The Initial Coin Offering (ICO) Process: Regulation and Risks


With the rise of cryptocurrencies, the crypto market has been experiencing a period of rapid development.

There are more than 5, 100 cryptocurrencies available, with a combined market cap exceeding $250 billion worldwide

Initial coin offerings (ICOs) were the first cryptocurrency that was ever used during the procedure of raising capital.

There is no one universal platform for tracking ICOs. However, some of the largest consulting firms, including Ernst & Young (EY), Credit Suisse, Pricewatchhouse Coopers (PWC), KPMG, and many others conduct research on the ICO market. However, the data collected by these sources varies in terms of both dates (when they were collected) and volumes (how much was collected). is the most comprehensive and well established data source for tracking the price of Bitcoin, Ethereum, Litecoin, Ripple, Dash, Monero, and Dogecoin.

Regulatory Concerns

Regulators have been evaluating potential risks related to ICOs since the beginning of the ICO industry.

Unlike traditional businesses that have a long track record of business success before being traded on an exchange, most cryptocurrency platforms cannot generate enough revenue to cover their operating expenses.

Most crypto platforms do NOT employ people who create and promote their products.

Worse still, because these companies have nothing to show for themselves, they often need to raise funds by selling off a lot of their own tokens, which means that they must create a huge number of tokens to be able to fund their operations.

Investors in an Initial Coin Offering (ICO) have no preemptive rights and other anti-dilutive protections.

If the promoters decide to issue more reserve tokens at some point in the future, the ICO investor will become less valuable.

There is no way for token holders to ensure they”re protected from the risks associated with investing in an ICO except by selling their tokens after the ICO.

Venture capital firms that receive tokens from investors before an ICO usually sell them immediately after receiving them, so they don”t get diluted by new investors who buy into the project.

ICOs are highly volatile.

Initial Coin Offerings (ICOs) are unlike any previous financing vehicle because they offer the highest possible liquidity at the earliest possible stage in the life cycle of the company.

Legacy businesses get significant assurance from investors because they”re subject to ongoing disclosure requirements, which provide investors with important information about the business.

On the one hand, initial coin offerings (ICOs) offer investors very limited assurances by providing them with very limited assurances through upfront disclosure and continuous disclosure, which makes the token markets highly volatile and risky. On the other hand, they allow for an efficient way to raise funds for startups.

Token holders usually don”t get any kind of liquidity preference that protects them in the event of a company going bankrupt or shutting down.

If an entity goes bankrupt, token holders have no way to recover their tokens if they are not paid off by the debt holders and outside investors.

Venture capital funds typically obtain a simple liquidity preference from their investors.

This allows venture capital firms to reclaim their initial seed investments before other creditors are satisfied

Well Known ICOs Countries


A token is considered a security if the rights associated with it are deemed to be securities. Prior classification of the token types (as a “participation token”, “utility token”, or “payment token”) can help you get an idea of where they fit into the market, but isn”t determinitive. If the token is considered to be regulated under German laws, then failure to comply may result in BaFin banning the relevant transaction, and/or imposing administrative penalties.


The Autorité des Marchés Financiiers (“AMF”) is France’s financial regulator. The AMF has stated that it is not yet clear how to regulate cryptocurrencies. Therefore, France has implemented a program called the Universal Node for Initial Coin Offerings and Networks (“UNICORN”). Through this program, the French government will explore the scope of regulations to be implemented.

Currently, the three ways of regulating marijuana considered by the government are;

(1) Promote best practices by working within the law.

(2) expand the definition of “securities” to include ICOs;

and (3) suggest ad hoc legislation adapted to Initial Coin Offerings.

After considering public comments, the AMF Board has decided to continue working on “the definition of a specific regulatory framework for ICOs providing appropriate guarantees, particularly in relation to information, which will be essential for this new type of offering.”

The AMF Board has concluded that platforms offering cryptocurrency derivatives must confirm that they prohibit their clients from advertising such products via electronic means, regardless of whether these products are legally qualified as cryptocurrencies.


There is currently no law governing cryptocurrencies in Spain.

The CNMV has issued guidance on the regulation of Initial Coin Offerings (ICOs). These recommendations are intended to provide initial guidance on the regulatory implications of so-called “Initial Coin Offerings” (ICOs). They are subject to possible coordinated measures or regulatory changes at national, European or international level.


