Should ICOs be considered a Security?

[Stedsm]

After the surge in Bitcoin's value early 2014, we saw an idea being popped up and went crazy for all those small-scale startups to start their projects with the help of crowdfunding - a way where people buy their tokens to support their project if they find it interesting. Unlike IPO (which is regulated by many Authorities before getting launched, and seeks investors only), ICOs are totally different as most of them were* not regulated and many startups used to be just ideas - fake ideas which never got fulfilled and people lose both their trust and money behind such a graceful innovation which could give some real ideas a boost if there is any BODY to find whether the intentions of these ICOs' devs and admins is to really deliver their promises to their potential customers. I saw many ICOs were shit and gained too much of investments, many even ran away and due to them, members here and at other social websites suffered for their time and efforts (many were bots so it's a 50-50 situation where many users try to fake it out by scamming the projects by fake-fully trying to show that they are helping the project by advertising for them). Many got nothing - neither tokens nor replies from the ICO people. So, my question here is - should such ICOs be given the label of "Securities" which would give them more of a credibility to invest in them? If yes, will there ever be a Regulatory Body to measure the assurance of delivery of the project and whether the project is anywhere going to deal with blockchain?

* - (used "were" because many came and gone as there were no regulations before, and in few countries - still no regulations are there for such crowdfunding)

[shivansps]

After the surge in Bitcoin's value early 2014, we saw an idea being popped up and went crazy for all those small-scale startups to start their projects with the help of crowdfunding - a way where people buy their tokens to support their project if they find it interesting. Unlike IPO (which is regulated by many Authorities before getting launched, and seeks investors only), ICOs are totally different as most of them were* not regulated and many startups used to be just ideas - fake ideas which never got fulfilled and people lose both their trust and money behind such a graceful innovation which could give some real ideas a boost if there is any BODY to find whether the intentions of these ICOs' devs and admins is to really deliver their promises to their potential customers. I saw many ICOs were shit and gained too much of investments, many even ran away and due to them, members here and at other social websites suffered for their time and efforts (many were bots so it's a 50-50 situation where many users try to fake it out by scamming the projects by fake-fully trying to show that they are helping the project by advertising for them). Many got nothing - neither tokens nor replies from the ICO people. So, my question here is - should such ICOs be given the label of "Securities" which would give them more of a credibility to invest in them? If yes, will there ever be a Regulatory Body to measure the assurance of delivery of the project and whether the project is anywhere going to deal with blockchain?

* - (used "were" because many came and gone as there were no regulations before, and in few countries - still no regulations are there for such crowdfunding)

There a bunch of the ICOs and projects to be considered as security, many of them use some other words to describe their "security schemes" in their whitepaper, people thinking about how cool dividends are or profits from some services, etc. I love the projects that promise dividends from trading profits but later you realize that they don't gain profits in a bear market, they don't short the BTC and just hold their "investments", Lmao. Yeah, those exist. Using the buzzwords in their whitepapers making people think it's quite good to receive share profits or dividends, but there is no exchange currently trading securities and if it does, that you better be careful and manage your risk properly. However, I still believe that securities will become the most tokenized assets and most liquid in future.

[audaciousbeing]

- should such ICOs be given the label of "Securities" which would give them more of a credibility to invest in them? If yes, will there ever be a Regulatory Body to measure the assurance of delivery of the project and whether the project is anywhere going to deal with blockchain?

* - (used "were" because many came and gone as there were no regulations before, and in few countries - still no regulations are there for such crowdfunding)

No matter what ICO is being called, it will still be seen with suspicion until there is an acceptable regulatory body verifying the claim of those coming to the market to raise fund. The problem is about the people as we have seen several ICOs that in an unregulated environment have flourished and given people who trusted them a decent return on their investment.

