Finadium: The ICO Market: Creating a Parallel Infrastructure to the Securities Industry
A new type of capital raising has captured the imagination of global markets: the Internet Coin Offering. 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.
The similarities between ICOs and Initial Public Offerings (IPOs) are no coincidence: one view of ICOs is as an anarchistic, decentralized representation of the regulated, highly supervised securities industry. Tokens, especially those that offer voting rights connected to Distributed Autonomous Organizations (DAOs), are meant to deliver a democratized version of corporate governance.
This idea follows the original concept of cryptocurrency, which exists without government backing or authority. While cryptocurrencies are increasingly seen as assets with stored value, not unlike commodities, tokens have come under heavy fire by regulators who rightly perceive some versions as illegal in light of traditional securities law. ICO issuers are in turn responding and evolving to stay legal while maintaining the vision of decentralized fundraising and trading.
Alongside the tokens themselves, a new industry has leaped into being over the last year: service providers for ICOs and token issuers. This infrastructure has direct parallels to the securities industry including lawyers, compliance, audit and operations, while exchanges have been operating for some years already. These services seek to ensure the legality of ICO issuance and integrity in the trading process. As tokens become more important to financial markets, these service providers will themselves become critical players to watch.
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.
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