Chia Network’s Draft S-1: Top 10 Takeaways

Chia Network Inc.’s amended draft registration statement to the SEC along with multiple rounds of SEC’s comment letters was made public by the SEC. These were found attached to the SEC Crypto Task Force meeting logs from their meeting with Chia Network and Permuto Capital on February 25, 2025.

These documents were shared with the Crypto Task Force as part of the meeting discussion and thus became publicly available even though the filing didn’t “turn public” in the traditional sense. So you won’t find it on EDGAR but it gives us a peek into the on-going filing process with the SEC.

Included in the meeting logs PDF are:

• Pages 1-5: CTF meeting notes and agenda
• Pages 6-9: Thomas Chow’s published opinion on CoinDesk’s open letter
• Pages 10-58: Latham & Watkins response to SEC’s first comment letter dated March 29, 2024
• Pages 59-74: Latham & Watkins response to SEC’s second comment letter dated August 12, 2024
• Pages 75-77: SEC’s third comment letter to Chia’s amended S-1 dated October 17, 2024
• Pages 78-300: Chia Network’s third confidential filing of draft S-1 dated August 12, 2024
• Pages 301-312: Decentralization Research Centre (DRC) publication for “Designing Policy for a Flourishing Blockchain Industry” published February 2025.
• Pages 313-318: “Using Chia Blockchain Technology for Department of Defense Systems” by Ethan Schofield and Mark Reith, Air Force Institute of Technology, Wright-Patterson Air Force Base, USA published June 2024.

Although the first and second SEC comment letters were not explicitly included, a list of questions and comments can be found attached in Latham & Watkins’ (Chia Network’s legal counsel) responses.

Top 10 Takeaways

Over the past week I’ve had many discussions to read through and digest all ~300 pages of the S-1, comment letters, and responses to comments. There were a number of interesting details revealed that put the past few years into perspective but ultimately nothing too surprising in my opinion. The timing and reasoning behind significant events (e.g. CNI layoffs, prefarm loans and sales, partnership and product announcements) were contextualized with related events happening in the background.

Here are my top 10 takeaways.

1. This draft S-1 can be considered the updated Chia Business Whitepaper

The Chia Business Whitepaper was originally published in February 2021. It was revised once in February 2022 and has not received an update since. The expectation set a couple of years ago was for the next update of the Chia Business Whitepaper to be the S-1 itself when it becomes public. I consider this most recent revealed S-1 filing to be that.

2. The S-1 filing process is progressing steadily

From piecing together the timeline of events based on the comment letters and responses, the back-and-forth with the SEC seems to be proceeding forward as expected. Putting the dates in chronological order:

• April 13, 2023 – First confidential draft S-1 filing
• May 25, 2023 – SEC’s first comment letter (42 days later, 70 comments)
• March 29, 2024 – Second confidential draft S-1 filing
• May 23, 2024 – SEC’s second comment letter (55 days later, 24 comments)
• August 12, 2024 – Third confidential draft S-1 filing
• October 17, 2024 – SEC’s third comment letter (66 days later, 11 comments)

The SEC has been responsive in the process, responding to each filing within the typical 1-2 month timeframe. The reduction in comments in each subsequent letter could be taken as a positive sign of progress. In fact, many of the comments in the most recent letter are acknowledgments or comments on wording and formatting. However, there are still some open questions.

3. Is XCH a security or commodity?

In the SEC’s first comment letter, there was a very pointed request to provide “a detailed legal analysis of whether the Chia tokens are securities pursuant to Section 2(a)(1) the Securities Act of 1933” and a reference to the Howey test and SEC’s published Framework for “Investment Contract” Analysis of Digital Assets.

Chia Network’s legal counsel (Latham & Watkins) are reputable securities lawyers in this space and provided an 11-page response detailing how XCH fails the Howey test and is therefore not a security (pages 11-22).

In the second comment letter, the SEC’s comment to this response was: “We note your responses to prior comments 2 and 35. We continue to consider your responses and may have further comments.” without any specific follow-up questions.

