Initial Coin Offerings (ICOs): The Current State of Play

The ICO boom in 2017 brings with it questions of jurisdiction and compliance, and a need for further guidance.

Takeaways

The benefits of ICOs in raising capital, as well as in providing a marketing push for a new business model, are so significant that it is difficult to foresee them disappearing.

Large offerings backed by established players will have a big advantage over smaller ICOs by startups reluctant to pay associated compliance costs.

It is in the best interests of all legitimate and honest ICO sponsors that they do not operate in a gray market.

2017 has seen a boom in token presales and “initial coin offerings” (collectively, ICOs), which involve the sale to investors of customized “digital tokens” in exchange for established cryptocurrencies, most frequently Bitcoin or Ether. Many promoters had heralded ICOs as a fundraising method similar to initial public offerings (IPOs) of securities, with the benefit that they were unregulated. However, in the United States and certain other jurisdictions, regulators have now staked out their turf in ICOs, causing sponsors and digital exchange platforms to re-think their approach to compliance.