When it comes to investing in an ICO, there’s nothing scarier than wondering “Will my assets be seized by my government because I’ve done something wrong?” Granted, the next most frightful question covers a much broader topic: “Is this ICO a scam?”
Both of these questions, however, are actually being eradicated as countries begin to adopt more flexible and clearer ICO regulations. Will we start seeing ICO havens coming into existence in the near future? There are already three contenders vying for this top global position: Malta, Gibraltar, and Singapore. Let’s take a deeper look into where ICO jurisdictions are headed, what makes these countries special, and then outline the simplest ways to get involved.
- 1 The Global State of Decentralized Crowdfunding
- 2 Early ICO Adopters – Exception or the Rule?
- 3 Clear Regulations
- 4 Embracing Distributed ledger technology (DLT)
- 5 Taking Advantage of this Information
The Global State of Decentralized Crowdfunding
The history of ICOs has led most investors down a rocky road, made even more bumpy for those investors who live in countries that passed unclear/complicated regulations (United States, United Kingdom, Australia, etc). But there is a smoother path for those who benefit from ICO-friendly governments (Malta, Gibraltar, Singapore, etc). Of course, there are some who had to come to a full stop (China, Pakistan, Algeria, etc) because their home country unexpectedly banned all cryptocurrency-related operations.
Regardless of what status a specific government takes on ICO regulations, there is one common sentiment that they all share: ICOs are slippery. Let me clarify; it is dang-near impossible to declare exactly what an ICO is. Think about it for a second. ICOs have no specific number requirements when it comes to the number of investors, the amount each investor can contribute, the time period over which investments can be made, and so on. They also have no specific classification as to what purpose tokens serve: are they a utility, a payment, a security, an investment, or something else entirely?
This confusion is what caused countries like China to outright ban ICOs. It has led to countries like the US to struggle while trying to figure out how to pass regulations. But it is also what led some countries to proactively pass new regulations to adapt to the new wave of decentralization. Countries like Gibraltar, Singapore, and Malta chose the other side of the ICO world: STOs.
“I understand that regulators are wary of this technology but the fact is that it’s coming. We must be on the frontline in embracing this crucial innovation, and we cannot just wait for others to take action and copy them. We must be the ones the others copy.” – Joseph Muscat, Malta Prime Minister
Security token offerings (STOs) are similar to ICOs in that they help break down the walls of startup funding by making it more accessible to larger amounts of people, but they differ in that the issued tokens are, by nature, security tokens. Because of this classification, they fit a little more easily into the existing regulatory structures as they are more familiar and similar to the current investing structures. However, this doesn’t mean that governments should just try to shove this new investment protocol into an existing box, which is unfortunately what the US and UK appear to be doing.
“One of the key aspects of the token regulations is that we will be introducing the concept of regulating authorized sponsors who will be responsible for assuring compliance with disclosure and financial crime rules.” – Sian Jones, Gibraltar Financial Services Commission Senior Advisor
Gibraltar has launched their own blockchain exchange (GBX) to handle STOs and regulated tokens in their country. This is a proactive approach to a new problem. It is progressive thinking and creating new systems under which developing technologies can be regulated appropriately.
Early ICO Adopters – Exception or the Rule?
Before moving forward, let’s address the elephant in the room: ICOs in the US. Many charts depict the US raising the most funds worldwide for ICOs, but at what cost? Looking at the key talking points from an SEC-compliant ICOs’ conference call gives us some insight into the process.
- The SEC DAO Report was extremely helpful, but it is only guidance, not law.
- In regards to guidance, there is none when it comes to white paper length, content, or the necessary specifics to ensure the compliance of a business running an ICO.
- Speculation leads to the Use of Proceeds section being the most important in a white paper, but no one can be certain.
- Being SEC compliant does not ensure global compliance.
- SEC-compliant ICOs are more complicated and expensive than traditional fundraising.
These mixed feelings regarding SEC (Securities and Exchanges Commission) guidelines are because the US is trying to adapt old laws to fit a new technology. It is messy, confusing, slow, and oftentimes redundant. The best summary of the entire quandary is a quote from a letter sent by 15 Congress Members to the SEC, led by Rep. Ted Budd (R-NC):
“Current uncertainty surrounding the treatment of offers and sales of digital tokens is hindering innovation in the United States and will ultimately drive business elsewhere. We believe that the SEC could do more to clarify its position. Additionally, we are concerned about the use of enforcement actions alone to clarify policy and believe that formal guidance may be an appropriate approach to clearing up legal uncertainties which are causing the environment for the development of innovative technologies in the United States to be unnecessarily fraught.”
