“Soft law” and innovations: empirical analysis of ICO-related statements

Abstract

Purpose The purpose of the paper is to explore the initial coin offering (ICO) statements as “soft law” instrument used to regulate disruptive innovations. Design/methodology/approach The research is based on the qualitative content analysis of 40 ICO statements issued by regulators in 37 countries by applying a custom-made coding table. Findings The research shows that “soft law” is used predominantly by high-capacity jurisdictions. “Soft law” allows for more flexibility and less technological and business neutrality. The findings also show the contradiction between empirical evidence and public sentiment: it seems that the widespread notion that virtual currencies have connotations with money laundering/financing of terrorism (ML/FT) is not shared by the regulators, who are more concerned by the fraud. Finally, it was found that the standard-setting bodies are lagging behind in providing guidance on the emergence technologies. Research limitations/implications The content analysis is based on 40 statements, which is a limited set of data. The method might be subject to interpersonal bias, although arrangements were made to ensure the uniformity of coding process. Practical implications The findings imply that soft law is an attractive risk-mitigation tool when the object of regulation is still evolving but the risks are present. Soft law also might contradict with the “technology and business neutrality” principle which requires further research. Finally, the findings show the need for more active involvement of the standard setting bodies. Originality/value This is the first in-depth research of the ICO-related statements as “soft law” instruments. It also offers a new perspective on the issue of financial innovations regulation.

Initial Coin Offerings (ICOs): the importance of human capital

“…The ICO projects have been gaining importance due to their novelty (OECD, 2019) but also due to the capital amounts involved in the projects (Coinschedule, 2020) and also due to the regulation challenges they pose (Dostov et al, 2019). The hype veri ed around the ICOs topic had a peak in the years of 2017 and 2018 (Google, 2020) mainly due to the valorization of the cryptocurrencies (Fisch, 2019).…”

“…On the other side, a risk posed to regulators is scal evasion or money laundering through these investments since they are mostly anonymized and thus criminals can take advantage of technology to pursue criminal activities (Foley, Karlsen, & Putniņš, 2018). Nevertheless, evidence based on ICO statements issued by regulators shows that they do not seem to focus on utilization by criminals of these instruments, which do not constitute high risk, but mostly with fraud (Dostov, Shust, Leonova, & Krivoruchko, 2019). In general terms, the risks associated with ntechs may also be applied to the use of ICOs and therefore divided in risks for the consumers, companies and nancial stability (KPMG, 2019).…”

Prospecting non-fungible tokens in the digital economy: Stakeholders and ecosystem, risk and opportunity

“…En muchos de los grandes desfalcos y actividades ilegales se han visto involucradas el uso de criptomonedas a través de la red oscura (Darknet, término en idioma inglés), como la ruta de la seda que de acuerdo con las investigaciones 32 La incorporación de criptomonedas en las compañías de interés público: posibilidad de fraude financiero realizadas por la Agencia Federal de Investigación e Inteligencia de los Estados Unidos de América (FBI por su sigla en inglés), al menos el 5% de esas operaciones, fueron realizadas en Bitcoin. De igual forma el reporte elaborado por la Firma Ernst & Young en diciembre de 2017, del total de ICO realizadas por valor aproximado de US$4 billones, por lo menos el 10% procedían de Hackers y defraudadores, algunos de ellos originados por falta rigurosidad en la legislación o "Soft law", por su expresión en idioma inglés (Dostov et al, 2019).…”

Facilitating innovation in FinTech: a review and research agenda

“…ICOs have evolved as the preferred tool to raise capital using cryptocurrencies. The first ICO token fundraising was conducted in 2013 by Mastercoin, now known as Omni (Deng et al 2018), with interest gradually growing thereafter; US$7.9 billion were raised through ICOs in 2018 (Dostov et al 2019). Unlike initial public offerings, which trade shares of stock in established entities with track records under heavy regulation, ICOs have little to no registration or reporting requirements, are used by nascent blockchain FinTechs and do not grant equity to ICO buyers.…”