Regulatory guidelines published last Friday by Switzerland will allow professional investors to treat some initial coin offerings, or simply known as ICOs, as securities.
It shall be no surprise if you’re following the scene for some time since Switzerland is one of the key players in the blockchain sphere, with most successful distributed ledger technology based start-ups generating out of the Swiss capital.
ICOs pretty much like traditional IPOs allow start-ups to quickly raise capital by issuing virtual tokens or digital coins, that could be later used in the blockchain based platform the start-ups attempt to construct.
This crowdfunding technique skyrocketed in 2017, reaching multiple billions of dollars in a matter of months with Switzerland attracting around a quarter of the money.
Regulations in this yet volatile scene is still a ‘hot potato’, although after the U.S. Securities and Exchange Commision could count some ICOs as Securities, more global authorities followed the suit.
The guidelines mainly created regulations for early projects in order to protect investors from falling into a well-designed Ponzi scheme, a common phenomenon in the early days of blockchain technology.
“The application of blockchain technology has innovative potential within and far beyond the financial markets,” Financial Market Supervisory Authority (FINMA) chief Mark Branson said.
“However, blockchain-based projects conducted analogously to regulated activities cannot simply circumvent the tried and tested regulatory framework,” Branson added.
Under the guidelines, most ICOs for tokens used to run a blockchain platform or representing underlying assets — like a share in a company or physical goods — will count as securities.
There are some exceptions, such as for tokens used to access a platform that is already up and running, or for cryptocurrencies that function only as a means of payment.
But most ICOs take place before the underlying technology platform has been launched and are linked to some project or purpose. The guidelines thus represent a step up in regulation for many early projects.
“For a lot of start-ups that are not operational yet, a compliant ICO will be difficult to achieve,” said Olga Feldmeier, chief executive of blockchain investment start-up Smart Valor.
Regulations might be scaring blockchain enthusiasts since their vision of a new decentralized monetary system did not include any kind of authorization in order to conduct their digital money transfers. Therefore, regulations also mean that governmental institutions are now taking seriously this disruptive field and are trying to integrate it in our modern societies.