Regulators begin to tackle the craze for initial coin offerings

After Floyd Mayweather made the first celebrity endorsement of cryptocurrency via Instagram in July, “stox.com” (an online prediction market) went on to raise $30 million, some of which went straight in to Floyds pocket. As of November 1^st, the SEC warned those affiliated of the unlawfulness of some of these promotions if the celebrities fail to report compensation numbers.

                  Over the past 12 months, $3.3 bn has been raised in more than 200 ICOs, which is the new rage compared to IPOs according the Coinschedule, a data provider in cryptocurrency. A former securities regulator stated, “Regulators have never seen a new financial product explode with the speed and velocity of ICOs.” Supervisors in China and South Korea have already outlawed ICOs due to a heavy tie to gambling cultures. Legally things are complicated surrounding these coins. A University of Pennsylvania Wharton School professor addresses that the SEC argues that the technology is irrelevant; when tokens are used to raise funds, they are securities. ICOs are initially used to raise funds but have been akin to produce raw finances for projects which bring to question the treatment of such money that can be used both ways.

                  The challenge here is to convince the SEC that these tokens are in fact “utility tokens” that initially raise funds but are now seen as investments, watching values skyrocket. A company, Tezos (coin logo above), had raised $232 million to finance another blockchain, but one with a sophisticated governance system that killed bitcoin. Ironically the company has become a token-financed system that ran into many governance issues. The company is currently in a public quarrel with the head of the foundation and how it should be run. The founders are facing suits from an ICO contributor who is accusing breaches of security law. Other block chains  have now taken action to prepare for such issues, Blockstack will not be like Tezos by launching without pre-sale and installing a discount. Only time will tell if Blockstack will solve the breach issues or join Tezos as suit-stricken block chain oriented firms.

https://www.economist.com/news/finance-and-economics/21731157-they-raise-difficult-legal-questions-regulators-begin-tackle-craze