Report: Initial Coin Offerings: 30 July 2019

Initial Coin Offerings (“ICOs”) typically use Distributed Ledger Technology (“DLT”) to offer transferable units (“coins” or “digital tokens”) that confer various rights on the holder of record.  ICOs can be considered a means of fundraising using blockchain technology.  The legal characterisation of ICOs has emerged as an integral factor in the discussion around their regulation.  Coins issued in an ICO may resemble a digital voucher of receipt in respect of rights.  The nature of these rights varies and, therefore, the characterisation of any given ICO is likely to be fact-dependent.  A closely-related question is whether ICO issuance—or any attendant primary or secondary investment activity—falls within the existing regulatory perimeter.

This paper provides an overview of ICOs and the legal uncertainties which could arise from framing ICOs under specialised regimes. It analyses the existence of new market participants that are key to the cryptoasset market value chain and whether they should be regulated, including by considering whether activities of these actors that do not map neatly onto traditional regulated securities activities should also be regulated or permissioned.  It also analyses the limitations of existing product regulation and activities in this field with examples of regulatory “underlap” and considers what kind of bespoke regime could be constructed from existing financial regulations.

Available as: PDF.