The Law and Finance of Initial Coin Offerings

Abstract

This chapter analyzes the legal and financial aspects of Initial Coin Offerings (ICOs). Section I examines the concept, features, and structure of an ICO. Section II analyzes the different regulatory approaches to deal with ICOs. Section III provides an overview of some of the accounting and financial challenges ICOs generate. Section VI focuses on the corporate governance aspects of ICOs. Section V analyzes how ICOs may raise issues related to money laundering, and how regulators and policymakers can deal with these problems. Section VI provides an overview of the challenges of ICOs from the perspective of privacy law and data protection. Section VII examines how insolvency may affect the issuer and buyer of tokens, and how insolvency jurisdictions should deal with those issues arising in insolvency proceedings involving cryptoassets. Finally, Section VIII discusses the jurisdictional issues arising in ICOs.

Considerations on the Construction of Future Financial Regulations in the Field of Initial Coin Offering

“…119 During this phase, tokens are designed 120 and a white paper is prepared. 121 In this phase, the white paper should be audited 122 and the credibility of the issuer should be checked by the regulator. 123 In the primary market phase, crypto-assets are issued and sold to the public.…”

“…142 In most countries, traditional financial 143 and civil 144 regulations are applicable to issues regarding cryptocurrencies. 145 Examples of such countries are the USA, Australia and the UK. 146 There are also countries with special regulations for cryptoassets, 147 e.g.…”

“…In some countries, traditional financial regulations (especially regulations concerning IPOs) are applicable to ICOs. 152 This stems from the assumption that some tokens have most of the features of traditional financial instruments, 153 which is related to the fact that ICOs are based on IPOs. 154 However, traditional regulations are ineffective in the case of such matters 155 because the differences between traditional financial instruments and digital assets are significant.…”

“…277 Such regulations should be countermeasures against the anonymity and pseudonymity of investors and entrepreneurs. 278 KYC (Know Your Customer) obligations should be imposed on issuers. 279 Still, such obligations should not merely consist of a voluntary declaration of the investor.…”

“…278 KYC (Know Your Customer) obligations should be imposed on issuers. 279 Still, such obligations should not merely consist of a voluntary declaration of the investor. Investors should prove their identity through a bank transfer, digital signature or in another effective way.…”