Initial Coin Offerings and Policy Making

In time, it will get easier and easier to carry out Initial Coin Offerings (ICOs). 

Executing an ICO campaign will be the equivalent of setting up a Wordpress website. It is likely to get even easier than setting up a website. 

Traditional crowdfunding will be overtaken by the token economy. Virtual currency’s (VC) role supporting early ideas will start to fade, or will adapt to this new 'self-help' environment. 

In just two-months from now there will be a few ICOs to make the ICO process easier for people to launch. Which is somewhat ironic. 

Bancor allows for the creation of tokens with a reserve. Adel will develop a decentralised community accelerator where every project can have a token. Starbase is a crowdfunding system that allows for the generation of a token per project. Wings is a decentralised accelerator and crowdfunding platform for ideas backed by their token.

How should policies adapt to this new economy?

Policy Approach

At the UK Digital Currency Association (UKDCA) we suggested that the UK government have a basic standard for consumer protection. In my view, a simple registration for anti-money laundering (AML) purposes is sufficient as this provides some accountability, and standards should be voluntary and industry-led.

Indeed, what is needed for ICOs is some basic governance surrounding access to the funds raised. 

However, prescriptive governance is not warranted. In a previous blog post we talked about the notion of having an ‘ICO Verification Agent’ to verify statements made by ICO campaigns, to avoid fraudulent claims.

Initiatives are popping up to provide governance as a service. One recent example is icofunding.com.

Virtual Securities Policy

In terms of Virtual Securities, as discussed in a previous blog post, I would encourage regulators not to regulate them as traditional financial instruments. 

Keep them as digital currency and treat them differently from tightly-regulated financial instruments. For the more exotic type of digital currencies that have 'promises' attached, or give a share of the network fees, ensure they have a simple AML registration requirement for the ICO i.e. treat them as digital currency. 

There is no point in regulating Virtual Securities under the Markets in Financial Instruments Directive (MiFID) or other prohibitive regulations. The last time I saw a prospectus for a company issuing stock it was 100 pages long. No-one reads the text and there is never any protection from bankruptcy or guarantee of success. All those prospectuses do is make it more difficult for startups to get funding to grow. 

Where faced with a Blockchain Security (which is not a Virtual Security), then, of course, recognise it as such. 

Policy Must be Proportionate

This is where 'proportionate' intervention may be appropriate. The Switzerland- and Singapore-based approaches are probably most interesting. 

In Singapore, the notion of a Sandbox represents a full – not partial – exemption from regulations. The UK Sandbox is a partial exemption – it is an exemption from regulations, as opposed to primary law. 

The same is true with the notion of the Sandbox in Switzerland. In Switzerland, authorisation is required after a certain threshold of 20 participants and CHF1 million in the holding of client funds. The notion here is scaled regulation. 

In Singapore, the threshold is more discretionary. Statements from Ravi Menon indicate a measured approach. “Only when they grow and reach a certain critical mass, which then poses a significant impact on the system”. From my dealings with blockchain firms, the Monetary Authority of Singapore (MAS) gives some discretionary guidelines to the firms within the sandbox.