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Blockchain Technology and Financial Regulation: A Risk-Based Approach to the Regulation of ICOs

Published online by Cambridge University Press:  15 August 2019

Alexis COLLOMB Open the ORCID record for Alexis COLLOMB [Opens in a new window] ,
Primavera DE FILIPPI Open the ORCID record for Primavera DE FILIPPI [Opens in a new window]  and
Klara SOK
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Abstract

This paper compares Initial Public Offerings (IPOs) and equity crowdfunding with Initial Coin Offerings (ICOs) and explores the corresponding risks and limitations of these different fundraising practices, with a view to analysing the extent to which the latter should be subject to the same regulatory framework as the former. After assessing the underlying principles and current regulatory framework for IPOs and equity crowdfunding, with a focus on Europe and the US, we investigate the possibility of applying existing financial regulations to ICOs. Drawing from the notion of “functional equivalence”, we contend that many ICOs share a sufficient number of similarities with traditional IPOs and equity crowdfunding, to be regulated in a similar manner. However, given the various attempts by token issuers to escape from the scope of securities laws by assigning a different function to their ICOs tokens, we argue that principle-based regulation based on an in-depth risk-analysis could be an effective way of addressing the regulation of ICOs, thereby moving from “functional equivalence” to “risk equivalence”. Finally, we explore the use of blockchain technology as a regulatory technology, incorporating specific rules and constraints into the technological fabric of an ICO, in order to ensure compliance with the fundamental principles of financial regulation.

Type
Symposium on Blockchain Regulation and Governance
Information
European Journal of Risk Regulation , Volume 10 , Issue 2: Symposium on Blockchain Regulation and Governance , June 2019 , pp. 263 - 314
Copyright
© Cambridge University Press 2019 

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Footnotes

*

Alexis Collomb is a Professor in Financial Economics at Conservatoire National des Arts et Métiers (CNAM) in Paris, France, and also the head of its Economics Finance Insurance department. Corresponding author email: [email protected].

**

Primavera De Filippi is a researcher at CNRS in Paris and faculty associate at the Berkman-Klein Center at Harvard. Corresponding author email: [email protected].

***

Klara Sok is a Phd candidate at CNAM in Paris.

References

1 Sources: <w.coindesk.com/ico-tracker> and <icobench.com/reports/ICO_Market_Analysis_2018.pdf>.

2 See p 3 <www.iosco.org/library/pubdocs/pdf/IOSCOPD561.pdf>.

3 This set of high-level principles was developed by “the Task Force on Financial Consumer Protection of the OECD Committee on Financial Markets (CMF), in close co-operation with the FSB and its Consultative Group, other international organisations and standard setter bodies and consumer and industry associations”: see <www.oecd.org/daf/fin/financial-markets/48892010.pdf>.

4 This set of common principles comprises ten sections respectively dealing with: (i) the legal, regulatory and supervisory framework; (ii) the role of oversight bodies; (iii) the equitable and fair treatment of consumers; (iv) disclosure and transparency; (v) financial education and awareness; (vi) responsible business conduct of financial services providers and authorised agents; (vii) protection of consumer assets against fraud and misuse; (viii) protection of consumer data and privacy; (ix) complaints handling and redress; and (x) competition. It is interesting to notice that this list of high-level principles combines moral objectives (eg the equitable and fair treatment of consumers) with more practical means to achieve consumer protection (eg financial education and awareness).

5 On this issue, see Just, et al, The Welfare Economics of Public Policy (Edward Elgar 2004)Google Scholar chs 7–9.

6 A market with products of various qualities (eg high and low) will be said to experience adverse selection when sellers of high-quality products decide not partake in the market because buyers are unable to distinguish between high- and low-quality products, and are hence unable to pay a high enough price for matching high-quality sellers’ reservation price.

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11 Fox, supra, note 9.

12 Fox therefore argues that we should be going back to first principles to answer “whether, and, if so, under what circumstances, government regulation should be added to the mix”, supra, note 9, p 677.

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16 Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC, available at <eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32017R1129>.

17 Introductory remark (1) of Prospectus Regulation.

18 Art 16(4) of Prospectus Regulation; ibid.

19 The final report on ESMA guidelines on risk factors under the Prospectus Regulation may be found at <www.esma.europa.eu/document/final-report-esma-guidelines-risk-factors-under-prospectus-regulation>.

