The world of ICOs, or 'Initial Coin Offerings,' is replete with intrigue and mystery, with tales of millions of dollars being raised in mere minutes from around the world, often for pre-revenue companies that often seem in reality to be mere suggestions or ideas, or at most 'projects.'  There are also tales of fraud and deception, and on more than one occasion I have witnessed LinkedIn threads abuzz with stories where individuals, whose identities having been unwittingly borrowed, find themselves on the advisory boards of companies of which they have never heard.

Legitimacy Emerging?

It is these unfortunate stories, coupled with a recent slew of enforcement actions here in the U.S., that arguably have somewhat stymied the confidence of the institutional investor community and others in the ICO concept and could be impeding their entrance into the space.  With this said, another world is beginning to emerge from within the crypto world, a world with real companies offering real products that people can actually understand, and they are beginning to use blockchain tokenization – yes, ICOs – to simply raise capital and benefit from what the technology has to offer in many facets of capital issuance and ongoing corporate governance.  In the vernacular of ICOs, tokens used for this purpose would be referred to as “security tokens” rather than “utility tokens.” (Utility tokens offer holders a prepaid option to access a good or service and are often associated with types of software platform access that can be difficult for the average person to grasp.) Could the emergence of the security token be the phenomenon that brings the real capital into the market?

Quadrant Biosciences

One company in the U.S., Quadrant Biosciences, is coming to market with a security token called Quadrant Token that will be issued using the Ethereum platform.  Each Quadrant Token represents one share of common stock in the company, with all typical rights thereto.  While an investor will be required to open a digital wallet and purchase Ether to effect the sale, that’s the extent of the leap an investor must take into the crypto world.  Unlike many token issuers, Quadrant is post-revenue and is already projecting $17 million in revenue for 2018 from its inaugural product.  And not only are they currently producing revenue, this token issuance doesn’t represent Quadrant’s first round of funding either, their having completed a successful Series A round which will be converted into common equity tokens contemporaneously with this transaction. These aspects clearly differentiate Quadrant from the typical ICO issuer profile.

Dutch Auction

Quadrant is using a modified Dutch Auction mechanism to determine final pricing for the fixed amount of tokens that will be sold. The auction starts with a fixed maximum price which declines over time based on a predefined formula to a fixed minimum price. After the auction begins, investors can submit their bid at any time. The auction concludes when bids are received for all tokens. All purchasers then receive their Quadrant Tokens at the same final price.


Quadrant’s first product, ClearEdge, is a clinical toolkit used in managing concussions, dementia, and other neurological conditions which was listed with the FDA in August 2017.  The company is also developing a more detailed concussion diagnostic kit that uses biomarkers found in saliva to detect concussions as well as their severity and predict the longevity of symptoms.  Led by CEO and founder Rich Uhlig, they are developing similar products to detect brain injury and disease in areas of Autism Spectrum Disorder, Parkinson’s Disease, and Alzheimer’s.

A veteran of Wall Street, Uhlig started the company after one of his children experienced a concussion in a youth hockey game some years ago.  He felt frustration given the lack of objective diagnostic tools to help shape the course of therapeutic treatment.  Feeling more needed to be done, and focusing on concussions, he began assembling a team to research concussion diagnostics and Quadrant was born.  They soon learned that the examination of saliva could provide a window into the brain.

Epigenetics over JavaScript

Unlike many ICO issuers, Quadrant’s foundation is in epigenetics, the study of how genes express themselves. Their research into examining micro-RNAs found in saliva is finding molecular indications of disease, and they have developed tools that provide insight into the brain.  Their next product, ASD Diagnostics, is anticipated to launch in the second half of 2018 and is designed to provide early detection of Autism Spectrum Disorder.  In a study of hundreds of children, which was sponsored by both the National Institutes of Health and Quadrant, researchers affiliated with Quadrant Biosciences found several salivary micro-RNAs which accurately differentiated children on the Autism Spectrum from other, non-ASD children. Given that early detection of autism prompting early intervention can be a game-changer in the development of these children, Uhlig anticipates that his company can be instrumental in changing lives.

