Part IV – Comprehensive List of Disclosures
There is a long list of required disclosures, and these help to elevate the confidence of the public and critics about the actual progress of the project and the credibility of the team behind it.It is expected to represent a set of asset class classifications for tokens that is meant to clarify their regulatory implications according to a more modern way of thinking.
I welcome feedback that leads to constructive iterations or enhancements on these thoughts.[Report A Satis Cryptoasset Valuation Latest Summary Of Group8217s]
In a nutshell, there are four commonly emerging areas where a lot of the risk can build-up:
The amount of disclosure about the token creation event (the sale itself)
Decisions around the terms structure of these offerings
The ongoing level of credible transparency about the evolution of the project, post-sale
Too much speculative activity in the public exchanges prior to going live, causing a disconnect between value and valuation
Note that the following set of thoughts are not regulatory prescriptions.In addition, while these advisors may be useful to your ICO launch, not all of them will offer value (nor have the required experience) beyond the ICO process.In summary, there are four general categories of token functionality: 1) a right, 2) a reward, 3) an ownership, 4) a toll.Ongoing Progress
Provide regular reports on progress with clear language, both from a technical and non-technical point of view.[Wallets In Great Ripple Store XRP To 11 2019]Team and Resources Identification
For small teams, include all names and LinkedIn profiles.Although securing advisors support adds credibility to your projects, too many advisors will dilute that effect, as it may signal that you are erring on the side of quantity vs.There are local characteristics to be aware of.They are suggested practices, that once properly implemented could help to avoid unnecessary regulation.First, the Ethereum blockchain was turned ON, then the token became available in exchanges.
Good practice:Â Design the token functionality, then flush out the legal implications. Bad practice: Retrofitting token functionality based on legal limitations.Crowdsale aspects, and the difference in timing and pricing for each.
Bad practice: Make it complicated. Good practice: Keep it simple.[Bitcoin Transactions Work Do How]
As a global phenomenon, token sales are exposing the strengths and weaknesses of the various local or regional jurisdictions.One arrangement is to let funds flow to a Foundation (or nonprofit organization) who then funds developers and other contributors like contractors.The substance of the transparency reports is as important as the transparency itself.
There is no doubt that greed excesses and bad practices are regularly taking place amongst some of the new ICOs.Finally, when the Foundation is setup, it is more advisable to staff its board with independent members, and not entirely from the same people who were leading the ICO.[Bitcoin Releasing Paper White Security Our On]Part I – PRE-SALE READINESS The Legal Side
An omnipresent consideration in token generation events is how the legal side jives with the business aspect.Statements that are forward-looking without concrete base of evidence or metrics.
Good practice: Organic spread of awareness about your ICO, backed by evidence of community and ecosystem support.
Contrary to popular perception, a Foundation is not always necessary, and certainly not a Swiss-based one, even if that was Ethereumâs path.
Good practice: Keep validating your token functionality assumptions with specific usage metrics, and expect to iterate on your token functionality. Bad practice: Assume that your token utility will work in practice exactly as depicted in your theoretical assumptions, or in your white paper.[35 Price 1 Weekly 2019 Analysis Week]
While business success is only realized and sustained with the passage of time and effort, properly constructing the legal aspect can and should be done right from the beginning.Crowdfund parts
Type of token
Type of raise: capped, uncapped, etc.
In an ideal world, token issuers would not let their token trade prior to making the network operational.Stored in crypto)
Custody method for crypto and fiat currencies
Audit report on funds receipt and distribution
Regular transparency reportsConclusion and Next Steps
When (not if) regulators start looking at ICO deals they might want to investigate, they will likely start with the ones that exhibit weaknesses.These do not represent everything about an ICO, but they include areas that I wanted to comment on, because of certain common weaknesses that I see repeating themselves.[October 8211 22 Summary 2018 News Bitcoin]
We should watch for the anticipated Blockchain Cryptocurrency Property standards that Swiss-based law firm MME has been working on.Tezos). A large cap is considering anything over $50M. Keep it clean with no PR announcements hours prior or during the sale, announcing new advisors or investors (e.g.The emergent dichotomy is that one could construct a 100% legally compliant and check-marked process, while still be going after a bad business idea; or not execute well, and still fail.It is a good practice to continuously update these exchanges with the right amount of tokens in circulation.