20 Hacker, P and Thomale, C, “Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law” (2018) 15(4) European Company and Financial Law Review 645.Google Scholar

21 Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation), available at <eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014R0596>.

22 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, available at <eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32014L0065>.

23 To understand MiFID II Directive’s improvements over MiFID’s initial directive, one may consult <www.esma.europa.eu/policy-rules/mifid-ii-and-mifir>.

24 Introductory remark (3) of MiFID II Directive, available at <eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32014L0065>.

25 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (recast) (Text with EEA relevance). See <eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014L0091>.

26 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 Text with EEA relevance. See <eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32011L0061>.

27 Another key European financial regulation that we have not mentioned is the European market infrastructure regulation (EMIR) which rules over over-the-counter (OTC) derivatives, central counterparties and trade repositories. See Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, available at <eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012R0648>.

28 See the Securities Act of 1933, s 5.

29 See 17 CFR § 240.10b-5. Note that a material fact has been defined to include any fact that would be important to investors when making a decision to buy or sell securities.

30 See J Dax Hansen and CL Reyes, “Legal Aspects of Smart Contract Applications: Digital Asset Sales and Capital Markets, Supply Chain Management, Land Registries, Government Records and Smart Cities, and Self-Sovereign Identity” (May 2017).

31 See SEC v WJ Howey Co, 328 US 293, 298 (1946).

32 The Howey test dates back to a 1946 case (Securities and Exchange Commission v WJ Howey Co, 328 US 293) whereby it had to determine whether a leaseback agreement should legally be considered an “investment contract”, one of the types of investments that is listed as a “security” under the Securities Act of 1933 and the Securities Exchange Act of 1934.

33 See Landreth Timber Co v Landreth, 471 US 681, 690 (1985).

34 This regulation is found under Title 17 of the Code of Federal Regulations, part 230, ss 251–263 – 17 CFR §230.251 ff.

35 The Securities and Exchange Commission adopted final rules to implement s 401 of the Jumpstart Our Business Startups Act by expanding Regulation A into two tiers on 25 March 2015. Reg A+ came into force on 19 July 2015.

36 In the US, the term “accredited investors” is used by the SEC (under Regulation D) to refer to investors who are financially sophisticated and able to properly evaluate the risk and rewards provided by more complex securities and investment opportunities, and therefore have a reduced need for the protection provided by regulatory disclosure filings. They include natural high net worth individuals (ie investors who have a net worth over $1 million or an annual income over $200,000), banks, insurance companies, brokers and trusts.

37 P Pazowski and W Czudec, “Economic Prospects and Conditions of Crowdfunding” in Proceedings of Management, Knowledge and Learning International Conference 2014, 25–27 June 2014, Portoroz, Slovenia, pp 1079–1988, available at <www.toknowpress.net/ISBN/978-961-6914-09-3/papers/ML14-685.pdf> (last accessed 4 July 2019).

38 According to Investopedia, Kickstarter is the most well-known name in crowdfunding and arguably the most active platform, raising over $2 billion since its launch in 2009. Indiegogo comes next, as the second major crowdfunding platform, raising over $1 billion since its inception in 2007. See <www.investopedia.com/small-business/top-crowdfunding-platforms/>.

39 See <www.esma.europa.eu/databases-library/interactive-single-rulebook/clone-mifid-ii/article-3-0>.

40 See <ec.europa.eu/info/sites/info/files/180308-action-plan-fintech_en.pdf>.

41 See%20<ec.europa.eu/info/publications/180308-proposal-crowdfunding_en>, and see <www.europarl.europa.eu/doceo/document/A-8-2018-0364_EN.html> for a full text of the proposal.

42 For instance, in Austria, the Alternative Financing Act (AFA) makes it possible to raise up to €2 m with a simple informational leaflet, without having to undergo any cumbersome registration and authorisation from the national competent authority.

43 See <ec.europa.eu/info/law/better-regulation/initiative/1617/publication/181362/attachment/090166e5b9153a6a_en>.

44 See <techcrunch.com/2017/06/08/how-ethereum-became-the-platform-of-choice-for-icod-digital-assets/>.

45 See <theethereum.wiki/w/index.php/ERC20_Token_Standard>.

46 See <themerkle.com/can-neo-become-chinas-go-to-platform-for-icos/>.

47 See <wavesplatform.com/>.

48 FileCoin (August 2017) was the first ICO exclusively restricted to accredited investors.

49 For a list of ICO who have been using an investor’s white list as part of their KYC procedure, see <www.reddit.com/r/icocrypto/comments/76e1zb/current_list_of_icos_where_whitelist_is_active/>.

