its various funding rounds.

The disclosure of financing details avoids the fictitious financing and resulting misvaluation situations that have often plagued past crypto projects.

In terms of market-making plans, Monad clarified the following:

• MF Services (BVI) Ltd. has signed loan agreements with five market makers: CyantArb, Auros, Galaxy, GSR, and Wintermute, collectively lending 160 million MON tokens. Among them, Wintermute's loan term is one year, while the others are for one month, with the option to renew monthly.

• Third-party experts (Coinwatch) will monitor to verify the usage of the lent tokens, including the idle balances of CyantArb, Auros, Galaxy, and GSR.

• MF Services (BVI) Ltd. may also deploy initial liquidity of up to 0.20% of the initial MON token supply in one or more decentralized exchange (DEX) pools.

• The tokens in the market maker loans and initial liquidity are included in the ecosystem development allocation of the token economics.

This is the first time we have seen a crypto project disclose such specific market-making plans so transparently before TGE. Combined with all the above content, it is also the first time we see the transparency of ICOs in the crypto space aligning more closely with traditional market asset issuance.

The Difficult Journey of ICO Compliance

In 2017, Ethereum emerged, and ERC-20 brought about the ICO boom, leading to a surge in projects and the first explosion in the industry. However, it was also in that year, in July 2017, that the SEC issued its first guidance on ICOs. At that time, the SEC announced that any new cryptocurrency sold to investors seeking profit, conducted by centralized companies, would be considered securities and must comply with securities regulations.

According to the guidance, ICOs occurring in the U.S. after this time are likely to violate securities laws and carry the risk of being prosecuted by the SEC. Since the issuance of the guidance, several cases have been announced. According to the SEC's 2018 annual report, in that year alone, among the dozens of investigations involving ICOs and digital assets initiated, "many had not yet occurred in the 2018 fiscal year."

In November 2018, the SEC issued civil fines for ICOs that did not undergo proper securities registration for the first time, fining the projects Paragon (PRG) and Airfox (AIR) $250,000 each. Additionally, they were required to register their tokens as securities and submit periodic reports.

In June 2019, Canadian social media company Kik Interactive found itself embroiled in a lawsuit with the SEC due to its ICO. To fight the SEC, Kik established a new fund called crypto.org to raise sufficient legal defense funds.

The two largest ICOs in crypto history, EOS's $4.2 billion and Telegram's $1.7 billion, both faced legal disputes with the SEC. Block.one paid a $24 million fine to settle with the SEC, while Telegram reached a $1.2 billion settlement regarding the issuance of its Gram token under its subsidiary TON Issuer. The $1.2 billion Telegram settlement included $1.22 billion in illegal proceeds and a $18.5 million civil penalty.

Celebrities and KOLs have also faced SEC lawsuits for alleged ICO-related issues. John McAfee, the founder of the famous antivirus software, was sued by the SEC for failing to disclose income from promoting ICO tokens, and crypto KOL Ian Balina was sued for participating in the promotion of unregistered cryptocurrency ICOs.

On July 10, 2019, the SEC approved the secondary regulatory A+ offering of blockchain company Blockstack PBC, marking the first such compliant ICO. Another project, Props, also received approval from the SEC in July of that year. However, two years later, Props announced plans to cease the issuance of its Props tokens after December 2021 under the SEC's Reg A+, stating that it had determined it could not maintain or further develop the Props Loyalty program within the existing securities regulatory framework. Due to the lack of relevant authorized domestic trading platforms, such as automated trading systems (ATS), U.S. holders of Props tokens were restricted from trading their Props tokens, and similar factors hindered Props's development.

For a long time, the ICO model has been plagued by compliance issues, leading to its gradual replacement by VC investments, exchange IEOs, and retroactive airdrops after the frenzy of 2017. Therefore, Coinbase's return to ICOs is not seen by the market as a simple "nostalgia," but rather as a "return" of ICOs in a new form, under a newly structured market after years of advancing crypto compliance.

The Return of ICOs

On November 12, Bitwise Chief Investment Officer Matt Hougan stated that Coinbase's newly launched Launchpad marks a strong return of crypto-based capital formation methods. Compliant ICOs are expected to become a core theme in 2026, reshaping startup financing models and becoming the fourth pillar of cryptocurrency's disruption of traditional finance, following the previous three pillars: Bitcoin's reshaping of gold, stablecoins' reshaping of the dollar, and tokenization's reshaping of trading and settlement.

Matt Hougan noted that early ICO experiments demonstrated that blockchain technology could connect entrepreneurs and investors faster and at a lower cost than traditional IPOs, even though the previous boom failed. The key difference this time lies in regulation and structure. Current SEC Chairman Paul Atkins (who co-chaired the crypto advocacy organization Token Alliance supporting ICOs and serves on the board of tokenization company Securitize) has recently called for new regulations and safe harbor mechanisms to support compliant token issuance, and Coinbase's new platform is the first significant practice in this direction.

By 2025, ICOs accounted for about one-fifth of all token sale trading volume, a significant increase from just two years prior. Platforms like Echo, Kraken Launch, and Buidlpad have made substantial progress in adapting to current compliance requirements compared to the rough ICO operating mechanisms or simple gas wars of the past, with advancements in self-custody, multi-chain issuance support, and access channel control. We have already seen very successful cases like Plasma and Falcon Finance on these platforms.

The return of ICOs reflects the flowering and fruition of the cryptocurrency market after years of compliance exploration. We will see more serious ICO cases like Monad, providing better protection for retail investors. And as mentioned at the beginning of this article, projects like Arc from Circle and Base from Coinbase, which were previously widely considered to have low chances of issuing tokens, are now sending new signals in the context of mature compliance.

We are entering a new era.