By
Mayowa Adebajo
February 19th, 2024
With a view to legalize its ICO market, a Japanese research group proposed guidelines for regulating this form of venture-capital fundraising.
Under the growing global commitment to introduce clearer and more comprehensive regulations for cryptocurrency market and the sphere of initial coin offerings, Japan is working on developing the most appropriate ways to regulate this area. In the framework of this initiative, Japan has unveiled proposed guidelines for the legalization of ICOs.
In a proposal by Tama University and the Center for Rule-making Strategies, a government-funded research group, the members defined guidelines for elaborating the rules that are needed to “establish ICOs as a sustainable financing method.”
According to this document, it is proposed to legally standardize Know Your Customer and Anti-Money Laundering (KYC and AML) requirements. It is also recommended to implement rules that would help to provide protection for existing shareholders and debt holders, to eliminate a risk of insider trading, and to enhance standard cybersecurity practices.
Moreover, the experts standing behind the proposal presented two principles for avoiding of any misunderstandings around ICOs.
Following the first principle, ICO issuers are required to disclose how profits and funds raised will be distributed and used. The experts insist that investors should know all the conditions around their funds and any changes regarding their allocation.
The second principle is dealing with updating of information presented in the so-called white papers that usually include the goals and purposes of the project and details of the ICO. It is believed that potential investors need to track the progress of project realization. Nevertheless, today quite often white papers practically have no concrete data or targets. And there are some doubts whether this document should be updated in the course of project realization.
Experts have also described three types of ICOs.
- The first one is named a “Venture Company Type,” and it is defined as a “fund-raising by venture companies through high-risk, high return investments.”
- The second ICO variant is the “Ecosystem Type”. And this term stands for “fund-raising for collaborative efforts in which multiple corporations such as companies and local governments are engaged.”
- And finally, the third ICO type is called the “Large Company Type”. And this notion we can use for describing “fund-raising by companies for certain in-house projects with high risk.”
In the proposal it is said that the requirements defined by the experts at present are minimal and “to enable ICOs to be used safely by a wide range of issuers and investors and to be accepted well in the society, more detailed rules may be required”.
Today there are lots of discussions around ICOs and their security for investors. And Japan’s efforts to regulate this sphere is considered to be a positive move for making things clearer and more reliable for all the parties involved. The more information investors have about principles and rules for ICOs, the higher their chances not to fall into the trap are.