50 See <gnosis.pm>.

51 See <snips.ai>.

52 Milgrom, PR, Economics of Competitive Bidding (Cambridge University Press 1985) p 261.Google Scholar

53 For instance, Polkadot used a Spend-All Second-Price Dutch Auction for their recent ICO (October 2017).

54 The reader may for instance consult <icorating.com> or <icobench.com>.

55 DomRaider, for instance, offered their token buyers the possibility to use SEPA wires during their ICO (September 2017).

56 Since the term cryptocurrency has been criticised by various economists, because so-called cryptocurrencies do not meet traditional currency standards, we will use the term crypto-asset which is far less controversial.

57 For instance, HitBTC (<hitbtc.com/>) has a specific ICO trading section while BitMex (<www.bitmex.com/>) offers crypto-asset futures trading.

58 Brav, A and Gompers, PA, “The Role of Lockups in Initial Public Offerings” (2003) 16(1) Review of Financial Studies 1.Google Scholar

59 It would be appropriate to use the term foreign exchange (FX) rate if it was established that crypto-currencies can be indeed considered currencies. This is not the case across all jurisdictions, though in the EU, a landmark judgment was delivered in October 2015 by the Court of Justice of the European Union holding that “transactions to exchange traditional currencies for units of the ‘bitcoin’ virtual currency (and vice versa) [should be] exempt from VAT under the provision concerning transactions relating to “currency, bank notes and coins used as legal tender”, effectively giving Bitcoin a currency status. Source: <curia.europa.eu/jcms/upload/docs/application/pdf/2015-10/cp150128en.pdf>.

60 It may seem slightly counterintuitive to use BTC as an example of a token giving a right of usage as bitcoins have been identified as a means of payment; however, strictly speaking, spending bitcoins is necessary to use the Bitcoin network. Indeed, even if it is an open and permissionless infrastructure, using the Bitcoin network is not free: today, in order to send bitcoins through the Bitcoin network, one will have to spend a specific amount of bitcoins, as a transaction fee.

61 See <github.com/TheDAO>.

62 A stable token is designed to have a constant value in a given reference currency – eg a token always worth $1 is a $-stable token.

63 See <www.cryptokitties.co/>.

64 These can also be qualified as “voting tokens”.

65 Koops, EJ et al, “Should ICT Regulation Be Technology-Neutral?” (2006) 9 IT & Law.Google Scholar

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68 L Castellani, “The contribution of UNCITRAL texts to paperless trade”, United Nations Commissions on International Trade Law.

69 See eg the Howey test, according to which the sale of a large variety of ICO tokens might be held to qualify as an investment contract.

70 For an in-depth overview of the distinction between civil law and common law approaches to securities regulation, see P De Filippi et al, “Regulatory Framework for Token Sales: An Overview of Relevant Laws and Regulations in Different Jurisdictions” (2018) COALA & Blockchain Research Institute Big Idea Whitepaper.

71 F Wang et al, “Financing Open Blockchain Ecosystems: Towards Compliance and Innovation in Initial Coin Offerings” (2018) COALA & Blockchain Research Institute Big Idea Whitepaper.

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73 See <tzero.com>.

74 On this topic, see Belleflamme, P et al, “Crowdfunding: Tapping the right crowd” (2012) 29(5) SSRN Electronic Journal Google Scholar; Berger, A and Udell, G, “Relationship lending and lines of credit in small firm finance” (1995) 68(3) Journal of Business 351 CrossRefGoogle Scholar; Cassar, G, “The Financing of business start-ups” (2004) 19(2) Journal of Business Venturing 261 CrossRefGoogle Scholar; Cosh, A et al, “Outside entrepreneurial capital” (2009) 119 Economic Journal 1494.CrossRefGoogle Scholar

75 This last point is in fact assumed in Belleflamme et al, supra, note 74.

76 In all fairness, this is also true of many crowdfunded projects, although in the context of crowdfunding there is always a centralised platform (eg Kickstarter or Indiegogo) acting as the referent.

77 For further details, we recommend reading the introductory section of TheDAO’s white paper available at <download.slock.it/public/DAO/WhitePaper.pdf>.

