The ICO Market: Creating a Parallel Infrastructure to the Securities Industry

Finadium
February 2018

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This report is part of Finadium’s Fintech Capital Markets series.

A new type of capital raising has captured the imagination of global markets: the Internet Coin Offering (ICO), or Token Generation Event. The digital tokens being created and promoted by these activities have attributes similar to equities and bonds, and major differences as well that raise questions and cause discomfort for securities regulators. Along the way, these securities-not-securities are building a new infrastructure around their trading, lending and safekeeping.

In this report, Finadium breaks down the ICO market from a securities industry perspective. We investigate the variations and legal status of ICO issuance, the number of ICOs outstanding and government concerns about ICOs. We then turn to the companies that are supporting the infrastructure of this business. The ultimate questions are: how far can ICOs go? Will these securities ultimately require government registration? Are they truly a new way for investors to gain exposure to corporate activity? The uncertainty of the situation has given rise to a vibrant market, at least for as long as it lasts.

This report should be read by securities professionals across a wide range of functional activity including trading, compliance, investments, back office, technology and operations.

Table of Contents

  • Executive Summary
  • How Real Are ICOs?
  • How ICOs and Tokens Work
    • – Test Case: We Created an ICO
  • The Regulatory Response and Legal Paths to Token Issuance
    • – SAFTs and Reg A+
  • The Maturation Curve
  • About the Authors
  • About Finadium LLC
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