In the third comment letter, the SEC requested an expansion to the “Risk Factors” section of the S-1 that included an existing disclosure of consequences if XCH were determined to be offered and sold as a security (comment 5).

Another comment in this letter (comment 9) reads “We continue to evaluate your accounting for sales of XCH in response to prior comment 22 and may have further comments” which is in reference to the amount and price of XCH sold, and how these proceeds are classified in financial statements.

Those from CNI involved in the process with previous experience with other IPOs, make the case that the SEC is comfortable with XCH not being a security for two reasons:

• The lack of follow-up questions to the legal analysis provided by CNI
• Remaining comments about XCH sales focus on the accounting classification

The recent news that the SEC is dropping its case against Ripple could also be another indication of the SEC’s stance on the classification of token sales.

Personally, I don’t have any experience with the IPO process so I can’t comment on CNI’s perspective but if I take the SEC’s comments at face value, it seems to me that the SEC has technically not committed to a decision either way.

4. Chia Network has yet to achieve profitability

The S-1 discloses Chia Network’s financial statements for the 2024 and 2023 fiscal years. A summary is provided under the Risk Factors section of the S-1 (page 20).

We have incurred net losses of $20.5 million and $38.6 million in fiscal 2024 and 2023, respectively. We must generate and sustain higher revenue levels in future periods and control our costs to become profitable, and, even if we do, we may not be able to maintain or increase our profitability.

These numbers make sense to me and is in line with my expectations for the company. We knew they needed to make layoffs and start selling the prefarm in October 2023 to fund operational expenses after losing their banking partner, Credit Suisse. The run rate post-layoffs can be inferred by the rate of prefarm sales (I track this on XCH.ninja) and it is likely their run rate was higher before layoffs.

The next S-1 submission will include financial statements for the 2025 fiscal year ending March 31, 2025. There is no reason to expect 2025 fiscal year to be profitable either as we know there haven’t been any new customers as per the amended Permuto MSFT Trust S-1 filing in February 2025. The expectation to continue operating at a net loss was also mentioned under Risk Factors (page 131), though this was written pre-Permuto Capital.

We expect to continue to incur net operating losses for at least the next several years as we continue to develop our business, execute on our business strategy, and acquire new customers.

5. Black swan events really screwed things up

It seems to me that Chia Network’s original IPO strategy may have been to position itself as an early stage company that is yet to achieve profitability but could potentially appeal to investors during a speculative bull market such as the one in 2021 that Chia launched into.

However, a series of black swans likely dashed those hopes:

• November 2022: FTX collapse, spooking existing and potential investors.
• December 2022: Western Digital elects to be paid in cash for its $10M convertible note instead of converting to equity (page 284).
• March 2023: Credit Suisse collapse, Chia Network loses its underwriting bank.
• March 2023: U.S. Banking Crisis, including Chia Network’s bank, SVB.

The collapse of FTX along with prior collapse of TerraUSD and Celsius in 2022 nearly ended all venture capital funding in late 2022, likely closing off access to private funding. Combined with Western Digital opting for cash repayment on their convertible note upon maturity in December 2022 (understandable given it was right in the midst of the FTX collapse) likely put Chia Network in a financially tight spot.

Market conditions could also have led to prospective customers to get cold feet rather than push for blockchain adoption amidst the 2022 crypto winter.

6. Low conversion on sales and marketing spend

A headline number is the $10M spent on “Sales and Marketing” in 2024 seems high at first glance for a company known for doing little retail marketing. Although we don’t see an exact breakdown of how this was spent, we know it includes:

• personnel-related expenses incurred in sales and marketing, ecosystem, and business development teams;
• professional and consulting fees related to sales and marketing;
• grants to third-party developers to promote and develop Chia’s ecosystem;
• sales and marketing related travel and conference expenses;
• reimbursements to third-party exchanges for technical integration costs related to XCH listings;
• advertising and marketing expenses;
• expenses for certain software and data services related to sales and marketing;
• sponsorships;
• expenses related to the development of trademarks;
• other non-technical intellectual property;
• and allocated lease and depreciation and amortization expenses

From further details provided in the S-1, we know the advertising expenses only totaled $106K (page 276) and technical integration costs for exchanges were less than $150K (page 24).