78 The DAO had an objective to provide a new decentralised business model for organising both commercial and non-profit endeavours.

79 The press release can be found at <www.sec.gov/news/press-release/2017-131>, while the report itself, dubbed the “21(a) Report” by Chairman Clayton, as it refers to s 21(a) of the 1934 Securities Exchange Act, is available at <www.sec.gov/litigation/investreport/34-81207.pdf>.

80 Pazowski and Czudec, supra, note 37.

81 In the Howey test, the US Supreme Court defined an “investment contract” as any “contract, transaction or scheme whereby (1) a person invests his money (2) in a common enterprise and is (3) led to expect profits (4) solely from the efforts of the promoter or a third party”.

82 On 11 December 2017, SEC Chairman Clayton made a statement on cryptocurrencies and ICOs, warning token issuers not to “highlight utility characteristics of their proposed initial coin offerings in an effort to claim that their proposed tokens or coins are not securities”. He further reminded that “many of these assertions appear to elevate form over substance” in an effort to dodge existing securities regulation. See <www.sec.gov/news/public-statement/statement-clayton-2017-12-11>.

83 ibid.

84 See <www.sec.gov/news/press-release/2017-227>.

85 This ability that regulators have to act retrospectively was exercised by the SEC in the case of TheDAO as it published on 25 July 2017 (slightly over a year after TheDAO ICO took place) a Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934. This investigation reiterated the “fundamental principles of the US federal securities laws and [described] their applicability to a new paradigm – virtual organisations or capital raising entities that use distributed ledger or blockchain technology to facilitate capital raising and/or investment and the related offer and sale of securities”. The SEC also made it clear that “the automation of certain functions through this technology […] does not remove conduct from the purview of the US federal securities laws” (source: <www.sec.gov/litigation/investreport/34-81207.pdf>) The agency decided not to bring “charges in this instance, or make findings of violations in the Report, but rather to caution the industry and market participants” (source: <www.sec.gov/news/press-release/2017-131>).

86 Awrey, D, “Regulating Financial Innovation: A More Principles-Based Proposal?” (2011) 5(2) Brooklyn Journal of Corporate, Financial & Commercial Law 273.Google Scholar

87 De Filippi, P, “Bitcoin: a regulatory nightmare to a libertarian dream” (2014) 3(2) Internet Policy Review.Google Scholar

88 See eg Black, J et al, “Making a success of principles-based regulation” (2007) 1(3) Law and Financial Markets Review 191 Google Scholar; Black, J, “Forms and paradoxes of principles-based regulation” (2008) 3(4) Capital Markets Law Journal 425 CrossRefGoogle Scholar; Ford, C, “Principles-based securities regulation in the wake of the global financial crisis” (2010) 55(2) McGill Law Journal 257 Google Scholar; Park, JJ, “Rules, principles, and the competition to enforce the securities law” (2012) Cal L Rev 100 at 115.Google Scholar

89 Arjoon, S, “Striking a balance between rules and principles-based approaches for effective governance: A risks-based approach” (2006) 68(1) Journal of Business Ethics 53.CrossRefGoogle Scholar

90 Abdou, K and Dicle, MF, “Do risk factors matter in IPO valuation?” (2007) 15(1) Journal of Financial Regulation and Compliance 63.Google Scholar

91 Bhabra, HS and Pettway, RH, “IPO prospectus information and subsequent performance” (2003) 38 Financial Review 369.CrossRefGoogle Scholar

92 Meadows, MR, “The Evolution of Crowdfunding: Reconciling Regulation Crowdfunding with Initial Coin Offerings” (2017) 30 Loy Consumer L Rev 272.Google Scholar

93 See <cointelegraph.com/news/new-study-says-80-percent-of-icos-conducted-in-2017-were-scams>.

94 See p 25 of Satis Group Crypto Research report “Cryptoasset Market Coverage Initiation: Network Creation”, dated 11 July 2018, available at <research.bloomberg.com/pub/res/d28giW28tf6G7T_Wr77aU0gDgFQ>. Though we have not found precise figures in the case of IPOs, these ICO figures are likely to be much higher than their IPO counterparts – whether referring to the percentage of IPOs that would qualify as “scams”, or the funding volume directed to them – as IPOs are typically intermediated by underwriters that are liable for performing thorough “due diligence” on the issuing company and the overall conditions of the offering.

