The regulatory institution of the EU, the European Securities and Markets Authority (ESMA), are going through all initial coin offerings (ICOs) in order to establish in what way should they be regulated.
Let us begin with looking a little into what ICOs are in order to better understand why the securities watchdogs of the U.S. and EU are determined to regulate them.
To study ICOs in a little more depth have a look at this article, but if we are to define the phenomena without spending much time on it, ICOs are, essentially, a means of funding a blockchain project. A coin or token is created, exchanged for a popular cryptocurrency. After the launch of the coin or token, the investors gain an equivalent of the sum they gave to the startup in that coin or token. Later if the startup is successful the crypto can be used as internal currency.
Why then are the regulatory bodies so concerned with ICOs? Currently in the unregulated ICO space people can perceive them as a “get rich quick scheme.” If the ICO is dishonest from the beginning, this means the investors can be left without anything, since ICOs are not a debt scheme, where the investors “loan” the money to the startups, which has to be repaid in the future.
Therefore it is quite understandable, why the regulatory institutions are worried about ICOs. Steven Maijoor, chair of ESMA is looking into how ICOs fit into existing regulatory laws, and what is their competitory role in the fundraising sector.
Maijoor disclosed to the European Parliament’s economic affairs committee:
“Some of these ICOs are like a financial instrument. Once it is a financial instrument it comes under a whole regulatory framework. The subsequent question is what do we do with those ICOs that are outside the regulatory world. We will assess that as a board. We expect to report by the end of the year.”
However, at the moment the EU regulations towards ICOs consist of warning investors to be wary of crypto.
“Consumer warnings don’t seem to be sufficiently effective in raising awareness among consumers that there is a lack of safety net for these investments,” said Andrea Enria, chair of the European Banking Authority.
Worries concerning ICOs can also be found in the crypto community.
In the last decade, a part of the reason Bitcoin evolved came from the toxic nature of the securitisation market.— Dr Craig S Wright (@ProfFaustus) October 8, 2018
Now, with ICO's you have securitisation without even the base value. In the past, it was securitised sub-prime loans.
With an ICO, it is securitised false promises.
Subscribe to our Telegram channel to stay up to date on the latest crypto and blockchain news.