The Quiet Blockchain Revolution – CryptoMode

In a galaxy far, far away, a space MMO game turned to an STO (Security Token Offering) to raise capital. So far, Pixelmatic’s Infinite Fleet has raised $7.8 million in funding through STOs. While cryptocurrencies and NFTs have stolen the limelight, STOs quietly promise to revolutionize capital raising for smaller companies.

Security Token Offerings are the blockchain version of an IPO (Initial Public Offering). Instead of issuing share certificates with records maintained by a central registry, companies issue digital tokens with smart contracts, which are stored on a blockchain.

Unlike an ICO where investors receive a cryptocurrency, with an STO, investors receive a digital financial security. These securities are recognized by a growing number of jurisdictions, including the United States, the European Union, Switzerland and Singapore. Most security tokens give investors a share of revenue or profits.

IPO is expensive too underwriting fees in the millions. Then there are the costs and requirements for prospectus and listing. IPOs also take time to prepare. Although preparation usually takes around six months, it can take much longer.

Given the burden of IPOs, many companies have remained private longer or have taken the cheaper SPAC route to listing. In 2021, revenues from US SPACs hit a record USD 162.5 billion. SPACs (Special Purpose Acquisition Companies) are like a reverse IPO. A SPAC creates an IPO and raises funds, then buys a private company to accompany the IPO.

However, SPACs are out of reach for many smaller companies. Until recently, these companies have had to rely on private debt financing or family, friends and idiots.

All of that changed under the Obama administration. In 2012, Obama introduced the American JOBS Act, which, among many other reforms, included an exemption from registration requirements for public offerings (Regulation A) for companies looking to raise USD 75 million or less within a year. Rule A made STO possible. Suddenly, small companies could raise capital from individual non-accredited investors.

Aside from costs, STOs also have a number of other advantages over IPOs. They have the transparency of blockchain. The rights of Security Token holders are automatically enforced by smart contracts without the need for an intermediary to provide registry services. Security Tokens can also be traded 24/7 and can be traded for cryptocurrencies using an atomic swap so that the security and funds are exchanged simultaneously. Security tokens also allow fractional ownership just like Bitcoin does – no need for stock splits.

In May 2021, first SEC approved STO was issued together with first UK FCA approved STO in October 2021. As of September 2022, the market value of all issued STOs was over USD 19 billion. Although this is only a fraction of the annual value of IPOs and SPACs, STOs have proven to be a viable capital raising option and will only continue to grow in quantity and sophistication.

When we say that STOs have opened up capital funding for smaller companies and startups, this includes many companies that would have traditionally struggled to get the attention of large individual and institutional investors. This includes game studios.

Pixelmatic is a game studio founded in 2011 by industry veteran Samson Mow. Mow had previously worked on titles such as Age of empires IV, Assassin’s Creed and Warhammer 40k: Dawn of War – Dark Crusade.

In March 2021, Pixelmatic released its sci-fi spaceship MMO game Infinite fleet to alpha release. It is now in beta. The game is published by Exordium Limited and was created using Unity.

In Infinite Fleet, players take control of a fleet of spaceships and small AI-controlled fighters to explore a vast procedurally generated galaxy and defend humanity against an invading alien threat, the Atrox. The graphics and gameplay are reminiscent of 1980s anime like Space Battleship Yamato.

While the initial narrative is set, players can drive the future narrative through Infinite Fleet’s innovative Directed Narrative feature.

In addition to gameplay, Infinite Fleet is also pushing the boundaries of innovation on the blockchain front with its cryptocurrency INF and NFT-based spaceships and in-game mechanics. Players don’t need to bother with INF or NFTs to play the game, but for those interested, players earn INF by playing the game and completing missions – proof of participation.

Exordium Limited also decided to use an STO to fund the development of Infinite Fleet and the publishing platform – becoming the first gaming project to use an STO. It has issued non-voting equity with profit sharing from the publisher Exordium Limited (ticker “EXO”) using security tokens registered with the CSSF (Luxembourg) and falling under the SEC Reg D 506c exemption (accredited investors only). So far, it has issued EXO over three separate funding rounds (each oversubscribed) and has raised US$7.8 million.

EXO has attracted some major investors such as Charlie Lee, the founder of Litecoin. But it has also connected Infinite Fleet to individual investors looking for something other than the regular stock, and also to fans of the game. This is blockchain that empowers the player, not just treats them as a cash cow.

“In a world that is rapidly moving from archaic traditional financial systems to open digital financial systems led by Bitcoin, we believe we are steps ahead in this transition.” Samson Mow.

STOs open up a whole new universe of investors for companies like Exordium allowing them to concentrate on what they do best: making amazing games. Similar to how the rise of the stock market revolutionized manufacturing and railroads, Security Tokens are going to democratize and revolutionize creative and Web3 companies. It’s funding for the blockchain era.

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