Tether USDT cryptocurrency accepted for first time in Australian IPO
This IPO may be the first of its kind, but it's definitely not the last.
Stax is a crypto-friendly capital-raising platform. Its client, West Coast Aquaculture (WCA), is an Australian company that operates marine farming operations in Malaysia. Tether (USDT) is the cryptocurrency that will be accepted alongside Australian dollars in WCA's IPO.
"The acceptance of USDT in an IPO is a transformative move in Australia and a significant step forward for cryptocurrency adoption in general. It paves the way for the future of capital markets down under," said Stax CEO Kenny Lee. "We are democratising access to a market which has been hard for overseas investors to get into, which will only benefit Australian businesses longer term."
WCA share trading is expected to commence on the Sydney Stock Exchange (SSX) around 19 November 2020.
Why did no one do this sooner?
The upcoming WCA IPO may be the world's first IPO where cryptocurrency is accepted as payment, but it's not the first attempt.
High Times magazine blazed that trail in August 2018 when it announced it would be accepting Bitcoin in its IPO. The magazine changed its mind a week later though, seemingly due to regulatory concerns, and said the announcement was made in error.
This time is different though, with Australian regulators allowing the use of USDT for the WCA IPO.
"When speaking with regulators it seemed as though their main concerns were liquidity and security," said Harly Zappino, a lawyer at Agile Legal, who worked on obtaining regulatory approval for the IPO to accept USDT.
On the liquidity front, the cryptocurrency to be accepted needed to be readily liquidatable and had to have "a reasonable track record of liquidity" Zappino said. Meanwhile, volatility concerns were addressed by fixing the USDT share price for the duration of the raise.
Security-wise, Zappino had to address issues including whether the funds were safely stored in a hardware wallet, who was storing the funds ("a cryptocurrency brokerage in this case"), who held the crypto in trust and what rights the investors have and how the cryptocurrency would be liquidated.
With these boxes ticked and the deal over the line, there's now a clearer path for other companies to do the same, bringing Australian businesses closer to investors around the world.
The future of funding
"This is a first, and historic development in the Australian market which will dictate the future of capital raising, particularly for growth companies," said SSX CEO Michael Go.
And in the future, other companies won't necessarily have to stick with USDT or even stablecoins at all. For now though, the need to lock in prices for the duration of an IPO makes non-stablecoin cryptocurrencies a wildly unattractive option, Zappino noted.
"For crypto to be accepted in an IPO the price needs to be locked in, meaning that the crypto needs to be able to be liquidated for a particular amount in Australian dollars," he explained. "For example fixing the price of USDT to $1.40 AUD throughout the whole raise, which may take up to three months."
"The only responsible way to do this is to hedge the price. An option contract between AUD and USDT can be rather commercial as you would imagine. However, taking out an option for Bitcoin for a period of three months presents a huge financial hole in your wallet and is non-commercial to peruse, in my opinion, unless you have a magic crystal ball and you can predict the price."
"To summarise, I don’t think Bitcoin will be more difficult to receive acceptance for but I don’t think it’s a commercial option for an IPO right now," Zappino said.
In addition to being a potential world first and a definite Australian first, this crypto-friendly IPO clearly highlights some of the places glue is needed when you're trying to stick together the worlds of cryptocurrency and traditional finance. It also shows some of the ways different money-type cryptocurrencies can functionally differ from each other.
Disclosure: The author owns a range of cryptocurrencies including at the time of writing