One of the most significant recent developments in the cryptocurrency sphere has been the rise of the #InitialCoinOffering (ICO), or “token sale” to raise funds for development projects, or even to launch new companies.
In such offerings, a listing company invites supporters and investors to use Bitcoin, credit cards or even, occasionally, traditional money, to purchase digital “utility tokens” from the project or business’s website. Such utility tokens are not money and do not confer ownership, but enable investors to access features of the project at a later date. They can be traded on the open market, providing easy, straightforward liquidity to the original purchaser.
Growing scrutiny from regulators
ICOs are, for the most part, unregulated, which is why they are increasingly being used by start-ups as a means of circumventing the regulated capital-raising process required by venture capitalists and banks. So far this year, more than $1.8bn has been raised by start-ups using ICOs – this figure has already outstripped the value of early-stage venture capital funding for internet companies
Benefitting from regulatory compliance
Despite the concerns of token sale participants about anonymity, the growing calls for regulation mean it is time for prospective ICO issuers to ensure that their sales meet the rigorous standards of national and international anti-money laundering (AML) and Know Your Customer (KYC) legislation.
Raising the bar
Once a company decides to comply with the AML regulations of the market it is operating in, how can it put in place measures to meet legislative requirements?
Trust is key
We are still in the relatively early days of the ICO, but it is clear that the approach offers considerable opportunities for budding companies. In order for it to achieve its potential, however, listing companies must act now to burnish the legitimacy of the ICO by ensuring optimum due diligence and meeting strict legislative requirements.