Initial Coin Offerings (ICOs) are a new way to unlock opportunity for millions of people stuck behind the economic infrastructure and capital barriers that advantage traditional financial institutions, high net worth individuals, and various centralized players and middle men. Yet, in the face of on-going legislative uncertainty, the decentralizing promise of ICOs is increasingly becoming accessible only to a limited class of financial elites – according to research published recently by Tokendata, of the $2BN raised by ICOs so far in 2018, 84% has come directly from private investors.
Christopher Giancarlo, the Chairman of the U.S. Commodity Futures Trading Commission (CFTC) recently acknowledged:
“We are entering a new digital era in world financial markets. As we saw with the development of the Internet, we cannot put the technology genie back in the bottle. Virtual currencies mark a paradigm shift in how we think about payments, traditional financial processes, and engaging in economic activity.”
In the face of an uncertain and unoriginal legislative environment, ICOs are shying away from selling tokens to US customers. Here at Cryptonomos we have recently powered the Rentberry ICO to raise over US$25M in its ICO token sale. Rentberry chose to have us enact strict KYC (Know Your Customer) protocols on our platform to block access to the opportunity for US customers. The US SEC (Securities Exchange Commission) has fixated on the “key question” of whether a token is a security or a utility, but they appear to be taking a very narrow definition of utility token.
In Switzerland the financial regulator recently published guidelines on ICOs that divided tokens into three distinct categories (whilst acknowledging hybrids); security tokens, utility tokens, and asset tokens. They have proposed that utility tokens lack “the underlying function…to grant the access rights and the connection with capital markets”. This seems reasonable but similarly strains to keep the genie in the bottle and somewhat misses the core point – blockchain can transform the very definition of capital markets.
France’s financial regulator, the AMF (Autorité des Marchés Financiers), recently cracked down on crypto derivatives, saying they trigger MiFFID II – the Euro Zone’s 1.4 million paragraph financial regulations. France’s broader position on crypto assets remains unclear despite strong statements by their Finance Minister, who has advocated for a global legislative framework. During the AMF’s recent public consultation on cryptos they found that a clean 2/3 of respondents wanted their regulators to show vision and to develop brand new legislation specifically for ICOs – not to merely treat them as securities.
We at Cryptonomos strongly believe that utility tokens represent the clearest path to unlocking the power of the blockchain. The first mover advantage for countries willing to show a new, original, and open approach to ICO regulation will be vast. The eroded advantage and fear mongering of the traditional beneficiaries of our archaic and cumbersome financial system should not dictate the policy on a technological revolution that will force those beneficiaries to change their business model.
It remains to be seen how effective nations can be in dictating their citizen’s access to the new technology of the age. An intelligent, original, and forward-looking policy environment will ensure that government’s ability to exercise that control remains intact.
Meanwhile, this idea seems to be alien for Japanese Financial Service Agency (FSA), which is working hard developing and modernizing the legal framework on ICOs in the country, to eventually tighten control over the sphere.