Yearly Archives: 2018

The rise of new technologies is changing the way companies raise funds. Along with the increase of crowdfunding in recent years, the use of Initial Coin Offerings (ICOs) has emerged more recently as a new form to raise capital. Companies in the United States raised more than $4 billion in 2017 and over $6.3 billion were raised through ICOs in the first three months of 2018. In a typical ICO, a company receives cryptocurrencies in exchange for certain rights embodied in “tokens”, whose nature, treatment and implications are generating controversy among securities regulators around the world.

In a recent paper, entitled The Law and Finance of Initial Coin Offerings, we address the primary legal and finance issues raised by ICOs. In our view, the first challenge for securities regulators should consist of clarifying the nature of tokens in order to determine whether, and if so when, they should be subject to securities laws. For that purpose, we propose a definition of tokens based on both their function and their legal nature. As to their function, we follow the classification suggested by FINMA. Therefore, we distinguish between asset tokens (those that resemble shares, bonds, etc.), utility tokens (those that offer access to goods and services) and payment tokens (those that represent cryptocurrencies). As to their legal nature, we distinguish between security tokens (those that qualify as “securities” under a particular country´s securities laws) and non-security tokens (everything else). We argue that the legal classification of the token, which should be the relevant one for securities regulation depends on the features, structure, distribution, and marketing of the issuance of tokens, as well as a particular country´s securities laws. Hence, even though the function of the token may help determine its legal nature, a further analysis will be required.

READ MORE »