95 For instance, as previously discussed, some ICOs are not executed by a company or legal entity, but rather by a small team of individuals which lacks any official management or organisational structure.

96 Certo, ST, “Influencing initial public offering investors with prestige: signaling with board structures” (2003) 28(3) Academy of Management Review 432.Google Scholar

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99 This is clearly more likely in the case of ICOs, for which regulation is still “in the making”, than in the case of IPOs which are “mature” processes in most jurisdictions. Nonetheless, financial regulation may significantly evolve over time, as regulatory adjustments that took place over the last decade in the wake of the last financial crisis have shown.

100 Available at <restislaw.com/current-cases-investigations/tezos-initial-coin-offering/>.

101 Ruhnka, JC and Young, JE, “Some hypotheses about risk in venture capital investing” (1991) 6 Journal of Business Venturing 115–133.Google Scholar

102 For instance, the WilmerHale 2018 IPO report finds the median time to IPO for US companies to be 7.5 years: <www.wilmerhale.com/en/insights/publications/2018-ipo-report>.

103 In the US companies are “generally required to disclose selected financial data for the prior five years” unless it is an “emerging growth company” – this disclosure can be limited to the prior two years – or a “smaller reporting companies” – this requirement is waived. See <www.sec.gov/files/ipo-investorbulletin.pdf>, p 3.

104 Drake and Vetsuypens examine 93 IPOs by issuers who were subsequently sued under provisions of the 1933 and/or 1934 Securities Acts in the period 1969 to 1990: Drake, P and Vetsuypens, M, “IPO Underpricing and Insurance against Legal Liability” (1993) 22 Financial Management 64.Google Scholar

105 See <www.coindesk.com/ethereum-icos-youre-wrong/>.

106 Simon, HA, “A Behavioral Model of Rational Choice” (1955) 69(1) The Quarterly Journal of Economics 99–118.Google Scholar

107 ibid.

108 See Simon’s 1978 Nobel Memorial Lecture titled “Rational Decision-making in Business Organizations”, <core.ac.uk/download/pdf/6322096.pdf>.

109 For instance, PWC in Zurich offers support and advisory services for ICOs. See <www.pwc.ch/en/industry-sectors/financial-services/fs-regulations/ico.html>.

110 S Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System” (2008) <bitcoin.org/bitcoin.pdf> (last accessed 3 July 2019).

111 ibid.

112 N Szabo, “Proplets – Devices for Controlling Property” (2001) <www.fon.hum.uva.nl/rob/Courses/ InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/proplets.html > (last accessed 4 July 2019).

113 A Wright and P De Filippi, “Decentralized blockchain technology and the rise of lex cryptographia” <papers.ssrn.com/sol3/papers.cfm?abstract_id=2580664> (last accessed 4 July 2019).

114 De Filippi, P and Mauro, R, “Ethereum: the decentralised platform that might displace today’s institution” (2014) 25(08) Internet Policy Review.Google Scholar

115 These and other issues related to blockchain governance have been analysed more in depth in the following report: P De Filippi and G McMullen, “Governance of blockchain systems: governance of and by the infrastructure” (2019) COALA & Blockchain Research Institute Big Idea Whitepaper.

116 Guidance to Assess the Systemic Importance of Financial Institutions, Markets and Instruments: Initial Considerations. Report to the G-20 Finance Ministers and Central Bank Governors. Staff of the International Monetary Fund and the Bank for International Settlements, and the Secretariat of the Financial Stability Board (October 2009).

117 See <www.bloomberg.com/news/articles/2018-02-05/draghi-says-ecb-studying-digital-currency-risks-for-banks>.

118 Forking happens whenever a fraction of an existing blockchain community decides to opt out of the existing blockchain protocol and adopt a new set of rules – which, in the case of a “hard fork”, are incompatible with the previous rules.

119 Reijers, W et al “Now the Code runs itself: On-chain and Off-chain governance of blockchain technology” (2018) 37(17) TOPOI: International Review of Philosophy.Google Scholar

120 See the Bank of International Settlements (BIS) Annual Report 2018 p 102, <www.bis.org/publ/arpdf/ar2018e.pdf>.

121 DuPont, Q, “Experiments in Algorithmic Governance: A history and ethnography of ‘The DAO,’ a failed Decentralized Autonomous Organization” in Bitcoin and Beyond (Routledge).Google Scholar

122 U Rodrigues, “Semi-Public Offerings? Pushing the Boundaries of Securities Law” (2018) Paper No 2018-30 Research Paper Series. School of Law, University of Georgia.

