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– Initial Initial Offering (ICO), the first public offering of a specific token is a new way of raising capital based on blockchain technology. Its undeniable advantage is the ability to obtain significant capital in a very short time, without the need to carry out complicated procedures, such as the introduction of stock market shares or venture capital – writes Aleksandra Kopeć, lawyer of Sadkowski i Wspólnicy
. According to her, on the other hand, the absence of specific legal regulations, makes the ICO an extremely risky process. Business Insider Polska publishes the full commentary of Aleksandra Kopeć on the legal aspects of the ICO in Poland and the world
1. Initial offer of coins (ICO). What is it?
"Initial Public Offering, ICO refers to the initial public offering (IPO), as part of ICO investors – as in the case of the IPO – they participate in the financing of the project, that they believe they have a chance to succeed in the future.
The entire process of issuing tokens is very similar to the IPO of the company, IPO and ICO allow entrepreneurs to raise significant capital for new businesses and their own brand promotion
1.1 Initial Public Offering What does the Law look like?
under the law of July 29, 2005 on the public offer, the conditions governing the introduction of financial instruments in organized trade and public companies (Journal of Laws No. 184, Article 1539, as amended) (see -after the "Public Offer Act") the first public offer includes the reason P to give access to information on the securities and the terms of their purchase to at least 150 persons or to an unlimited recipient in any form and manner that constitutes a sufficient basis for a decision on the purchase of such securities.
therefore, the first step that allows the securities of the corporation to be traded on a regulated market. The completion of the entire process requires the fulfillment of a number of legal conditions. One of the most important elements of the initial public offering is, in principle, the preparation of the prospectus, namely a document containing the most important data on the issue of securities
The Minimum information requirements are specified in Regulation (EC) No 809/2004 of 29 April 2004 According to the above-mentioned law, information relating to, inter alia, should be included in the prospectus the activities carried out by the The issuer, its financial situation and development prospects, as well as the risk factors or the conditions of the offer. The prospectus is subject to the approval of the Polish Financial Supervisory Authority [19659008] It should be noted that in June 2017, Regulation (EU) 2017/1129 of the European Parliament and of of the Board has been adopted with respect to the prospectus published as part of the public offering or of, under which the obligation to prepare and approve the prospectus will no longer include the offers of securities with a total value of less than 1 million euros. The regulation came into force on July 20 of last year, but it will in principle replace the regulations in force on July 21, 2019.
1.2. And what does it look like with Initial Coin Offering?
Instead of actions, ICO participants receive tokens, that is, units based on cryptography, embodying subjective rights. In addition to considerations concerning ICO, it is necessary to pay attention to the difference between the cryptocurrency token. Although both terms refer to designations based on blockchain technology, the application of which is similar, they can not be equated
Cryptocurrency (coin) means an entity that is a substitute for 39, money, exchangeable and speculative. In particular, it can be traded on the digital exchange market. The token has a wider application, its function should not be limited to "payment" activities – can be used, for example, as a tool to support a specific application.
The existence of tokens is not independent but operates on a specific basis. platform (Ethereum most often). In practice, the boundary between the token and the room is very fuzzy. In most cases, a given cryptographic unit can be described as both cryptocurrency and token.
It should be noted that the initial offer of coins can achieve two goals:
- the introduction of a new cryptocurrency,
- the acquisition of capital and the development of its own project.
The objectives can be achieved jointly or separately, because the "issue" of a token used exclusively for the maintenance of a private platform does not prevent his subsequent entry into the cryptocurrency market.
1.3. ICO and "white paper". During the ICO, donations are not made in hard currency, but in a specific cryptogram (Ethereum in most cases, although this is not a requirement), which is then automatically converted into number of chips and written in the system of a distributed register
Within ICO instead of a prospectus, a "white paper" is created, that is to say a note d & # 39; # 39; information containing the most important assumptions of the project However, the contents of the white paper is not verified in any way, which means that investments in start-ups looking in the context of the ICO are associated with a high level of risk. A detailed analysis of the white paper, as well as a thorough check of the information it contains, is therefore fundamental to assessing the credibility of the entire project.
