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Hong Kong fintech firm moves ahead with coin offering despite warning

Octo3 to raise unspecified sum for building payment network

Octo3's Chief Executive Tyrone Lynch, left, and Chairman Ajmal Samuel (Photo by Joyce Ho)

HONG KONG -- Shrugging off the financial regulator's caution against cryptocurrency investing, Hong Kong-based technology company Octo3 announced Thursday a public token sale to finance the upgrade of its existing payment processing network into a blockchain-enabled system.

The envisioned omni-channel transaction network, known as HAZZA, is intended to cut through layers of parties involved in the payment process -- such as issuers, payment method providers, acquirers and payment device makers -- so that can merchants access multifarious payment systems, including credit cards and mobile wallets, with lower costs.

Predicated on blockchain technology, generally understood as a distributed ledger of all cryptocurrency transactions, HAZZA will be accessible only with the HAZZA token, which will be made available through Octo3's initial coin offering.

At the press briefing on the initiative Thursday, CEO Tyrone Lynch declined to disclose how much Octo3 plans to raise or the "minimum viable target," but he acknowledged that the project will not be possible if the token sale falls flat. "We are letting the market decide how much they believe in this project, and how much they are willing to contribute to the project," he said, noting that the amount of sales is "uncapped."

Apart from financing HAZZA's upgrade, the sale will function as "prepaid vouchers for the participants to join the network," said Lynch. Octo3 plans to launch the project eight months after the token sale concludes on Oct. 31. The presale, a private trade, began Sept. 1, while the public offering will open on Oct. 3.

A fixed supply of tokens, to be activated as soon as Nov. 8, will be available in the secondary market after its debut.

Lynch said the cloud-based HAZZA will be owned and managed by a not-for-profit foundation registered in Hong Kong, which will in turn be governed by the HAZZA network community through a distributed autonomous organization model. "We ensure accessibility, low barrier of entry for all participants who want to get into this network," he said, adding that the HAZZA token will not be priced in a way to "drive up profitability because it is not a concern in this particular model."

The HAZZA token will be offered at a fixed price of $0.38 each, or the equivalent amount in other cryptocurrencies such as bitcoin and Ethereum, according to the Octo3 foundation's white paper on HAZZA posted on the website

HAZZA's initial coin offering bears some similarities to a traditional initial public offering of a company's stock. About 51% of the issued tokens will be in the hands of public investors, a portion equivalent to a "free float" of a listed company's shares. The foundation reserve will take 24% of the deal, and the founders, backers, and advisers will get 10%, 7.5% and 7.5% respectively.

There is also a six-month lockup period that allows presale purchasers to receive a bonus allocation of HAZZA tokens, just like the cornerstone investors participating in any major Hong Kong IPO.

The launch followed a warning by the city's financial regulator against public coin offerings on concerns that some "virtual commodities" sold in exchange for funds should be regarded as "securities" and therefore subject to regulatory oversight.

"Where the digital tokens involved in an ICO fall under the definition of 'securities,' dealing in or advising on the digital tokens, or managing or marketing a fund investing in such digital tokens, may constitute a 'regulated activity,'" said the Hong Kong's Securities and Futures Commission in a statement on Tuesday.

"As digital tokens involved in ICOs are transacted or held on an anonymous basis, by their nature they pose inherent and significant money laundering and terrorist financing risks," the SFC added. "As these arrangements and the parties involved operate online and may not be regulated, investors may be exposed to heightened risks of fraud. Digital tokens traded on a secondary market may give rise to risks of insufficient liquidity or volatile and opaque pricing."

The SFC's statement came a day after the People's Bank of China, the mainland's central bank, banned all ICO activities, liking them to scams. The clampdown led to some short-term volatility of the value of bitcoin.

But Lynch is not concerned about government intervention or greater scrutiny at the moment. "It's a great timing because I think we are good example of what a token sale should be," he said.

"We feel that we are fully complying with the SFC's regulations. We feel that we are not a collective investment scheme, or a security," he added, though admitting Octo3 had yet to engage with the financial watchdog directly.

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