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| May 22, 2018

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Macedonia, Greece Close to Ending Decades-Old Dispute Over Name

May 20, 2018 |

Greece and its neighbor, Macedonia, are close to resolving a decades-old dispute that has prevented the small Balkan country from joining the European Union, creating a rare bright spot in a region where hopes of joining the bloc remain largely on hold.
WSJ.com: What’s News Europe

Nurses Want Zuckerberg’s Name Removed From SF General Hospital

May 16, 2018 |

How would you feel about being a patient at Zuckerberg San Francisco General Hospital ? For some patients, having the Facebook founder’s name plastered on the hospital is worrisome—and over the weekend, nurses at the hospital staged a protest to push for Zuck’s name to be removed, ABC 7…
Newser

New Parents Apparently Like First Lady’s Name

May 11, 2018 |

“Emma” may be the top name among baby girls in the US, but the first lady seems to have given “Melania” a real surge. In the annual rankings put out by the Social Security Administration Friday, “Melania” showed the fifth-best rise in girls’ names from the previous year. Specifically, the…
Newser

What’s In a Name? The Identity Crisis for Initial Coin Offerings

May 11, 2018 |

What's In a Name? The Identity Crisis for Initial Coin Offerings

Aaron Kaplan, securities attorney at Gusrae Kaplan Nusbaum PLLC and COO of Prometheum, where he has focused on blockchain and securities regulation.  He is guest author for this Opinion/Editorial. 

Initial Coin Offerings (ICOs) have become the investment du jour while the understanding of what ICOs are has become desperately convoluted. Every huckster, scammer and opportunist has tried to hop on the bandwagon. (I’m talking to you, Casey Ryback) Many of these ICOs were a means for scammers to raise money over the internet from unsophisticated investors whose “FOMO” outweighed the obvious red flags associated with such offerings.

Also read: Ver’s Sci-Fi Novel Life, Voorhees Buys Tucker’s Tie for $ 27k

Identity Crisis for Initial Coin Offerings

The rapid growth of the ICO industry ($ 6+ billion) and the inherent scams and related investor losses forced the SEC to consider ICOs in the context of the Federal Securities Laws (FSLs).  The SEC’s recent broad subpoena sweep marked the SEC’s official declaration that ICOs are securities. Now that ICOs must comply with the FSLs, it should come as no surprise that a new type of trickster is trying to hijack the innovation through either a) selling illiquid tokens to wealthy investors or b) selling traditional securities that are registered on a blockchain.

To set the record straight, and provide much needed clarity, here is a condensed description of ICOs and their intended benefit. ICOs are an innovative means of capital formation. Issuers offer a securitization of user interest in an ecosystem as an investment to the general public. Assuming the issuer has reasonable token economics, then the greater the user interest in the ecosystem, and the utility of the underlying token, the more the value of such token should increase. It’s supply and demand, but the price is not reflected in the common stock; rather, it is reflected in the cryptographic token representing the user interest. 

What's In a Name? The Identity Crisis for Initial Coin Offerings
Aaron Kaplan

Furthermore, an ICO should have two key features:

1. It should be available to the general public, and

2. It should be able to freely trade on the secondary market when the token is issued.

The securities of ICOs to date have not and cannot achieve both those goals. Such securities are illiquid and only available to accredited investors/institutions.

As the industry matures through compliance with all relevant rules and regulations, I fear we are losing the spirit of ICOs, which some argue may not be sustainable under the FSLs.

Issue 1: Reg D/SAFT ICOs

The Filecoin Reg D token offering in mid-2017 was an important point for honoring the Federal Securities Laws. Reg D ICOs raise capital with proper offering documents (a requirement under the FSLs) by selling tokens that have proposed utility in an ecosystem. While such ICOs are legal by nature, companies conducting ICOs in a Reg D (or a SAFT) offering forgot how an ICO was supposed to function.

These Reg D and SAFT ICOs inherently contradict the spirit of an ICO- a token sale that should be open to all investors (both accredited and non-accredited), and freely trading in the secondary market. Reg D and SAFT issuers’ token sales are only open to accredited investors (i.e. wealthy individuals and institutions) and are restricted securities (meaning they can’t trade freely on the secondary market until the issuer files current public information and essentially registers such securities with the SEC).

