The informational situation with ICOs is uncertain at best. 24.71% of white papers don't offer any description of the project's finances, and 96.95% of white papers don't specify whether the funding will be pooled or remain segregated. Most ICOs give so little financial information that potential participants cannot rationally decide to fund it. 

Information asymmetry in ICOs

The ICO market may be too small to justify regulatory action based on systemic risk concerns. However, there is a clear issue of potential concern, as ICOs are a growing component of cryptocurrency volume, which is currently in the hundreds of billions. As of June 2018, overall ICO volume was estimated at over 70 billion dollars, which is much higher than previously estimated. This remarkable growth means that the risk of overpriced ICOs is much greater than other overoptimistically priced asset classes.

Systemic risk in ICOs

54.76% of ICO white papers don't provide the name of the initiator or any background on them. Without the basic information as to who stands behind the ICO, the impact of private law liability as a correcting factor is severely limited.

Weak legal protections in ICOs

Most ICO initiators appear to rely on the sort of classic market frenzy that typifies a bubble. Less than 10% of the tokens acquired by investors can be put to use; the rest are merely available for trading. And even where trading is expected, transfer issues related to tokens often cause very difficult legal issues in the countries where the tokens were created. Rather than channeling money to the most productive use there are many signs that many ICOs are channeling money to recipients for their own personal use.

Capital misallocation in ICOs

- Information asymmetry in ICOs
- Capital misallocation in ICOs
- Weak legal protections in ICOs
- Systemic risk in ICOs

University of Minnesota - Twin Cities

- Regulatory characteristics of ICOs
- ICO risks and policy considerations
- Appropriateness of existing legal frameworks for ICOs

Regulation of ICOs

Zetzsche, Dirk Andreas and Buckley, Ross P. and Arner, Douglas W. and Arner, Douglas W. and Föhr, Linus, The ICO Gold Rush: It's a Scam, It's a Bubble, It's a Super Challenge for Regulators (July 24, 2018). University of Luxembourg Law Working Paper No. 11/2017, UNSW Law Research Paper No. 17-83, University of Hong Kong Faculty of Law Research Paper No. 2017/035, European Banking Institute Working Paper Series 18/2018, Harvard International Law Journal, Vol. 63, No. 2, 2019, Available at SSRN: https://ssrn.com/abstract=3072298 or http://dx.doi.org/10.2139/ssrn.3072298

The ICO Gold Rush

- Issuing entities and backers of ICOs
- Legal information and applicable law of ICOs
- Geographical breakdown of ICOs

Regulatory characteristics of ICOs

ICO risks and policy considerations

Given the variety of ICOs, a one-size-fits-all legal analysis of ICOs is impossible. Any legal assessment must consider the particularities of individual offerings, and apply them in the context of financial law and regulation, including:

- Legally relevant conduct
- General consumer protection legislation
- Financial law and regulation
- Crowdfunding legislation

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