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

47 Pages Posted: 19 Nov 2017 Last revised: 27 Feb 2018

Dirk A. Zetzsche

Universite du Luxembourg - Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf - Center for Business & Corporate Law (CBC)

Ross P. Buckley

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

Douglas W. Arner

The University of Hong Kong - Faculty of Law

Linus Föhr

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

Date Written: February 15, 2018

Abstract

Initial coin offerings typically use blockchain technology to offer tokens that confer various rights in return, most often, for cryptocurrency. They can be seen as a conjunction of crowdfunding and blockchain. Based on a database of over 450 ICO white papers, we provide a taxonomy of ICOs to increase understanding of their many forms, analyze the various regulatory challenges they pose, and suggest the first steps regulators should consider in response. As our database shows, ICOs are a global phenomenon and the global ICO market is much larger than generally thought, with overall ICO volume exceeding 20 billion USD as at the end of January 2018. The US ICO market is significant, but the US doesn’t dominate this market, by any means. Furthermore, many ICOs are offered on the basis of utterly inadequate disclosure of information; more than half the ICO white papers are either 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. Hallmarks of a classic speculative bubble are present. At the same time, ICOs provide a new, innovative and potentially important vehicle for raising funds to support innovative ideas and ventures, with the potential for aspects of their underlying structure 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 (February 15, 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)

Universite du Luxembourg - Faculty of Law, Economics and Finance ( email )

Luxembourg, L-1511
Luxembourg

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

Heinrich Heine University Dusseldorf - 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

The 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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