Category Archives: Crowdfunding

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New EU ICO Rules May Fall Under Crowdfunding Umbrella

The European Parliament in Brussels has taken a further step towards clarifying rules for ICOs within the nations of the European Community.

The all-party group met yesterday to examine proposals for the launching of ICOs although as yet no formal statements of intent have been made regarding the outcome of the meeting. Nicolas Brien of France Digitale did urge for haste, however, arguing that “the market wants legitimization… from every jurisdiction. In the UK it’s particularly bad, none of the banks will bank you if you have crypto”.

Two weeks ago, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a draft report that offers insights into new regulatory frameworks for crowdfunding. ICOs received a notable mention in the report stating, “It takes a much-needed step towards imposing standards and protections in place for what is an excellent funding stream for tech start.”

Brien went on to explain:

“Having the certainty, but also having that legitimization, I actually welcome having a European-wide proposal because it gives people the certainty to know. I think we need to be clear whether this is a utility token or a transferable security, or how the regulator regime looks at that, but I think this can be done because an ICO is another form of crowdfunding. It’s different, but it is a form of crowdfunding.”

As is so often the case at such meeting many regulators got on to discussing the need to prevent potential fraud and scams requiring a higher level of scrutiny than is currently the case. Laura Royle of the Financial Conduct Authority (FCA) echoed those thoughts at the meeting commenting:

“…we certainly do see a huge potential benefit in this space for firms to raise capital from a broad array of investors and without the cost of an intermediary, but there are risks associated [such as] the potential for fraud, with a lack of transparency and the volatility.”

There are current EU estimates that as many as 81% of ICOs could result in fraud. However, if new regulations result in a higher standard than is currently evident, then this may set the example for productive projects in the future within the EU. How this will apply to ICOs within the UK is still uncertain, given the country’s departure from the EU in March of 2019.

 

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Binance CEO Firmly Believes in ICOs as Answer to Venture Capitalism

The CEO of cryptocurrency trading platform Binance has made a positive case for initial coin offerings (ICOs). In a recent blog post, Changpeng Zhao argues that the digital crowdfunding method adopted at large by blockchain startups are “not just good-to-have”, but necessary.

Out with the old

At the crux of the blog post is a debate between traditional venture capitalism (VC) and ICOs; Zhao highlights several differences while acknowledging the present issues with the ICO markets.

For entrepreneurs, Zhao argues that the process of acquiring funding through VCs is tedious, time-consuming and requires startups to relinquish some or all control of their project. He writes:

“Courting VC investors, doing powerpoints, business plans, pitch decks, executive summaries, due diligence, term sheets, investment agreements, offshore company structure setup, board of directors, make reports for them, getting a bridge loan because the VC lawyers insist on some totalitarian terms that essentially gives them absolute power and ownership of your company and hence delays the whole investment process…”

He then compares it to the speed, effectiveness and control an ICO delivers to any entrepreneur:

“Writing an awesome white paper about your passionate dream project and raise USD 20M in 10 days, from thousands of people around the world who speak your language, understand your vision, use your product as soon as it is launched, spend all day beta testing your product, or discuss with you about new neat (and sometimes useless) features that you haven’t thought about.”

ICOs are still in development

Zhao admits that ICOs are still in their early stages, which is true considering that countries around the world are feverishly debating the validity and legalities of ICOs, which contrary to popular belief, is a good thing.

Concerns over ICOs having a myriad of security, fraud and other illegal activities tied to them has caused knee-jerk responses from governments and regulators everywhere in the world. However, Zhao makes a strong point saying:

“You can’t make advancements without encountering problems. Properly dealing with issues is how progress is made. If we had given up e-commerce/internet because there was identity theft or credit card fraud, where would the world be today? Whoever deals with the issues best will be the winners, that’s where the competition is.”

ICOs beat VC projects

Zhao is of the belief that ICOs will succeed more often than VC projects and makes three distinct points as to why he thinks this is the case. His first is that again, ICOs are extremely time and cost effective. Less time spent raising funds means the actual project itself receives the much-required attention it needs.

Furthermore, the higher amounts of funding received from ICOs allow for startups to better overcome weak points in the project. Finally, ICOs create a user base during the funding period, turning investors into users, which is an extraordinarily strong start for any company upon launch.

He concludes by noting that VCs are now investing heavily in ICOs, a factor which he believes speaks for itself regarding just how valid and useful the digital fundraising method is.

 

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