A new study by the C.D. Howe Institute reveals that Initial Coin Offerings (ICOs) require smart regulations to get both sides of the crypto coin right: investor protection and innovation.
Thorsten Koeppl and Jeremy Kronick, who conducted the study, suggest a simple test to ensure whether an ICO is fundamental to a business venture’s success. This suggest the following requirements:
- a decentralised platform, usually based on blockchain technology; where
- a coin gives digital access to the platform; and serves as
- a means of payment for users that engage in decentralised, person-to-person (P2P) exchange in order to create and transfer value between them.
The authors suggest that Canadian securities regulators develop specific regulations for ICOs passing this simple test, including less onerous disclosure requirements, exemptions from securities dealer registration requirements, an extended timeframe for exemptions to be granted, and the restriction of investments to smaller amounts. As an alternative, possibly faster way forward, the simple test could be formalised quickly and be used to decide whether an ICO obtains access to the Canadian Securities Administrators Sandbox.
“Our proposed test can also create guidelines for the right approach to taxation that is consistent with the value that is added by such financing,” notes Koeppl. “Tax rules can be based on the dual roles of the coins, which are both an investment stake and a currency.”
While Cryptocurrencies tend to do away with all forms of state regulations, their ICOs do require smart regulations.