Primary supply tokens (ICO) quickly became a popular method of investment, but often the understanding of very much distorted. To join the fashion process trying speculators, scammers and just adventurers.
ICO is very often used by fraudsters to steal money from inexperienced investors, whose FOMO syndrome (loss of profits) is stronger than the most obvious signals that indicate danger.
The rapid growth of the industry ICO related fraud and investor losses led to the fact that the Commission on securities and stock exchanges of the USA (SEC) began to examine this decision in the context of the Federal securities laws (FSL). Is it any wonder that after the SEC ranked as part of the ICO in relation to securities, a new type of fraud, trying to use innovation in its aims by:
the sale of illiquid tokens to wealthy investors;
sale of traditional securities, registered in the blockchain.
In order to provide the necessary clarity, try to explain what the ICO and what are their advantages. First of all, ICO is an innovative method of capital formation. Issuers offer securitization participation of users in the ecosystem in the form of investment to the wider population. If the Issuer has a reasonable token economy, by increasing the involvement of users in the ecosystem and profitability of the underlying token value of this token will grow. The same law of supply and demand, but the price in this case reflects not merely the shares — it is reflected in the cryptographic token that represents a percentage of users.
In addition, ICO must have two key functions:
to be accessible to a wide audience;
have the ability to freely traded in the secondary market after the release of the token.
ICO today in the form of a sale of securities not responsible and can not reach any of these goals. Such securities are illiquid and available only for accredited investors/ companies.
As they grow the industry and achieve compliance with all necessary norms and rules, the real meaning of ICO can be lost, as some believe that it may not correspond to the laws of the FSL.
Problem 1: ICO corresponding SAFT
Offer Filecoin tokens, issued in accordance with Regulation D (Reg D) of the Federal securities law of the United States in mid-2017, was an important step in promoting compliance with FSL. ICO, released in the Position D, attract capital with the relevant documents on the issue (FSL), selling tokens, cost effective to the ecosystem. However, the company conducting the ICO at position D (or model SAFT – Simple agreement for future investors), you forget how to operate a real ICO.
These correspond to the D and SAFT offers, in fact, contradict the very meaning of ICO — selling tokens, open to all investors (both accredited and not accredited), and free trade on the secondary market. The sale tokens in D, and SAFT are open only to accredited investors (wealthy individuals and companies), and are limited to securities (that is, they are not free to bargain not to the secondary market until the Issuer notifies the public information and does not register such securities with the SEC).
Such issuers, realizing that the ICO represent the securitization of user participation, going the wrong way. Their ICO illiquid and limited to the participation of rich people. Investors will not be able to trade these tokens will remain illiquid (non-tradable) securities having the same problems as securities of traditional venture capital funding — pending purchase of a controlling stake or exit the stock market (which happens very rarely) before investors will be able to calculate the income from their investments.
Problem 2: ICO and traditional securities on the blockchain
Some enterprising companies are trying to use the model ICO, turning an innovative way of monetization of the ecosystem as a cheap marketing gimmick.
The most tragic example of this practice are companies claiming that they can raise capital for ICO but, in fact, producing traditional equity or debt securities, presented in the form of a cryptographic token. It is not the ICO and the common securities, registered in the blockchain. And while many believe that the securities in the blockchain the future of ownership of the securities, the token preference share is not ICO. This ordinary securities issued in the blockchain.
Such securities must be distinguished from ICO. Appropriate definition for ICO 2018 will be: ICO — a securitization (conversion of securities) user participation. It’s not debt and not equity securities, and a new kind of securities – the investment, the value of which is tied to user participation in the ecosystem and profitability of the token in this ecosystem. This distinction must be very clearly understood.
So what is ICO?
ICO represent innovative ways of implementation/monetization potential value from user’s participation in the ecosystem. Token-ICO is a new kind securities, the cost of which is connected with the user’s interest in the ecosystem (average daily use, cyclical use, and so on). This paper may be freely traded after the launch of the network.
Considering all the above and the fact that ICO is officially fall under the FSL, the industry should think seriously over what is a ICO and what it can become valid in accordance FSL. It is quite possible that a unique innovation transformirovalsya in the usual marketing gimmick.