This money spent on sales in the pursuit of revenue may have resulted in leads and even some proofs of concepts but ultimately very few conversions to paying customers. We had heard about “late stage pipeline customers” across a number of use cases and industries including auto loans, pharmaceuticals, luxury goods, and agricultural supply chain. So far, none of these use cases have converted to paying customers.

7. Current customers aren’t a source of significant revenue, but lend credibility to Chia

We knew from the Permuto Capital S-1 that Chia Network had three customers. Attentive readers would already know of the World Bank Group and CAD Trust as paying customers involved in the open source Core Registry for tokenizing carbon credits and Climate Action Data Trust carbon metadata registry. Public documents have also shed light on how much Chia Network charges for guided implementation and fully managed hosting of the Core Registry.

Although the CAD Trust project doesn’t generate significant revenue, I still view it as one of the best demonstrations of a use case that truly benefits from a blockchain and having captured the vast majority of carbon credits is no small feat. The World Bank partnership is often cited in interviews and lends invaluable credibility to the project.

We also learned that the third paying customer was Data Vault Holdings. The partnership between Data Vault Holdings and Chia Network to allow Datavault platform users to mint NFTs on the Chia blockchain was first announced in November 2022 but I haven’t seen anything come of it.

The total revenue for the 2024 fiscal year was $190K. CNI acknowledges that the current paying customers aren’t expected to be a source of materially significant revenue (page 33).

… the Company has not received and does not expect to receive materially significant revenue from the World Bank Group, the CAD Trust, or Data Vault Holdings, Inc.

However, the revenue outlook could change drastically with Permuto Capital potentially on the horizon.

8. Chia Network’s ability to IPO this year depends on Permuto Capital’s success

I had previously predicted Chia Network would IPO this year. It is clear to me that the primary path to profitability this year would be to realize significant revenue from the Permuto Capital joint venture. This path has also been shared by CNI as the most likely.

Assuming everything works out, I think the earliest timeline for a Chia Network IPO is in late Q3 if Permuto can launch in H1 with revenue reflecting in Chia Network’s 2025 Q2 financials followed by a new S-1 filing in Q3. Any delays in this process (e.g., further SEC comment rounds, delayed Permuto launch, etc.) would push timelines into Q4 or even 2026. With a strong outlook on revenue, such an IPO could happen independent of macro market conditions.

In the scenario where Permuto Capital does not generate enough revenue for Chia Network, I believe the obvious path forward would be to continue prefarm sales to sustain the company while they search for the next idea or customer that could drive sustainable revenue, leading to an IPO at a later date.

9. If Permuto is successful, it could mean no more prefarm sales

Selling the prefarm to stay afloat was a last resort. If the Permuto Capital trusts are as successful as Chia Network hopes, the revenue potential should not be underestimated. The team is targeting over 80 individual trusts and plans to launch each with at least a billion in deposited shares.

If Permuto is a smashing success and we assume each trust costs $1M in setup and operating costs, deposit fees alone across 80 trusts would total $400M. This means Permuto profit of $320M resulting in at least $160M in revenue passing to Chia Network (assuming a 50/50 JV revenue share setup). Further revenue from dividend fees also creates a sustained revenue stream.

In such a scenario, these numbers dwarf operating expenses in the draft S-1 and would make Chia highly profitable, leading to a likely discontinuation of prefarm sales (page 169).

We expect that we will continue to sell XCH from our Strategic Reserve to fund operations until we secure alternative financing and, at that time, possibly discontinue sales of XCH or continue sales of XCH from our Strategic Reserve to a lesser extent.

10. There’s a path forward

Despite the challenges of unprofitability, regulatory uncertainty, and market turbulence, Chia Network has a path forward. The S-1 paints a picture of a company with strong technology striving to find product market fit, adapting to adversity and doing what it can to survive. Success isn’t guaranteed, but the progress in the SEC filing process and potential revenue streams give me hope. The rest is just execution.

A contributed article with a much deeper dive into the financial statements will be published on XCH.today soon. Stay tuned!