The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators

The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators Initial coin offerings typically use blockchain technology to offer tokens that confer various rights in return, most often, for cryptocurrency. They can be seen as a conjunction of crowdfunding and blockchain. Based on a database of over 1000 ICO white papers, we provide a taxonomy of ICOs to increase understanding of their many forms, analyze the various regulatory challenges they pose, and suggest the first steps regulators should consider in response.

As our database shows, ICOs are a global phenomenon and the global ICO market is much larger than generally thought.

The US ICO market is significant, but the US doesn’t dominate this market, by any means.

Furthermore, many ICOs are offered on the basis of utterly inadequate disclosure of information; more than half the ICO white papers are either silent on the initiators or backers or do not provide contact details, and an even greater share do not elaborate on the applicable law, segregation or pooling of client funds, and the existence of an external auditor.

Accordingly, the decision to invest in them often cannot be the outcome of a rational calculus. Hallmarks of a classic speculative bubble are present.

The first expected mega ICO took place in 2018: Telegram raised over 1.7 billion USD; 5 and the first less than expected mega-ICO also occurred, with EOS unexpectedly raising 4.1 billion USD.

ICOs initially began as a mechanism among the blockchain community to attract financial support for new ideas and initially involved small amounts of money and small numbers of investors. However, as amounts raised have increased, so has interest in using ICO structures to raise money for ever broader purposes and among ever broader groups of investors.

Prominent examples demonstrate that ICOs are not without flaws: some ICOs have been unmasked as scams and Ponzi schemes,7 while others, including one of the larger to date, 8 have seen governance concerns come to the fore and financial regulators making inquiries.

At the same time, ICOs provide a new, innovative and potentially important vehicle for raising funds to support innovative ideas and venture, with the potential for aspects of their underlying structure to have an important impact on fundraising systems and structures in future.

Read The Full Paper

The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators

Dirk A. Zetzsche

Universite du Luxembourg – Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf – Center for Business & Corporate Law (CBC); European Banking Institute

Ross P. Buckley

University of New South Wales (UNSW) – Faculty of Law

Douglas W. Arner

The University of Hong Kong – Faculty of Law; University of Hong Kong

Linus Föhr

Research Assistant @ ADA Chair in Financial Law (inclusive finance)