The rising prominence of digital currencies and blockchain technologies has coincided with a growing number of Initial Coin Offerings (ICOs). While some of these digital token sales have been highly lucrative, others have turned out to be scams, a development that prompted a warning from the U.S. Securities and Exchange Commission (SEC).
As ICOs have become increasingly common, a number of organizations have sprung up to help ensure that these digital token sales follow certain best practices.
Digital Chamber of Commerce Token Alliance
The Token Alliance, for example, is an initiative that the Digital Chamber of Commerce launched in September 2017.
The alliance seeks to create standards and best practices to help facilitate the responsible sale of digital tokens and aims to do that through four specific venues:
- Best Practices – Working to create standards, frameworks, and organizational approaches.
- Education – Informing the public about ICOs.
- Policy – Creating policy that will support healthy investment and innovation.
- Resources – Supplying helpful market data and analysis.
Jim Newsome, co-chair of the Token Alliance, spoke to the guidance that US regulatory agencies have offered on ICOs, stating:
“With the SEC’s recent findings regarding ICOs, combined with the CFTC’s determinations and enforcement, it is clear that proactive industry efforts are imperative and timely. I look forward to helping shape the dialogue and enable this innovative technology to progress for the benefit of industry and consumers.”
The Token Alliance apparently built up some strong momentum, starting off with participants culled from more than 70 organizations.
ICO Governance Foundation
The ICO Governance Foundation, also founded in 2017, is a decentralized organization seeking to create a protocol-based global community that effectively serves as a self-regulatory organization for digital token sales. The foundation works toward this end in a few different ways.
First of all, it provides a service giving those planning to hold an ICO the opportunity to file a document called Form IGF-1, which includes information on digital token sales that can then be made available to the public.
By filling out this form, individuals and entities holding token sales can list basic information like the name and date for such offerings, as well as provide more substantive detail such as the organization’s goals and business operations. The foundation, in turn, offers a free database containing this information.
In addition to providing this service, the ICO Governance Foundation collaborates with national regulators to help them create standards and best practices for digital token sales.
Waves Platform’s Regulatory Body
Waves Platform announced in December 2017 that it is also planning to create a self-regulatory organization.
The announcement revealed that the new entity planned to work with other professional organizations, including the ICO Governance Foundation, to help create cross-platform disclosure protocols.
The Medium blog post that announced plans to create the new self-regulatory organization indicated that the entity aimed to created standards in the following areas:
- Due diligence – Evaluating different ICOs and how likely they are to succeed.
- Reporting – Creating guidelines including background checks and KYC for key leaders involved with token sales.
- Legal – Providing legal input on how to effectively classify individual tokens as being either utility or equity tokens.
- KYC/AML – Working with government organizations designed to prevent money laundering, as well as creating guidelines relating to identification and blacklisting.
- Tax and accounting
Progress Thus Far
At the time of report, all the organizations mentioned above are very new (or in the case of the organization planned by Waves Platform, nascent). While the Digital Chamber of Commerce has been around since 2014, the Token Alliance was only announced in September. As a result, these organizations have not necessarily had the opportunity to make great progress.
Going forward, self-regulatory organizations could potentially fuel safer and more robust investment in ICOs by helping create an environment with greater trust.
Armed with greater transparency and a more thorough process for vetting digital token sales, investors may be far less hesitant to open up their wallets for these offerings.
While ICOs raised $2.8 billion in 2017, this took place during a time of significant hype.
Should investor sentiment cool, demand for the digital currencies being offered in these sales could be reduced notably.
At times when market activity is less driven by hype, having a sound, regulatory foundation and significant transparency could help fuel demand for digital tokens. The extent to which self-regulatory organizations will contribute to such a “new normal” will depend largely on how much the standards they create are embraced by the digital currency community. These organizations can develop all the best practices they want, but if market participants do not use them, they serve little purpose.
Likewise, organizations like the ICO Governance Foundation can provide voluntary filing systems, but if the individuals looking to hold digital token sales do not use them, they will not provide great benefit to the broader digital currency community.
When evaluating the ICO market for potential opportunities, keep in mind that this space can be complicated. Conducting significant due diligence can be quite helpful. You can start that process by visiting our initial coin offerings page, where you will find valuable information about current and upcoming ICOs.
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