With regulations, then there vouching of the team would have been settled, there would be an obligation to ensure that reports are given regularly on the application of funds generated from the market are applied for the purpose they are meant and there is an institution of a corporate governance board to ensure that the right thing is being done in the operations of the enterprise. It is when all of this are done that we can then start thinking of the right name to give it whether security of secure investment.

[Kavelj22]

Total security is far to be reached in investment business. There is no "safe bet" in ICOs. Although, it is quite necessary revising some status and require Audits before to publicly present. When it's about ICO's security legislation, chance for governments to act as protectors then find the way to control over.

[troy.gold]

The question "Shoud ICO's be considered a security?" is a little vague. In order to answer this question, you have to take a look at jurisdictions such as Malta which have begun to regulate cryptocurrency.

The Maltese Virtual Financial Assets Act has two main classifications - Security Tokens and Virtual Tokens.

Virtual tokens are essentially utility tokens, but in order to be classified as a virtual token - there are stiff requirements which the token must adhere to.

Because of this regulation and classification, it is no longer accurate to state all cryptocurrencies should be considered securities. The Maltese government has clearly identified a utility purpose for cryptocurrency.

So to answer your question - Yes, ICO's should be considered a security, unless that ICO has undergone regulation and has been otherwise classified by a government body.

The ICO model that offers security tokens, brings a lot of questions when it comes to the legal part. Based on the legal view, security tokens are explained very different in comparison of what we think of them now.

https://coincodex.com/article/2465/what-is-the-howey-test-and-how-is-it-relevant-to-crypto/

The Howey Test is fine for regulation under the SEC. However, it is inaccurate to use the Howey test to classify ICO's which exist outside of the SEC's jurisdiction.

You can view the Maltese - Virtual Financial Assets laws here:

https://www.mfsa.com.mt/pages/viewcontent.aspx?id=693

[arpon11]

After the surge in Bitcoin's value early 2014, we saw an idea being popped up and went crazy for all those small-scale startups to start their projects with the help of crowdfunding - a way where people buy their tokens to support their project if they find it interesting. Unlike IPO (which is regulated by many Authorities before getting launched, and seeks investors only), ICOs are totally different as most of them were* not regulated and many startups used to be just ideas - fake ideas which never got fulfilled and people lose both their trust and money behind such a graceful innovation which could give some real ideas a boost if there is any BODY to find whether the intentions of these ICOs' devs and admins is to really deliver their promises to their potential customers. I saw many ICOs were shit and gained too much of investments, many even ran away and due to them, members here and at other social websites suffered for their time and efforts (many were bots so it's a 50-50 situation where many users try to fake it out by scamming the projects by fake-fully trying to show that they are helping the project by advertising for them). Many got nothing - neither tokens nor replies from the ICO people. So, my question here is - should such ICOs be given the label of "Securities" which would give them more of a credibility to invest in them? If yes, will there ever be a Regulatory Body to measure the assurance of delivery of the project and whether the project is anywhere going to deal with blockchain?

* - (used "were" because many came and gone as there were no regulations before, and in few countries - still no regulations are there for such crowdfunding)

Crowdfunding should be considered as a must safe ways of raising fund for icos projects but the projects Owners and teams are full of scam and fraudulent.  I find many projects coming out daily but half of those icos and projects are scam and people are scared of investing in cryptocurrencies and icos projects.  I believe that in future the Crowdfunding system will be well reposition and good security projects will come out because we need them to checkmate the activities of scams projects.

[baoervsdier]

Personal opinion, ICO still depends on the project itself and the team. Use value = market value. After all, there is no regulation in this industry, so look carefully.

[itsmattchan]

Technically speaking, it depends on how the token sale is marketed (wording, promise of returns, etc).

There's a good resource that Coinbase put together here, as a good score rating and test for getting a better idea if a token could be considered a security or not:
https://docs.google.com/spreadsheets/d/1QxOV2dgxO3C_TyVE0-41ZwLlzPmB-EE1NNshJGuedCU/edit#gid=0

Here's also their legal framework:
https://www.coinbase.com/legal/securities-law-framework.pdf

This is partly what we use on http://trade.lakeproject.co (our decentralized trading platform) to determine whether a token is likely a security or not.

