Chamber of Digital Commerce Releases Guidance on ICOs to Support Self-Regulatory Approach
The Chamber of Digital Commerce's (CDC) industry initiative has released a comprehensive report outlining guidelines for the token ecosystem and initial coin offerings (ICOs).
The report, Understanding Digital Tokens: Market Overviews & Guidelines for Policymakers & Practitioners, was prepared by the Token Alliance, an industry-led initiative of the CDC. Comprising of more than 350 global industry participants, the Alliance is seen as a key resource for the emerging industry surrounding the generation and distribution of tokens using the blockchain.
Over the last 24 months there has been significant growth within the industry. Yet in that time the market has seen a rise in the number of ICOs. Of course, while token projects have helped to raise capital for various companies they have also highlighted strengths and weaknesses in the industry. As a result, debates as to whether a token is a security, and when it's not, are currently underway.
Bitcoin and Ether aren't securities, but are considered as commodities, according to the U.S. Securities and Exchange Commission (SEC). If a token meets certain criteria, though, such as offering an expected rate of return or a potential for growth in value then it could be deemed a security. If that's the case, it would need to follow regulations set by the SEC for the issuance and distribution of securities.
In a bid to answer the needs of the community, the Token Alliance was formed, with the aim of helping market participants navigate their way around the industry and to ensure that they act in a fair manner toward potential investors.
"These industry-developed principles are an important tool for responsible growth and smart regulation that strikes the right balance between protecting investors while allowing for innovation in this new technological frontier," said Paul Atkins, CEO of Patomak Global Partners and former SEC Commissioner.
The report focuses on three parts. The first specifically looks at the regulatory environment and securities law as it relates to the U.S., Canada, the U.K., Australia, and Gibraltar. The second focuses on the principles and guidelines for utility tokens while promoting sound business practices that reduces unintentional regulatory risk. The third section relates to the token economic landscape, and highlights the trends in token project fundraising events from 2013 to the present.
As the report highlights, the earliest fundraising events were significantly small compared to those that took place during 2017 and the first quarter of 2018. According to the research, in 2017, startups raised over $7.3 billion through token issuances, up from $100 million in 2016. However, even though Q1 2018 saw a dip in the number of token sale events compared to Q4 2017, from over 300 to around 220, the amount of funds raised saw a near 50 per cent increase to $6.5 billion for the quarter.
As the first installment from the CDC and the Token Alliance, the two are aiming "to open the doors to creative thinking and understanding in the token ecosystem." The industry is both "diverse and constantly evolving," with more complexity to the token ecosystem than may have previously been thought. With the proper tools and frameworks in place it will be able to support a self-regulatory approach for the potential multi-trillion dollar industry.