The ICO Gold Rush: It's a Scam, It's a Bubble, It's a Super Challenge for Regulators

Abstract

Initial coin offerings typically use blockchain technology to offer tokens that confer some rights in return, most often, for cryptocurrency. They can be seen as effectively a conjunction of crowdfunding and blockchain. Based on a hand selected ICO white paper database we provide a taxonomy of ICOs to facilitate thinking clearly about them, analyse the various regulatory challenges they pose, and suggest the first steps regulators should consider in responding to them. At the moment, many ICOs are offered on the basis of utterly inadequate disclosure of information, and the decision to invest in them often cannot be the outcome of a rational calculus. Many of the hallmarks of a classic speculative bubble are present in many, but certainly not all, ICOs. At the same time, ICOs provide a new and innovative structure for raising funds to support new and innovative ideas and ventures, with the potential for aspects of the underlying structures to have an important impact on fundraising systems and structures in future.

The ICO phenomenon and its relationships with ethereum smart contract environment

“…Since the ICO phenomenon had a boom starting from May-June 2017, only a few research reports, and almost no paper published on scientific journals, has appeared on the subject so far. We can just quote the working papers by Zetzsche et al [2], and by Adhami et al [3], that report analyses of ICO features. The former paper is focused on legal and financial risk aspects of ICOs, but its second section contains a taxonomy, and some data about ICOs that the authors claim are continuously updated.…”

SoK: Transparent Dishonesty: Front-Running Attacks on Blockchain

“…Initial coin offerings (ICOs) have changed how blockchain firms raise capital. More than 3000 ICOs have been held on Ethereum, and the market capitalization of these tokens appears to exceed $75B USD in the first half of 2018 [67]. At the DApp level, tokens are offered in short-term sales that see high transaction activity while the sale is on-going and then the activity tapers off to occasional owner transfers.…”

Towards a Theory of Digital Network De/centralization: Platform-Infrastructure Lessons Drawn from Blockchain

“…The recent problems faced by regulators with respect to the issue of crypto-tokens and Initial Coin Offerings (ICOs) are mainly rooted in this fourth approach (Van Valkenburgh, 2018a& 2018b. Legal centralization becomes particularly relevant in the case of hacks, scams, frauds, or damages where liabilities, duties and criminal responsibilities must be clearly identified, even in the case of smart contracts (Finck, 2019: 58-64;Werbach, 2018;Zetzsche et al, 2017). More generally, this legal approach to decentralization is particularly relevant in the case of autonomous systems, open source software and distributed communities.…”