The issuance of an ICO has been the hottest method for blockchain startups to get funds in the past two years. So hot that even non-blockchain startups and big public companies are diving into the trend. From the PwC and Crypto Valley Association’s report, statistics show that more money has been raised within the first 5 months of 2018 than in all pre-2018 years combined. However, not all ICO resulted in success. In fact, studies from Boston University show that more than half of the ICO projects worldwide are dead within 4 months, many due to compliance issues, especially when it comes to whether the token is a security or not.
ICO tokens can be generally categorized into two categories: utility/security. The SEC has announced that neither Bitcoin (BTC) nor Etherum (ETH) are “securities”, given their decentralised nature and utility values. However, to this date, the SEC has not approved any other ICO to be solely a utility token.
“A token, a digital asset, where I give you my money and you go off and make a venture, and in return for giving you my money I say ‘you can get a return’ that is a security and we regulate that,” Clayton said. “We regulate the offering of that security and regulate the trading of that security.” – Jay Clayton, SEC
To determine whether a token is a security or not, the SEC applies the “Howey Test”, a test derived from the 1946 SEC v. Howey Co. case.
Although the Taiwanese government has yet to provide any regulatory guidance when it comes to ICO, companies wishing to launch an ICO project should consult with legal experts and make sure all the compliance are in place.
- SEC v. Howey Co., 328 U.S. 293 (1946)
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- A strategic perspective
- Study Finds that Over Half of ICOs Die in First Four Months