Phunware, an Austin-based mobile software company, on Tuesday began advance sales of a planned digital coin, saying that it wants to serve as a “beacon” for proper roll-out of a cryptocurrency at a time when the emerging sector has been rife with fraud allegations and regulatory investigations.
The company is aiming to raise $100 million initially through sales of its digital token, called PhunCoin.
“We want to create the first fully compliant, gold-plated cryptocurrency that everyone else can point to,” said Randall Crowder, Phunware’s chief operating officer. “We welcome regulation (and) we welcome scrutiny.”
Phunware — which is in the process of merging with an Athens, Greece-based company but intends to remain in Austin — has registered with the U.S. Securities and Exchange Commission to sell its planned cryptocurrency, under a standard rule exempting the offering from some regulatory hurdles if it’s made only to so-called accredited investors.
Crowder said Phunware won’t launch the token until it ensures the digital-coin exchange on which it eventually trades can comply with all SEC rules. Launch of the coin is expected by the end of 2018, he said.
The securities commission is in the midst of a crackdown on newly minted cryptocurrency companies nationwide that have been attempting to skirt regulators by asserting that their tokens don’t have to be registered because they’re not securities. Billions of dollars combined have been raised by such companies — often from mom-and-pop investors — through a form of crowdfunding called “initial coin offerings,” even though many have had only cursory business plans and no products.
Cesare Fracassi, an associate professor of finance at the University of Texas' McCombs School of Business and director of its new Blockchain Initiative, said a result of the SEC effort is that companies planning new cryptocurrencies are following the same path as Phunware.
The SEC registration used by Phunware and others requires that they disclose basic information, such as the names of their executives, the addresses of their businesses and the amounts of their offerings, but it doesn’t compel more extensive documentation that would be mandated if the solicitations were to general investors.
“Nowadays, (such registration) is basically a requirement,” said Fracassi, who said he wasn’t familiar with Phunware’s proposed digital token. “The SEC has been very, very explicit that any offering of a new crypto coin is going to be considered a security.”
Regardless, Crowder compared the cryptocurrency sector over the past year to an irresponsible “gold rush,” and said Phunware is committed to demonstrating that “the future of cryptocurrency exists with real companies, launching with real cryptocurrencies that support real business models.”
Phunware, which has been one of Austin’s fast-growing tech companies, announced in February that it’s merging with Stellar Acquisition III Inc., which is based in Greece. It will become publicly traded under the ticker symbol PHUN once the deal goes through.
Phunware has a mobile platform that enables consumer brands to connect with users across their smartphones and other devices, providing marketing, analytics, content management and location-based services. Phunware customers have included entertainment, sports and media companies such as Warner Brothers, NBC Sports and NASCAR.
Crowder said the company’s applications are a perfect fit for cryptocurrency because brands can use the digital coins to reward customers for specific actions. The blockchain technology underpinning the coins also will give consumers more control over the use of their personal data, he said, and enable them to be compensated for access to it.
“We think we can create a unique marketplace where people can use cryptocurrency,” he said. But, “fundamentally, we are not building a new business line (and) we are not building a new strategy,” because Phunware already connects brands with consumers.
Phunware CEO Alan S. Knitowski said in a written statement that the company’s broad reach on mobile devices “will allow us to introduce PhunCoin first to thousands, and subsequently to millions, of people who likely have never owned a digital asset of any type in the past.”
The company is aiming to sell some of its planned cryptocurrency to general investors once the coins are launched, Crowder said, under another SEC rule allowing small offerings of up to $50 million in “public solicitations” without going through extensive regulatory hurdles.
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