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ICO - the new way of fund raising for entrepreneurs

Contributed by Abacus Seychelles Limited
02 October, 2017

Over the years, funding of new businesses has evolved from debt, equity to venture capitalists to crowd funding to the latest source – ICOS. Initial Coin Offerings (ICOS) are now taking the world by storm.

ICOS are a way of raising funds without creating either debt nor equity.

Money is raised in a process similar to an IPO and a virtual coin is issued to the subscriber.

This token is then benchmarked in value against bitcoin or the other popular crypto currency, Ethereum.

In an ICO the issuer will invite people to buy coins in an initial pre-launch. Once the launch is complete the ICO is launched and benchmarked against the other crypto currencies which are linked to fiat currencies. Demand and supply basically dictate the price.

The old adage of an entrepreneur going hat in hand to a VC is no more. More money has been raised through ICOS than through initial VC funding.

According to a report by Wall Street Journal, the figure raised through ICOs stands at a staggering USD 1.5 billion.

It is becoming the latest rage with many entrepreneurs raising funds by issuing coins.

The website ICO alert https://www.icoalert.com/ lists ICOS listed, those that are about to list – a very long list. Entrepreneurs are raising money for everything from real estate, construction, artificial intelligence, bitcoin exchanges, sports fantasy.

To launch a coin, one has to prepare a detailed white paper.

Different countries have different approaches to ICOS.

To regulate or not to regulate – this will be a question governing ICOS in the near future. The "token mania" is resulting in many operational and regulatory challenges.

Given, the spate of ICOS, few are likely to succeed resulting in investors losing money. As of now many have reported profits on 6X to 10X times on listing. How to tax it will soon be the subject matter of debate?

China took a tough stance by banning it. With 80 per cent of bitcoin and crypto currency trading emanating from China, this initially hit the markets hard. However, they bounced back.

Switzerland and Singapore are two of the most advanced countries for creating environments for crypto currency and fintech. Both countries cooperate on this front.

In Switzerland, the Swiss Financial Market Supervisory Body FINMA does not regulate crypto currencies. They are viewed as assets rather than securities.

The Monetary authority of Singapore or Singapore MAS also adopts a similar view. They do not regulate virtual currencies but monitor KYC and AML.

The Swiss regulators and developing rules for crypto currencies. The Singapore MAS is working on their proposed payment framework which would look at all remittance and payment exchanges including crypto exchanges.

UK and US have high activity but no legal clarity. The U.K. like Singapore has created a sandbox for new fintech projects but seems to be taking a wait and watch attitude.

The FCA has published a broad paper on crypto currencies which is non-binding.

The US is described as having the "alphabet soup" of regulators. This makes issuing tokens more complex. It is viewed as a security and not an asset and subject to securities regulation. New York and Delaware have come out with "bitcoin licenses".

Whilst China has banned ICOS, the Central Banks have established a digital currency research institute to help start-ups. According to a paper these are considered as non-digital money assets.

China too intends to set up its own sandbox. Closer to home, India has remained silent. Indian regulators seem to have focused on the negative aspects. The Government's central bank told a Government panel that such currencies are "susceptible" to "criminal activity". Mauritius has come out with a regulatory sandbox. The Regulatory Sandbox License (RSL) offers the possibility for an investor to conduct a business activity for which there exists no legal framework, or adequate provisions under existing legislation in Mauritius. The RSL will be issued by the Board of Investment to eligible companies willing to invest in innovative projects according to an agreed set of terms and conditions for a defined period.

We will have to wait and watch this space to see how it evolves and develops.

More on how to launch your own currency and the structure to use, jurisdictions approach – in the next article!


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