Token sellers beware: it’s a legal minefield out there
Token sales have raised over US$3 billion this year, and regulators around the world are getting concerned – but their different approaches are causing confusion, say analysts
Different regulators around the world have adopted varying attitudes when it comes to initial coin offerings (ICO), also called token sales. However, because they take place online, token sales can, and normally do attract investors from all over the world.
And that can cause problems for those carrying out such sales, say analysts, because even if token sellers are compliant with regulations in one market, they can still fall foul of rules in another.
An ICO is a means by which companies developing projects using digital tokens can raise capital. Each project will use its tokens in a different way but, as with traditional money, they may be used as a store of value, a medium of exchange, a unit of account, or some combination of them all.
Regulators can take action against a company marketing an ICO to potential investors in their jurisdiction, even if the company itself is based somewhere else
Investors purchase tokens before the launch of the project, hoping it will be successful and the tokens will acquire real value so they can be traded on the many cryptocurrency exchanges springing up all over the globe.
Token sales have raised more than US$3 billion so far this year, and regulators around the world are starting to get concerned.
The watchdogs tend to fall into two camps when it comes to ICOs. Many, like those in Australia, Hong Kong and Singapore, for example, say that if a token has the characteristics of a security, an ICO should be governed by existing securities laws, and not if it doesn’t.
Some others, like China and South Korea, have taken steps to stamp them out altogether.