Coin token ico

INITIAL Coin token ico
OFFERINGS
Where to for the Regulator
Dr. Adrian McCullagh
Ph.D., LL.B.. (Hons), B.App, Sc. (Computing)
Principal : ODMOB Lawyers
Research Fellow: Law Futures Centre
Griffith University
amccullagh@odmoblawyers.com
Coin token ico

Disclaimer
 PLEASE NOTE: the information disclosed in the presentation is NOT the provision of
Legal advice or Professional Services advice. If a reader/attendee has an issue then
they should seek appropriate legal/technical advice. The author/presenter makes
no warranty as to correctness of anything contained in this presentation. The topic
of this presentation is ever changing at a rapid rate and as such this presentation is
the sole opinion of the author/presenter and must not be relied upon as either legal
or technical advice. Every situation is different and as such proper analysis must be
undertaken when seeking professional advice.
 Consequently, the author/presenter takes no responsibility for any errors that may
exist in this paper and certainly takes no responsibility if any reader/attendee takes
any actions based on what is (expressly or by implication) contained in this
paper/presentation.
 All readers/attendees take full responsibility for anything they
may do in reliance of anything contained in this
paper/presentation.
13 June 2017Dr Adrian McCullagh : amccullagh@odmoblawyers.com
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Coin token ico

Agenda
What is an ICO
How does it differ from an IPO
Are ICOs legal under Australian Law
What could a regulator do to intervene
Where from here
Conclusion
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Coin token ico

The Rise of the Coin token ico
An ICO stands for “Initial Coin Offering”
Most if not all ICOs involve the creation and
allocation of virtual TOKENS.
ICO are becoming the norm for fund raising by
blockchain entrepreneurs.
In 2016 according to COINDESK, ICOs raised just
under 50% of what was raised by traditional VC
market.
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Coin token ico

Coin token ico Funding is closing in on VC funding
Curtesy of COINDESK
http://www.coindesk.com/coindesk-research-ico-interest-grows-funding-nears-50-blockchain-
venture-capital/
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Coin token ico

What is an Coin token ico
 An ICO or Blockchain Token Offering is the initial offering of a digital
cryptographically secure piece of data created on a blockchain as part of
a decentralised software protocol. (Adapted from Consensys definition).
 An ICO is a popular way to raise money for a new cryptocurrency project
by distributing a percentage of the initial currency supply (Crypto-token)
to early supporters of the relevant project. (Adapted from Simon and
Crown Paper).
 I prefer the Simon & Crown definition as it has a direct link to fiat
currency, but some ICOs accept bitcoin/ether as the currency of
exchange.
 The investor is in part hoping that the crypto-token will increase in value
much the same as what occurs with an initial public offering of shares.
The difference being that with an ICO no equity is on offer.
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Coin token ico

Coin token ico Funding
 The previous slide need some perspective. Just over $150 million was
invested in one project which later failed know as the DAO.
 Despite this, at least 3 times every week a new ICO is launched
attempting to raise funds for some project.
 It has been noted that some ICOs raise substantial funds in very short
periods of time.
 The Humaniq ICO raised US$5.1 million is a very short time frames (21
days). In fact at one point it raised US$1.2 million in 10 minutes.
11,200 people across the globe invested.
 No disclosure document was registered with any regulatory authority
in any jurisdiction.
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Coin token ico

Coin token ico Funds Raised
Initial Coin Offerings have raised $200 million dollars in 2017.
Here is a short list of recent ICOs, and their fundraising results:
Basic Attention Token—$35 million USD
Storj—$30 million USD
Waves—$16 million USD
Qtum—$15.7 million USD
Gnosis $12.5 million USD
Iconomi—$10.5 million USD
Golem—$8.6 million USD
http://www.cnbc.com/2017/05/25/bitcoin-ico-cryptocurrency-start-up-civic-raising-money-initial-coin-offering.html
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Coin token ico

How does it differ from an IPO
 An IPO involves the issuing of shares or some definable security stake in
a legislatively recognised entity such as a TRUST or a company.
 An ICO involves the raising of capital without giving up any equity stakes
in the promoting company but is designed to drive interest and usage of
their product/service/project.
 The investor subscribes for a cryptographic enabled token/tokens which
will only operate on a prescribed blockchain platform.
 For example, the Storj ICO issued $30 million worth of tokens which can
latter be used as payment of future services being offered by STORJ.
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Coin token ico

How does it differ from an IPO
 Storj is a cloud storage company that uses the available capacity on lots
of individual computers to store and secure data.
 Imagine Amazon Web Services, but instead of owning massive data
centers full of servers, Storj pays individuals to let others rent space on
their machines.
 It is the AIRBNB of data storage.
 Consequently, instead of securities being offered, the ICO offers a token
which can later be used as payment for some service/commodity.
 Further, the token can fluctuate in market price and may never be used
as a service payment.
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Coin token ico

Coin token icolegal under Australian Law
 As a general rule, a public company offering securities for sale (for
example, shares or debentures) must provide a disclosure document to
potential investors.
 A prospectus is the most common type of disclosure document and has
the broadest information requirements. (Reg Guidance Note 254)
 The prospectus (Disclosure Document) must be prepared and lodged
with ASIC under Chapter 6D of the Corporations Act 2001 (Corporations
Act).
 The purpose of a disclosure document is to help retail investors assess
the risks and returns associated with an offer of securities for issue or
sale and make informed investment decisions.
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Coin token ico

Coin token ico legal under Australian Law
 Securities’ includes:
shares and debentures issued by a body, or
a legal or equitable right or interest in a share or debenture.
An option to acquire (by way of issue) any of these securities is itself
also a security: see s700(1) and 761A of the Corporations Act.
Thus a security is proscriptively defined.
The investment on offer via an ICO is not defined.
One could argue that it is in effect a prepayment of a service
utilising the issued crypto- virtual token once the project has been
completed. BUT the token itself can appreciate in value
independent of the service.
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Coin token ico

 Crypto-tokens can be used to transfer voting powers - a larger share of
tokens giving more voting power - in some projects, but more often
those tokens are just that - units of currency that you can be sent to
other users and exchanged for other currencies.
 This voting aspect relates to a Decentralised Autonomous Organisation
(DAO) which is an organisation with basically no management but
subscribers have voting rights to future projects. This was the basis for
“THE DAO” which unfortunately was a substantial failure by its
promotors.
 By not being a legally recognised entity it is arguable that ICOs are not
covered by any current laws and therefore are open to possible abuse.
 Further being totally encapsulated on the internet they may not even
have a jurisdiction of residency.
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Coin token ico

 If it is classified as a prepayment token then it is doubtful that an ICO is
illegal in Australia.
 Therefore, care must be taken in drafting any white paper dealing with
an ICO.
 Further, if the ICO is to remain exempt from the IPO rules then there
should be a carefully drafted set of rules which detail what the issued
token is and how it can be utilised as a pre-service payment.
 It is suggested that the rules should not cover the establishment of an
exchange mechanism for fiat or other virtual currencies and this could
be interpreted as a security of some description.
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Coin token ico

Coin token ico

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