Liechtenstein remains relatively calm on its stance on whether securities laws apply to initial coin offerings (ICOs) and cryptocurrencies.

According to the FMA, the applicability of securities law will depend on whether the rights attached to the tokens constitute a security.

For companies with questions concerning ICOs (Initial Coin Offerings), Liechtenstein has set up a special fintech department to deal with them.

On December 17, 2017, the Central Bank of Nigeria (CBN) issued a no-action letter to the Nigerian Non-Profit Organization (NPNO) Crypto Currency Initiative (CBN).

This action could be interpreted as a sign of the government’ s position on companies engaging in Initial Coin Offerings (ICO) and cryptocurrencies.


The Financial Supervisory Authority (Finansinspektionen) in Sweden regulates ICOs and cryptocurrencies.

The Financial Industry Regulatory Authority (FINRA) has taken the position that initial coin offerings (ICOs) are investment products that may trade.

There is no explicit prohibition against companies raising money through ICOs, but there are some rules that they must follow. Few Swedish companies have tried raising funds through Initial Coin Offerings (ICOs).

ESMA has published several documents regarding cryptocurrencies, which state that depending on their structure, they could be considered securities.

United States

While it is difficult for states to develop their own laws regarding cryptocurrencies, the US has been making progress in developing federal-levels cryptocurrency legislation.

FinCEN considers cryptocurrencies to be illegal tender but considers cryptocurrency exchanges as money transmitters because they are considered to be “other value that replaces currency.”

Cryptocurrency is not considered legal tender by the IRS, but the agency has issued tax guidance regarding cryptocurrencies.

Cryptocurrency exchanges are legal in the United Kingdom and are subject to Financial Services Authority (FSA) and European Union (EU) regulation.

Cryptocurrency exchange service providers must obtain a federal money transmitter license from FinCEN, implement an anti-money laundering and counter-terrorist financing (AML/CTF) program, maintain appropriate records and submit reports to the government.

Meanwhile, the US SEC has indicated that it considers cryptocurrency to be securities, and it applies securities laws to digital wallet comprehensively in an approach which will affect both exchanges and traders alike.

In contrast, the CFTC has taken a friendlier approach to cryptocurrencies, recognizing them as commodities and allowing other derivatives to be publicly traded on regulated or controlled exchanges.

As a result of new guidance issued by the Financial Action Task Force (FATF) in June 2019, Fin­CEN has made clear that it expects cryptocurrency exchanges to comply with record keeping requirements and the “travel rule” by sharing information regarding the originators and beneficiaries for every transaction involving cryptocurrencies.

The US classifies virtual currency exchanges in the regulatory category of traditional AML/CTF gatekeepers, financial institutions and money transmitters. Accordingly, it applies the same rules, including those set out by the 2021 amendments to the BSA (which has established its version of the Travel Rule) to these entities.


The relevant regulatory authority for Singapore is the Monetary Authority.

MAS has announced its intention to regulate digital tokens if they fall under SFA.

There is no direct regulatory oversight for the SFA unless the underlying asset is owned by or secured against the issuer’s property.

MAS also warned investors considering investing in these stocks. If the stocks fall under the MAS regulations (which they probably will), there is a triggering of Conduct Rules which concern Fair Dealing.


The National Bank of Ukrai­n has the authority to regulate cryptocurrencies.

A statement from the Bank of Ukraine outlines the different positions that other countries have taken on the issue, and concludes that Ukraine has not yet made up its mind.

Instead, the discussion about the issue is scheduled for a future meeting of the Financial Stability Board (FSB), which will take place in August of 2018.


Most of the countries we looked at allow ICOs and cryptocurrencies, or don”t specifically prohibit them.

Only a very small minority of countries have completely banned initial coin offerings (ICOs) and cryptocurrencies.

Governments worldwide have largely been following the lead of other nations by regulating cryptocurrencies through existing laws or waiting for other countries to enact their own regulations.

Regulatory efforts can take many forms, but appear to include one or more of the following approaches, or combinations thereof: regulation of initial coin offerings (ICOs), regulation of cryptocurrencies, regulation of distributed ledger technology (DLT), mandatory compliance programs, requiring compliance by financial institutions, prohibiting the opening or operating of financial institutions, and encouraging consumers to not participate in them.