Groundbreaking in its Simplicity

So while a simple common equity raise under the exemptions afforded by Reg D, rule 506(c), seems rather mundane, seeing a company avail itself of the innumerable benefits of blockchain technology for this purpose is actually quite groundbreaking.  When I asked Uhlig about Quadrant’s decision to use blockchain and conduct a token sale as opposed to using a traditional paper-based protocol, he revealed that he was already a champion of blockchain and cognizant of its power in delivering self-sovereignty of one’s own medical data. He noted that, “this is an important topic in blockchain-related healthcare discussions and also something Quadrant wishes to pursue… so a determination was made to also embrace the technology for the capital raise itself.”  Thus he began the ICO thought process in June of 2017.

Enter Genesis Block

Quadrant then teamed up with Genesis Block, a New-York based strategic advisory and technology services firm where two of the four founders have roots in Big Law, in order to begin work on an ICO.  Genesis is delivering to Quadrant a full suite of services including assistance in navigating the legal and regulatory landscape, providing communications and public relations services, and of course assisting with technology.  Quadrant’s technology team worked on the smart contract coding alongside Genesis, and this has been put into the public domain with a bounty paid to anyone who can hack it, what Uhlig described as, “incentivized crowdsourcing of quality control.”

I caught up with Samuel Proctor, a co-founder of Genesis, about the relationship with Quadrant and the irony in the novelty of using blockchain to deliver something as simple and easy to understand as a common equity raise.  He believes that more of this is coming, and that he “couldn’t think of a better company than Quadrant to be the vanguard of something like this.”

As to the history of the Genesis, Proctor worked alongside fellow co-founder Lee Schneider when they were attorneys at Debevoise & Plimpton LLP and had developed a blockchain and cryptocurrency practice at the firm.  While at Debevoise, Schneider and Proctor were involved in the development of the Securities Law Framework for Blockchain Tokens.  Seeing opportunities in the ICO advisory space, in 2017 they launched Genesis Block, with the vision of providing high-quality strategic advisory and technology services to help companies successfully implement blockchain-related initiatives.

Blockchain Helps Corporate Governance

Corporate governance, while not a popular topic of conversation at cocktail parties, is a critical component of company management and part of the fiduciary roles required of executives and boards.  Errors or missteps in governance can be quite costly, the source of lawsuits, and a drain on valuable company resources that would otherwise be better directed toward other functions.

So in addition to blockchain-based ledgers being utilized for the issuance and management of security tokens representing ownership, a blockchain-powered corporate management system could also be used for the storage and registry of corporate documentation such as operating agreements and board records to enhance and support transparency and recordkeeping.  Additionally, corporate voting via a blockchain-enabled system could be implemented which could fundamentally change the way in which shareholders participate in the governance of their companies.

Enabling Legislation

Recognizing the value inherent in these concepts, the state of Wyoming recently passed House Bill 101: Electronic Records, also known as the 'Blockchain Records Act,' which enables the implementation of electronic voting along with the electronic creation and storage of corporate records.  Simply seeing terms in a legislative bill such as “private key,” “data address,” and “network signature” certainly provides a hint as to the legislative direction blockchain could be headed.  Especially when more and more states follow suit.

Allowing Blockchain to Blossom

A little bit of enabling legislation can go a long way in establishing the widespread adoption of blockchain-based corporate share issuance and management.  We already have laws against fraud and deceptive trade practices.  We already have securities laws.  Most of the malfeasance we have seen in the ICO space involves the disregard for these laws that are already in place.  Let’s embrace companies and support practices that adhere to existing law, and not allow bad apples to spoil the whole bushel.  With the provision of a little legislative room, blockchain’s benefits can be explored and utilized.  And with more participation by the investor community, blockchain’s legitimacy can blossom as well.

Gary Miller is a consultant, blockchain enthusiast, entrepreneur, and former structured finance banker.