Good practice: Include credible people in your Foundation. Bad practice: Forming a Foundation too early.[In 3 To Learn 2018 Lessons From Snapchat]Exchange Listing
This is a critical aspect where current practices are certain to crash the system.For example, if you are only selling 10% of your tokens and keeping 60%, you are signaling a key role for the Foundation, or your central monetary policy.This is an example of a technology audit for Kikâs Kin Token, conducted by Zeppelin.
If regulation were to be formalized around ICOs, I would suspect that a filing requirement would include several pieces of data from the following list:
List of disclosures: (Reference source: Token Filings)Pre-sale
CEO Name, location and bio
Founders country of residence
Management and Advisors list
Legal formation jurisdiction
Token formation jurisdiction
Number of employees
Teamâs list and bios
Type of token being created
Total token supply
Token supply in circulation
Future token monetary policy
Exact token distribution allocation (pie chart)
Locked-up periods per token ownerships
Sale terms and conditions
Clear communications re: pre-sale vs.Also, do list all existing online communities and sites that are either discussing or publishing related information to your ICO (e.g.Since the legal field is not homogenised on a global basis, you need to take into account the local jurisdictional aspects as they will pertain to your crowd target.Slack, GitHub, Subreddits, Steemit, etc.)Token Distribution
There are no right or wrong token distribution ratios, but how you end-up dividing the pie says a lot about your intents.To evolve and grow into the market, companies need experienced mentors, not promotional advisors.[Mystery Of Currency Great Exchange The]Part III – POST-SALE
Now youâre just like a startup.A large cap in a new company with no market-ready product is risky (e.g.Did the company do what they intended on doing? Did they fail somewhere? Were the terms or smart contracts modified along the way, for any reason? Were the funds received and stored properly? Were ICO service providers paid accordingly, along with advisors and other contributors? Are the lock-up periods in effect?End of Sale Report
Within 48 hours of the end of the sale, it is advisable to release a report that details what actually happened, or didnât happen as planned.
With that background in mind, Iâd like to draw attention on a set of practices that, if practiced together, would tilt the balance towards the âgoodâ part more than the âbadâ side.[Final Aragon Details Proposal Governance 1 For Vote]Marketing and Promotion
Iâve written previously about the role of advisors in promoting your ICOs, as one of the 10 Things I Donât Like about ICOs.If the token is an App or Network or Protocol or Service Utility, why let it trade before your utility is operational? In the case of Ethereum, early crowdfund buyers held their tokens for a year before they could trade them.As your roll-out your product and enter the market.Gnosis) or too many discount layers. The trend is towards more simplicity.From a market evolution perspective, it would certainly be more desirable to proceed with a majority of good ICOs vs.Bancor). Avoid exotic sales schemes like Dutch auctions or reverse Dutch auctions (e.g.Vague, or nonspecific token functionality descriptions. Really Bad practice:Â Not linking the specifics of the token functionality into the legal aspects and implications.
Having been associated with, analyzed or interacted with dozens of ICOs since 2014, the following represents my best attempt at summarizing what I believe are Safe ICO Practices.Quality.Ideally, it is important to communicate exactly when large amounts of tokens become unlocked, and therefore available in public exchanges.Another part that benefits from professional audits is the actual security procedures that are put in place, whether these include implementing multi-sig procedures, storage of funds, lock-up periods, rate of new tokens creation, or any other token related decisions that must be encoded for automated execution.Other regulators such as the Canadian Securities Administrators issued more stern and obfuscated statements, such as this recent Staff Notice on Cryptocurrency Offerings.[Influencing To Price The USD BCH Factors]
Yes, it is ok for speculation to occur, as it can help to fund the evolution of the project, but until the project is live, money raised should be the only economic incentive that is available to the team and to the market.
A part that is not always clear, and that should be disclosed relates to the lock-up periods for tokens.The token functionality is a foundational aspect and the starting point for the legal conversation that you will have with your lawyers.Bad ones.[Is Out Monthly 10 Issue Aragon]Token Functionality
Iâve described a full set of token functionality in this post, Tokenomics â A Business Guide to Token Usage, Utility and Value.For example, residents of a specific country (or state) may not be allowed to participate in your crowdsale, if the local authorities have issued weak guidance in favor of ICOs, or explicitly warned against token sales.
