Regulators begin to tackle the craze for initial coin offerings

Regulators begin to tackle the craze for initial coin offerings:

#ICOs #fintech #blockchain

  • Virtually unknown a year ago, ICOs are now more celebrated than initial public offerings (IPOs), the conventional way of floating a firm.
  • Many regulators in Western countries have by now made clear that they consider at least some of the coins (or “tokens”) that are distributed in an ICO to be securities, which need to be regulated as such, with all that this entails in disclosure and other requirements.
  • Investors send ether to an ICO’s smart contract, which generates tokens that can be traded.
  • For other issuers the problem is that the tokens they are selling are for projects that exist only on paper, and so have no other function than to bring in money.
  • One increasingly popular legal construct in America is called SAFT (“Simple Agreement for Future Tokens”)—in effect, options to buy tokens, rather than tokens themselves, thus dodging the problem posed by projects that do not yet use the tokens.

“I’M GONNA make a $hit t$n of money on August 2nd on the Stox.com ICO.” Written in July on Instagram, these words made Floyd Mayweather, a boxer, the first big celebrity to endorse an “initial coin offering”, a form of crowdfunding that issues cryptographic coins, or “tokens”.

“I’M GONNA make a $hit t$n of money on August 2nd on the Stox.com ICO.” Written in July on Instagram, these words made Floyd Mayweather, a boxer, the first big celebrity to endorse an “initial coin offering”, a form of crowdfunding that issues cryptographic coins, or “tokens”. Stox, an online prediction market, went on to raise more than $30m, some of which seems to have gone directly into Mr Mayweather’s pocket. Other VIPs, including Paris Hilton, a socialite, followed suit and endorsed ICOs. But this source of easy cash may now be drying up: on November 1st America’s Securities and Exchange Commission (SEC) warned that such promotions may be unlawful, if celebrities fail to disclose what they receive in return.

The endorsements and the SEC’s attempt to rein them in are the latest episodes of token mania. Virtually unknown a year ago, ICOs are now more celebrated than initial public offerings (IPOs), the conventional way of floating a firm. Over the past 12 months $3.3bn has been raised in more than 200 ICOs, according to Coinschedule, a data provider—compared with only about $70m in the same period a year ago. This surge is one reason for the boom in bitcoin, a crypto-currency, which was worth around $7,500 on November 2nd. As Benjamin Lawsky, a former securities regulator in New York, put it recently: “Regulators have never seen a new financial product explode with the speed and velocity [of ICOs].”

Unsurprisingly,…

Regulators begin to tackle the craze for initial coin offerings