Abstract
This chapter analyses the significance and potential of ICOs as a financing mechanism for start-ups and SMEs, examining the main characteristics and differences with other comparable channels of fundraising and addressing the market regulators approaches. ICO activity will then be examined through a gender perspective.
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Notes
- 1.
However, note that Directive 2018/843 of the European Parliament and Council of 30 May 2018 amending the Anti-Money Laundering Directive (EU) 2015/849 includes a definition of “virtual currencies” as “virtual currencies means a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically”.
- 2.
“Financial instruments” are defined in Article 4(1)(15) of MiFID II as those “instruments specified in Section C of Annex I.” These are inter alia ‘transferable securities’, ‘money market instruments’, ‘units in collective investment undertakings’ and various derivative instruments.
- 3.
For US companies see Mendelson (2019), p. 88, 89. This author mentions that although a statutory prospectus under the requirements of Section 10(a) of the 1933 Act is not required, in the Regulation A, D, Crowdfunding, and S options, the document should contain sufficient information for an investor to make an informed decision. Disclosure to investors and transparency of information will help to demonstrate the viability of the project. In short, the document that the ICO industry calls a white paper needs to resemble a private placement memorandum, even if the information contained therein does not meet all of the statutory requirements of a Section 10(a) prospectus. A Regulation D offering is still a Regulation D offering, regardless of the purpose of the business or the underlying technology employed to raise capital. The disclosures need to resemble investment bank-grade documentation, to inspire investor confidence, meet regulator concerns, and mitigate risk. This means pro forma financial statements, sufficient MD&A, and other elements common to a private placement memorandum.
- 4.
See OECD (2019), p. 24 et seq for a comparison of ICOs with conventional financing mechanisms.
- 5.
SEC v. W.J. Howey Co., 328 U.S. 293 (1946). Mendelson (2019) provide a detailed analysis of the relevant statutes and caselaw and their potential applications to blockchain-based tokens.
- 6.
- 7.
Council Regulation 2017/1129, art. 1(1).
- 8.
Art. 2(1) MIFID II.
- 9.
See Council Directive 596/2014, art. 3(1)(1).
- 10.
Offering a detailed regulator’s approach including more countries see Maume and Fromberger (2019), p. 563 et seq.
Abbreviations
- AMF:
-
French Autorité des Marchés Financiers
- AML/CFT:
-
Anti-Money Laundering/Combating the Financing of Terrorism
- BaFin:
-
German Federal Financial Supervisory Authority
- CNMV:
-
Spanish National Securities Market Commission
- DLT:
-
Distributed ledger technology
- EEA:
-
European Economic Area
- ESA:
-
European Supervisory Authorities
- ESMA:
-
European Securities Markets Authority
- EU:
-
European Union
- FCA:
-
Financial Conduct Authority
- FSB:
-
Financial Stability Board
- ICO:
-
Initial coin offerings
- ICT:
-
Information and communications technology
- IDO:
-
Initial DEX offering
- IEO:
-
Initial exchange offering
- MIFID II:
-
Directive 2014/65/EU
- NCA:
-
National Competent Authority
- SEC:
-
Securities and Exchange Commission
- SME:
-
Small and medium enterprise
- STEM:
-
Science, technology, engineering and mathematics
- STO:
-
Security token offering
- TRLMV:
-
Royal Legislative Decree, 4/2015, of 23 de October, approving the consolidated Text of the Securities Market Act
- US:
-
United States
- VC:
-
Venture capital
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Chamorro Domínguez, M.d.l.C. (2021). Financing of Start-Ups via Initial Coin Offerings and Gender Equality. In: Miller, K., Wendt, K. (eds) The Fourth Industrial Revolution and Its Impact on Ethics. Sustainable Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-57020-0_14
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