It is not easy to prescribe generic advice for ICO projects, but the more we see good ICOs, the longer we can expect this to remain a healthy phenomenon, despite the fact that many ICOs are currently over-valued, over-funded or overly promoted.[Just Is 10 Journey Of The Beginning Bitcoinwhy Years]Technology Audits
This includes the actual auditing of the software code to check the technical soundness of the smart contracts that are being deployed for managing the token generation, funds intake and bootstrapping the token into the App or Protocol.Every ICO situation is different, and organizations that opt for a Foundation should make sure they fully understand the long term implications, benefits and limitations of that choice, especially that if it cannot be later undone.This is where many ICOâs seem to have lost their ways, and thatâs risky.More Audits
Independent post-sale audit of smart contract and fund disbursements.[XRP Review Wallets 2019 Best]
The more native and organic the utility of the token is to your model, protocol, application, platform or service, the less chances of it being regarded as a security, hence triggering more potential scrutiny from regulators pertaining to existing securities regulation (which is typically well defined in all most countries).Part II – SALE
A few points to keep in mind:
Clearly communicate the sale process and make it very unambiguous.
A capped sale is more advisable than a non-capped one, unless the company already has an existing network of users where they can justify a potentially large raise that is commensurate to their footprint.Alternatively, one could have a brilliant idea, with the right team, but not structure a token sale or organization properly, leaving the field open to potential regulatory risks and traps, along the way.[Your And Litecoin What It Is Investment Worth Is]
Bad practice: Too much promotion and advertising.Instead, many regulators are quick to apply existing compliance practices that treat tokens as a security, therefore elevating the barriers and costs of implementation for entrepreneurs..In other cases, the company receives the funds, and locks-up a part of them until a Foundation is created at a later time.However, an ICO is not like a website that is instantly global once a URL is published.There is no reason why crowdsale terms should be complicated. Clearly indicate the Private Sale (pre-sale) vs.However, that beginning is immediately after specifying your token functionality with the utmost level of detail possible, describing the user scenarios, and not just via short or general headings like ârights managementâ or âself-upgradingâ.[Canada Awareness Introducing Token In]
The SEC has Â already shown they understand ICOs and DAOs (via their recently published Investor Bulletin: Initial Coin Offerings, and while they did not signal a desire to crush the cryptocurrency creation activities, they didnât either telegraph a carte blanche memo pertaining to its future evolution.A build-up of frequency around risky practices would certainly make it more difficult to sustain the orderly progressive growth of this new asset class.For larger companies, management and advisors should be identified.At least, they could contribute to promoting a more healthy self-discipline by ICO practitioners.
Another aspect is the actual overlap between the Foundation and the organization building the technology.What will be sold into fiat vs.This is an important part because smart contracts are easily the weakest link in the ICO process, and their failing could be detrimental, if not harmful to the project.You have to deliver what you promised, whether it is to integrate a new token into an existing platform, or to run a new network that utilizes the token.[IOS Emerging XCUITest Framework Test The UI 8211 Automation]
Initial token price (in USD, as a reference point)
Blockchain technology being used
Audit report on smart contracts
Names of service providers: ICO, PR, Legal
Clear token functionality
Statement of token governance
Statement regarding exchangesPost-sale
Number of participating addresses
Amount raised (in what currency)
Plan for treasury (i.e.However, if you are selling over 50% of your tokens, and keeping only 15% to a Foundation, then you are assuming that the community and users will take care of your evolution, and you may risk being short on dry powder for influencing your future evolution in case you need more time to deliver stable decentralization, unless your token rises in value quickly and remains that way.
It is my belief that we can avoid excessively risky (and certainly damaging) repercussions in ICOs (aka Token Generation or Distribution Events) if the industry adopts a minimum level of self-administered precautionary practices that Iâm labelling âSafe ICO Practicesâ or SIP.[What Decentralized Application How With Is Metamask It And Works]
Unfortunately, most regulators have not yet come to grips with the reality that tokens are bound to be recognized as a new asset class with its own set of updated regulation.Tokens should not be listed before the start of the operations on the network, platform, or application.Furthermore, the role and regulation around the definition of âfoundationsâ differ from country to country.