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

Regulatory characteristics of ICOs

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

Appropriateness of existing legal frameworks for ICOs

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

University of Minnesota - Twin Cities

In an initial coin offering, a venture gains financing by selling a stock of tokens to investors with the promise that the tokens would be the only medium of exchange to access the venture's products in the future.

Initial Coin Offering (ICO)

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

Timeline of an ICO

- One third of all ICO funding went to US-based teams, and more than 200 ICOs raised above $10 million
- Since 2017, startups have raised over $7 billion through initial coin offerings


General ICO Facts

- Agent optimization
- Market clearing
- Rational expectations




ICO Key Terms

- In traditional equity finance, a venture issues shares that are claims of the present value sum of future profits, the equity value is then determined by the trading price of those shares
- In ICOS's, tokens are not claims on future profits, instead they are related to the flow of future revenues. These flows of revenues will determine the future exchange rate of tokens against fiat currencies like the U.S dollar

Equity Finance vs. ICO's

Regulation of ICOs

- Sale of tokens provides capital for initial development
- Lower cost of verifying transaction attributes
- Venture retains partial ownership of tokens to mitigate incentives to raise token denominated prices and under-supply their product
- The underlying codebase for the token is available as open-source software and by hardcoding the money supply schedule within the software protocol. 
- In order to change initial commitments of the project, a fork of the network is required which is only successful with the vast majority of the network and stakeholders supporting it

Benefits of ICOs

- Venture issuing tokens controls both their technological evolution as well as their monetary policy
- Venture cannot predict future demand for tokens and cannot credibly commit to a future token-denominated price
- If venture incurs additional costs to deliver products, they have incentive to set high token price to limit demand and economize on cost
- Venture cannot generate revenue until one period after the venture is launched, and there is great risk

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