An analysis of current practice leads to the conclusion that the white paper should contain: a detailed description of the assumptions, areas of application and
1.4. How does ICO work?
An entrepreneur who plans to raise capital under ICO registers his project on an appropriate platform (most often Ethereum) . After the maturity of the OIC, investors pay funds to the appropriate platform, which are automatically converted into available tokens.
If the minimum number of chips is reached after the meeting, a smart contract automatically sends funds to the issuer's wallet. If the minimum number of tokens is not collected, the smart contract automatically transfers the funds to investors' portfolios. The whole process therefore takes place in the digital space and is completely automated
1.4. Since the status tokens or cryptocurrency can not be qualified as securities in Poland it is not permissible to apply the provisions of the Law on the public offerings of the l & # 39; OIC
Therefore – despite some similarities – the Initial Coin Offer can not be treated as a new form of the Initial Public Offering. This implies legal implications, especially the "issuer" tokens do not have to comply with the strict requirements of the law on public offer.
This does not mean that the entity for its activities and is not obliged to adapt its activities to the same. other regulations
2. The legal status of the ICO in the world
The legal status of the ICO is not uniform in the world. Up to now, the Polish legislature has not taken any legislative measures to regulate this issue In November 2017, the Polish Financial Supervisory Authority issued an official announcement regarding the sale tokens, but it does not mention the legal qualification of this process, but only the associated risks.
The PFSA publication was a response to a similar statement from the European Securities and Markets Authority (ESMA) addressed to potential investors and entities interested in the ICO organization. However, not all countries remain passive because of the growing popularity of the first chip offer . I do not know of any state that has legislated directly on ICO (although the French Finance Minister Bruno Le Maire has recently announced such intentions), however the official statements of the Swiss or Singaporean supervisory bodies do not leave no doubt about the legality of the process. and its legal consequences.
It should also be emphasized that the legal regulation of the OIC does not necessarily have to be equal to its legalization. The high level of risk associated with investment in cryptocurrencies means that in some of the original countries offering coins it is completely forbidden
2.1. Switzerland launches initiative on the OIC
The Swiss Financial Market Supervisory Authority (FINMA) has issued an official communication regarding the legal qualification of the initial offer of coins. He emphasizes that technological neutrality is one of the fundamental principles of Swiss law and the financial market. This means that legal regulations can not cause difficulties in the development of new technologies. In the vast majority of cases, fundraising through the issue of tokens will not be covered by FINMY's financial supervision.
The OIC may be subject to a specific legal regime, but this depends on its individual characteristics. In February 2018, FINMA issued further guidance on the legal framework of the ICO. The authority has maintained its position that Swiss law does not provide for any specific requirement for the OIC process but the specificity of a specific project may result in an obligation of 39, adaptation to existing legislation. under the ICO:
1. Payment tokens: other cryptocurrency, their function is to make payments and store values;
2. Utility Tokens (Utility Tokens): They are used as tools to support a specific platform or application
3. Asset tokens: they embody certain rights of the holder vis-à-vis the "issuer", their essence is similar to securities. In addition, it was pointed out that the above classification is not exhaustive, as there are also hybrid tokens in circulation, combining several of the above-mentioned features.
In light of the above-mentioned documents, it is worth noting that that the structure and nature of a specific project provisions concerning:
– Fight against money laundering and the financing of terrorism, when the token will take the form of cryptocurrencies,
– banking license , when the ICO process will take the form of a deposit,
– trading of financial instruments when the token will take the form of a derivative,
– investment fund when funds raised under the ICO will be managed by an external entity.
