Entrepreneurs looking to launch a new type of company or cryptocurrency can do it through an initial coin offering (ICO), which can take the place of the traditional offering structure of an Initial Public Offering (IPO). However, there are several regulatory considerations to be made before launch.
In order to launch an ICO, one must create a detailed document essentially outlining exactly how the system would work (this is usually called a white paper), make an attractive website, and explain to the public why it’s a great idea to purchase their coin and invest time and value into their ecosystem or business that could be very useful and rewarding in the future.
Then, there is a direct solicitation or advertisement for people to send you money (usually Bitcoin or Ether, but fiat money is also an acceptable payment method). In return for their purchase, they will receive a fixed amount of the coin. Purchasers will hope that the coin gets used a lot over time and be in high circulation, which would raise the value of the currency even more than its original value.
It’s important to understand all regulatory statements and disclosures that are necessary before starting to do business, since unlike in an Initial Public Offering (IPO), investing in an Initial Coin Offering (ICO) will not result in the purchaser having an equity or ownership stake in the company or ecosystem that they are giving their money to. The purchaser is essentially taking a bet, or making an informed decision, that the currently valueless coin they are purchasing will be worth more money in the future.
In order to understand the regulations regarding an ICO, its utility and purpose is highly determinative of what regulations may apply.
Reach out to an experienced ICO and regulatory compliance attorney today to learn more.