What's In a Name? The Identity Crisis for Initial Coin Offerings

These issuers, while understanding that ICOs are securitizations of user interest, missed the mark. Their ICOs are illiquid and limit participation to the wealthy. Investors won’t have the ability to trade those tokens, and are stuck with illiquid (untradeable) securities that have the same issues as those associated with traditional venture funding – waiting for a buyout event or going public (which is extremely rare) before investors can realize a return on their investment.

Issue 2: ICOs vs. Traditional Securities Issued Over a Blockchain

Opportunistic companies are also trying to use the concept of an ICO, turning an innovative method of monetizing an ecosystem into a cheap marketing ploy. The most frustrating example of this practice are companies who say they are raising capital for an ICO, but in reality they are just issuing traditional equity or debt securities that are represented by a cryptographic token. These aren’t ICOs, but rather traditional securities registered (like a transfer agent’s log) over a blockchain. While many (including me) believe blockchain securities are the future of securities ownership, a preferred equity token is not an ICO. It is a traditional security that is issued over a blockchain.

What's In a Name? The Identity Crisis for Initial Coin OfferingsSecurities issued over a blockchain MUST be distinguished from ICOs. An appropriate definition of an ICO in 2018 is the following: an ICO is a securitization of user interest. It is not a debt or equity security, but rather a new type of security – an investment whose value is related to the user’s interest in an ecosystem and the utility of the actual token in that ecosystem. It is essential that the industry understands the difference.

In late March, a company tried to issue a blockchain security for a building. Such cryptographic tokens represent ownership in the building and trade over blockchain. That is a traditional Reg D security, and not an ICO. The company received news coverage for being the first company to sell interests in a building using a blockchain. However, many companies have sold interests in real property online. This company is doing the same thing – basically putting lipstick on a pig.

So how do we define an ICO?

ICOs are innovative ways to unleash/monetize potential value from the user interest in an ecosystem. ICO tokens represent a new type of security whose value is related to the user appetite in that ecosystem (daily average use, recurring use, etc.). Ideally, an ICO should be available to all types of investors (accredited and non-accredited) and be freely tradable when the underlying network goes live.

With ICOs officially coming under the FSLs regime, the industry should take a moment to reflect on what an ICO is and will be under the FSLs before it morphs from a genuine innovation into a marketing ploy.

This is an Op-ed article. The opinions expressed in this article are the author’s own. Bitcoin.com does not endorse nor support views, opinions or conclusions drawn in this post. Bitcoin.com is not responsible for or liable for any content, accuracy or quality within the Op-ed article. Readers should do their own due diligence before taking any actions related to the content. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any information in this Op-ed article.


How do you define an ICO? Share your thoughts in the comments section below. 


Images courtesy of Shutterstock.


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The post What’s In a Name? The Identity Crisis for Initial Coin Offerings appeared first on Bitcoin News.

Bitcoin News

German official: Athens, Skopje should solve name spat soon

May 10, 2018 |

A senior German official has urged Macedonia and Greece to resolve a decades-long name dispute that has kept the former Yugoslav republic out of NATO and hindered its efforts to join the European Union.
FOX News

After ‘Incredibly Fun’ Deliberations, a New Name for Boy Scouts

May 2, 2018 |

For 108 years, the Boy Scouts of America’s flagship program has been known simply as the Boy Scouts. With girls soon entering the ranks, the group announced a new name: Scouts BSA. The change will take effect next February, reports the AP . Chief Scout Executive Mike Surbaugh said many possibilities…
Newser

Kim Kardashian reveals what Kanye West initially wanted to name baby Chicago

April 30, 2018 |

“Chicago” wasn’t exactly Kim Kardashian and Kanye West’s first choice for a baby name, the reality star revealed on “Ellen” Monday.
FOX News

Royal Baby’s Name ‘Confounds Expectations’

April 27, 2018 |

George, Charlotte, and … Louis. A name has finally been bestowed upon the youngest child of Prince William and Kate Middleton, reports People , ending four days of suspense since the baby’s birth on whether the couple would go traditional or adventurous. Louis Arthur Charles is the boy’s full name, per…
Newser

Tiny African kingdom of Swaziland changes its name

April 20, 2018 |

Breathe easy, Switzerland: The tiny African kingdom of Swaziland is changing its name.
FOX News

TMZ

Khloe Kardashian Was Extremely Conflicted on Her Baby’s Last Name

April 18, 2018 |

Khloe Kardashian was horribly conflicted on what last name to give her baby girl in the wake of Tristan Thompson’s cheating scandal  … before finally deciding to go with Thompson. Our Kardashians sources tell us … Khloe chose the name…

TMZ.com