The Swiss Supervisory Authority has also settled the controversy over the recognition of securities tokens. According to him, there is no reason to include cryptocurrencies in this category, because their function is not analogous. The same applies to utility tokens. However, according to FINMY, tokens representing assets (tokens of assets) meet all the characteristics of the securities and, therefore, are subject to the scope of the law that governs them (19659052). And what's going on in Singapore?
Singapore – like Switzerland – has issued official guidelines on the legal status of the ICO. They point out that the initial investment of coins may be subject to supervision by the Monetary Authority of Singapore if the "issued" tokens are financial instruments under the Securities and Futures Act (SFA). the given token is regulated, so it depends on the specific case For example, if the token acquired under the ICO embodies the rights arising from the shares or the investment certificate, the relevant regulations relating to
In addition, entrepreneurs seeking sources of financing under the Anti-Money Laundering and Terrorist Financing Act
2.3. China and Korea, and ICO
Not all countries have such a liberal approach to the initial offer of coins as Switzerland or Singapore. The governments of China and South Korea have completely banned the capital of ICO. To justify this restrictive regulation, the state indicated that cryptocurrencies are used to carry out illegal transactions and to finance criminal activities.
There is no doubt that investment in chips is characterized by a high risk. fraud, but also the volatility of the market. To the extent that the mere fear of the security of the ICO process can be justified, the absolute prohibitions to invest funds in a given state seem to have a façade character. It must be kept in mind that the specificity of blockchain transactions lies in the fact that they are not made in a particular place, but in the digital space, and only require that # 39, Internet access for their efficiency. Therefore, it is virtually impossible to enforce this prohibition.
3. Legal Assessment of the OIC
The above information suggests that "issued" tokens within the OIC may fall into the following categories: tokens with money tokens, tokens from Utility or investment tokens (asset tokens)
The assumption of the vast majority of projects funded under the AIT is the dissemination of funds. a new cryptocurrency or a new token with a specific utility function. In the discussion on the legal qualification of the OIC, it was argued that tokens having monetary characteristics and utility tokens are in principle not subject to particular regulations.
This does not mean that the token qualification ensure compliance of the planned activity with the legal provisions in force. In particular, it should be assessed whether the offered tokens do not have the characteristics of the securities or financial instruments (tokens of assets) which, according to the official position of Switzerland and Singapore, may be subject to appropriate regulation of capital markets.
and take into account all aspects of the planned activity. For example, an entity that, under the terms of the OIC, would offer a token entitling its holder to purchase a hotel or book a trip should consider – taking into account all the facts – [19459005Iftheseactivitieswouldnotbeclassifiedas
By transferring the above analyzes to Polish law, it seems reasonable that an entrepreneur who plans to raise capital through the first token offer will verify First, that its activities will not be regulated:
- Act of 18 July 2002 on the supply of electronic services (Official Journal 2017, Article 1219).
- Law of May 30, 2014 on consumer rights (Journal of Laws of 2017 article 683)
- Law of February 16, 2007 on Competition and Consumer Protection (Journal of Laws 2017, Article 229, as amended).
- Act of 1 March 2018 on the fight against money laundering and the financing of terrorism (Journal of Laws of 2018, Art. 723)
- Law of 29 August 1997 on the protection of personal data (Journal official from 2016, extension 922).
- Act of 29 July 2005 on the trading of financial instruments (Journal of Law 2017, item 1768, as amended).
- Act of 19 August 2011 on payment services (Journal of Laws of 2011 No. 199, item 1175, as amended).
4. ICO. Conclusions
Summarizing the discussion on the legal qualification of the OIC, it should be noted that, in the vast majority of cases, the first Token Offer will not be submitted to the competent supervisory authority and will not Will require no authorization or legal obligation.
However, you can not deny the role of compliance throughout the process. The catalog of applications offered chips is basically unlimited, which means that without a thorough knowledge of the specificity of a project, it is not possible to make a categorical and indisputable legal assessment.
An insightful and comprehensive analysis of the project to start an innovative business, all the more so in a situation where it is not directly governed by legal provisions.
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