With that in mind, let’s investigate how exactly other jurisdictions are tackling ICO regulation in a more progressive fashion. There are two key characteristics that define these jurisdictions, and each country is excelling in their own way for each category.
Singapore recently released the updated version of their “Guide to Digital Token Offerings,” which is certainly a step in the right direction. In essence, this document outlines new regulations and explains how they will apply to ICOs. The document broadened the reach of the Monetary Authority of Singapore to include digital tokens/currencies.
Gibraltar, like Singapore, has their “Token Regulation” document, which is available to the public. It offers guidance on rules, clear definitions, and resources for potential founders. They take a more lenient approach, declaring that “most tokens are not securities under Gibraltar or EU legislation,” with clear example cases provided for security tokens.
Malta, on the other hand, decided that one document wasn’t enough. Instead, the Maltese government has jumped in with both feet, unanioumously passing three bills to move the country forward; the Virtual Financial Assets Act (VFA), the Malta Digital Innovation Authority Act (MDIAA), and the Technology Arrangements and Services Bill. What these three bills do is create new departments, crystal-clear regulations and processes, and open plans for the future in terms of technological advancement.
NOTE: The small populations of both Malta and Gibraltar, as well as the leniency of their governments, will allow them to maintain cutting-edge regulations far easier than a country as massive and complex as the US, UK, or the like.
Embracing Distributed ledger technology (DLT)
Passing regulations is one thing, but following through and actively pursuing the technology is another. In this case, we see Malta leading the pack for a variety of reasons, the most important being their pairing with Binance to launch an STO trading platform. Malta is part of the EU, so an officially backed STO trading platform is huge news for all EU citizens interested in investing. Similarly, Gibraltar launched GBX exchange, but with the uncertainty of Brexit no one is sure how trading will function between the small British island and the rest of the EU. With slightly less enthusiasm, Singapore moves to digitize their currency in token form in an effort to become a cashless society. Certainly a step forward, but not one that heavily impacts their global influence as an ICO haven.
Taking Advantage of this Information
There is ultimately no use for information that cannot be used, which is why we’ve gone ahead and distilled the pros and cons for each of the aforementioned jurisdictions in an effort to make it as easy as possible for you to choose that which is the best for you to launch an ICO/STO. Without further ado:
1. Malta is our number one choice. The “Blockchain Island” has a lot to offer, from progressive politicians to cutting-edge legislation.
Pros: Malta offers access to the EU market and has plenty of turnkey solutions to launch ICOs. Malta’s Blockchain Summit 2018 made the decision easy for founders when they voted ICO Malta (a complete STO and ICO service) as “Startup of the Year”. In addition to this, the super DLT-friendly government ensures that progressive regulations will pass quickly.
Cons: Malta is pushing hard for STOs over ICOs, so companies that cannot meet regulatory requirements to hold a security token will want to look elsewhere.
2. Singapore, our second choice, has a lot in store for the future. What’s stopping them is that they are lagging behind Malta in regulations, but this may change in the near future.
Pros: Korea’s largest crypto exchange, UpBit, chose Singapore as their first international destination for launching. This is boosting crypto relations throughout the country, and the hope is that it will increase ICO relations as well.
Cons: Even though Singapore has huge market potential, many local firms are afraid to enter the market due to uncertainty.
3. Gibraltar, although globally advanced, lags behind these two competitors for a few specific reasons. This small island still has its perks when compared to the rest of the ICO market.
Pros: The Gibraltar Blockchain Exchange is one of the major perks this island has to offer. In addition, their small government helps to speed up regulations in the same way Malta benefits.
Cons: Gibraltar’s small size could also become a detriment depending on how Brexit agreements finalize in the coming months. This small country doesn’t have enough wealth on its own to support a booming ICO economy, and they will be in trouble if they are cut off from EU funding.
The ICO and STO markets are continually in flux, and predicting who will be a world leader in the future is very difficult. Instead, all we can do is look at the current legislation and examine the general sentiment towards the DLT that countries have. Based on these factors, we believe Malta will continue to stay ahead of the curve, but who knows, it’s always possible (albeit extremely unlikely) that the SEC throws a curveball at the world and opens the ICO floodgates.
Thanks to the Howtotoken Agency experts for the information and comments provided for this topic.