Hope this helps!

[ololajulo]

the security token is now the order of prosecution in the USA and have started on a good note. Investors have possibility of getting refund if it breakthrough. In years from now, asides the existing projects , new project will get more defined due to the rule of law and project from the USA will pose more confidence to investors.

[burnside]

This answer is specific to the USA & Canada - I have no experience elsewhere.

Should ICOs be considered a Security? - Great question.

We're wrestling with this right now with our new exchange startup in Canada.  (The laws here are very similar to the USA.)

There is a lot of confusion about what is a currently a security, what is/was a security offering, etc.

I am not a lawyer - But I do have a settlement with the SEC for offering securities on my Bitcoin and Litecoin sites back in 2013.  The most simple explanation for a security offering I think would be whether or not you are making a payment (via money, time, or services) to the creator of the asset in exchange for coins/tokens/etc, and whether or not you are expecting to make a profit as the result of their work.  If both of the above are true, the ICO is almost certainly a security offering.

Another red flag is if the offering is for a product that does not yet exist, though that aspect is not all that clear to me and I'm still figuring it out.

After the Initial (Coin) Offering - is the Asset a Security?

This one is harder - but if you go back to the initial offering above as a starting point - If the initial offering was a security offering then that's a pretty good indicator that the asset itself is a security.

I say it's a good indicator because some assets that started as a security later ceased to be a security because the asset was no longer dependent on the work of a central party, or because people buying it were no longer buying it with the expectation of making a profit.  Ethereum is a great example.  When they launched it was a security.  But over time enough developers came in that even if the founders disappeared, the network would run on it's own.  Also - while some people buy ETH as an investment, many people genuinely buy it for utility or for commerce without expectation of profit from price speculation.

Hope that helps!

[arnelandvik]

I lost $ 5000$ in 2016 by investing in the one promising project. I really hoped for success, like nothing boded ill, but I lost everything. At that moment I also thought how it would be nice to create an agency or smth like that to control all these scammers. If the agency was created, nobody would have stolen my money. However, there are still 2 sides of the coin.

[BAC Blockchain]

As cavalier as it may sound, no. Any kind of SEC-like governing body set up to ostensibly protect investors from scammy ICOs would throw a wrench into what digital securities can accomplish in terms of leveling the investment playing field. I have faith that investors can learn not to throw their money at unsavory ICOs, and that blockchain tech (specifically smart contracts) can evolve to help safeguard the investment process.

[dreamax25]

Here is a quick explanation about what is an ICO and what is an STO:

https://coincodex.com/article/2790/what-is-an-sto/

[Flash Cunt]

If you use a strict interpretation of the Howey test, then they may well be securities, but then some may consider lottery scratch cards to be securities as well, if the same test was applied.

[Michal_open_source]

Unless we will have proper legislation at least in few biggest countries I dont think we should use word securities. Just try to find how many exchanges actually trade token securities ( not only claim that they do or will in close future)

[burnside]

As cavalier as it may sound, no. Any kind of SEC-like governing body set up to ostensibly protect investors from scammy ICOs would throw a wrench into what digital securities can accomplish in terms of leveling the investment playing field. I have faith that investors can learn not to throw their money at unsavory ICOs, and that blockchain tech (specifically smart contracts) can evolve to help safeguard the investment process.

I agree - with one caveat.  Investors will learn the hard way to do their research but it's only possible to do that research if what the company themselves puts out is truthful.  I think access to ICO's and STO's etc should be wide open, but with hefty penalties for INDIVIDUALS (not just the companies they work for) that put out fraudulent information.

[palle11]

As for security, I do not think an a holistic regulation will exist in ICO that will protect even the people who buy into the ICO . Also, using ICO as security is a big risk.