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The ICO Gold Rush: It's a Scam, It's a Bubble, It's a Super Challenge for Regulators

40 Pages Posted: 19 Nov 2017 Last revised: 19 Jan 2018

Dirk A. Zetzsche

ADA Chair in Financial Law / Inclusive Finance, University of Luxembourg; Heinrich Heine University Duesseldorf - Faculty of Law - Center for Business & Corporate Law (CBC)

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law

Douglas W. Arner

University of Hong Kong - Faculty of Law

Linus Föhr

Research Assistant @ ADA Chair in Financial Law (inclusive finance)

Date Written: January 9, 2018

Abstract

Initial coin offerings typically use blockchain technology to offer tokens that confer some rights in return, most often, for cryptocurrency. They can be seen as effectively a conjunction of crowdfunding and blockchain. Based on a hand selected ICO white paper database covering more than 300 ICOs we provide a taxonomy of ICOs and some initial geographical breakdown to facilitate thinking clearly about them, analyse the various regulatory challenges they pose, and suggest the first steps regulators should consider in responding to them. As our database shows, at the moment, many ICOs are offered on the basis of utterly inadequate disclosure of information; more than half the ICO white papers are silent on the initiators or backers or do not provide contact details, and an even greater share do not elaborate on the applicable law, segregation or pooling of client funds and the existence of an external auditor. Accordingly, the decision to invest in them often cannot be the outcome of a rational calculus. Many of the hallmarks of a classic speculative bubble are present in many, but certainly not all, ICOs. At the same time, ICOs provide a new and innovative structure for raising funds to support new and innovative ideas and ventures, with the potential for aspects of the underlying structures to have an important impact on fundraising systems and structures in future.

Keywords: Initial Coin Offerings, ICO, ETHER, BITCOIN, Blockchain, Securities Regulation, Investment Law, Financial Law, Securities and Exchange Commission, Financial Conduct Authority, ESMA, BaFin, CSSF, ASIC

JEL Classification: G23, G24, G28

Suggested Citation

Zetzsche, Dirk A. and Buckley, Ross P. and Arner, Douglas W. and Föhr, Linus, The ICO Gold Rush: It's a Scam, It's a Bubble, It's a Super Challenge for Regulators (January 9, 2018). University of Luxembourg Law Working Paper No. 11/2017; UNSW Law Research Paper No. 83; University of Hong Kong Faculty of Law Research Paper No. 2017/035; European Banking Institute Working Paper Series 18/2018. Available at SSRN: https://ssrn.com/abstract=3072298 or http://dx.doi.org/10.2139/ssrn.3072298

Dirk Andreas Zetzsche (Contact Author)

ADA Chair in Financial Law / Inclusive Finance, University of Luxembourg ( email )

Luxembourg, L-1511
Luxembourg

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/research_unit_in_law/equipe/dirk_andreas_zetzsche

Heinrich Heine University Duesseldorf - Faculty of Law - Center for Business & Corporate Law (CBC) ( email )

Universitaetsstr. 1
D-40225 Düsseldorf
Germany
+49 211 81 15084 (Phone)
+49 211 81 11427 (Fax)

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law ( email )

Sydney, New South Wales 2052
Australia

Douglas W. Arner

University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01237

Linus Föhr

Research Assistant @ ADA Chair in Financial Law (inclusive finance) ( email )

162a, avenue de la Faïencerie
Luxembourg-Limpertsberg, L-1511
Luxembourg

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