Digital Offerings and Mandatory Disclosure: A Market-Based Critique of MiCA

Abstract

In this paper we argue that, as market mechanisms have worked acceptably well and there has been no investor protection crisis, ICOs and IEOs have so far failed to offer arguments in favour of a mandatory prospectus-like regime. Investors in the blockchain space know where to get information and what they risk. Accordingly, we offer a preliminary market-based critique of MiCA’s white paper regulation, arguing that blockchain startups offering securities or utility tokens should be left free to decide what information to offer to investors, as long as the information provided is free from false or misleading statements, and does not omit any material fact. We also argue, contrarily to the Commission’s proposal, that to facilitate private enforcement the burden of proof in liability actions should be on the issuer and not on the investor. This approach would offer a chance to reduce red tape and return to a more manageable regime, where general provisions against fraud and misrepresentation are applied with well-defined private liability rules and burden of proof allocations. As a result, blockchain startups would not only be left free to signal their quality and develop their channels of communication with potential investors, but concurrently also be effectively responsible for the information provided.

Keywords: financial regulation, mandatory information, prospectus, digital offerings, initial coin offerings, ICO, MiCA, Regulation on Market in Crypto-Assets

JEL Classification: K22