123 For an overview of relevant laws and regulations across jurisdictions, the reader may consult De Filippi et al, supra, note 70.

124 Hacker and Thomale, supra, note 20.

125 P De Filippi and S Hassan “Blockchain technology as a regulatory technology: From code is law to law is code” (2018) arXiv preprint <arXiv:1801.02507>.

126 De Filippi, P and Wright, A, Blockchain and the Law: The Rule of Code (Harvard University Press 2018).Google Scholar

127 Some of these solutions have been highlighted in a previous report written by the same authors: Wang et al, supra, note 71.

128 Note, however, that the fact of keeping the money on behalf of the investors, at least until the relevant milestones have been fulfilled, might require the token issuers to acquire a banking licence.

129 Of course, these safeguard measures comes at a cost. Locking funds into a smart contract means that neither the fundraising team, nor the investors, will be able to collect rent from the escrowed funds, unless a new intermediary is introduced into the picture, with a view to manage these funds.

130 De Filippi and Wright, supra, note 126.

131 However, this only applies to the extent that the management team actually relies on the underlying blockchain as a payment system, which is unlikely to be the case, as least for the coming years.

132 Büthe, T and Mattli, W, The New Global Rulers: The Privatization of Regulation in the World Economy (Princeton University Press 2011).Google Scholar

133 Smith & Crown, Overview and Analysis of ICO Regulatory Developments (20 September 2017), available at <www.smithandcrown.com/overview-analysis-ico-regulatory-developments/>.

134 See <www.coindesk.com/the-crypto-winter-wasnt-the-real-story-of-2018-and-it-wont-be-for-2019-either>.

135 In his 1936 book on The General Theory of Employment, Interest and Money, Keynes underlines how “animal spirits” – which he describes as “a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities” – drive and influence human behaviour.

136 This expression refers to the best-selling book by C Reinhart and K Rogoff published in 2009, This Time Is Different – Eight Centuries of Financial Folly that reminds us that the basics of economics do not really change, no matter what fantasies people come to believe, and that it is surprising anyone ever believed that the subprime-driven housing bubble of 2005–2008 was to be treated any differently than past housing bubbles.

137 DA Zetzsche, “The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators” (2017) University of Luxembourg Law Working Paper (11) pp 17–83.

138 Chen, Y, “Blockchain tokens and the potential democratization of entrepreneurship and innovation” (2018) 61(4) Business Horizons 567.Google Scholar

139 See for instance Corwin, SA and Schultz, P, “The role of IPO underwriting syndicates: Pricing, information production, and underwriter competition” (2005) 60(1) The Journal of Finance 443–486.Google Scholar

140 Hopefully, in both of these instances, the regulatory damage was limited: in the former case, TheDAO had ceased to exist by the time the SEC published its investigative report; in the latter case, Munchee “consented to the SEC’s cease-and-desist order without admitting or denying [its] findings”.

141 For an overview of the various approaches to the regulation of ICOs in various jurisdictions, see eg Hacker and Thomale, supra, note 20; De Filippi et al, supra, note 70.

142 Please note that, as relevant laws and regulations may evolve quickly over time, some of the regulatory positions described at the time of writing might eventually become obsolete.

143 A general overview of the regulatory responses to ICOs in 25 jurisdictions can also be found in W Kaal, “Initial Coin Offerings: The top 25 jurisdictions and their comparative regulatory responses” (2018). A more in-depth analysis of the regulatory framework for ICOs in several jurisdictions can be found in De Filippi et al, supra, note 70.

144 US Securities and Exchange Commission, “Annual Report 2018, Division of Enforcement”, available at <www.sec.gov/files/enforcement-annual-report-2018.pdf>.

145 Monetary Agency of Singapore, “Reply to Parliamentary Question on banning the trading of bitcoin currency or cryptocurrency” (2018), available at <www.mas.gov.sg/news/parliamentary-replies/2018/reply-to-parliamentary-question-on-banning-the-trading-of-bitcoin-currency-or-cryptocurrency>.

146 See <www.fca.org.uk/news/statements/cryptocurrency-derivatives>.

147 See <www.osc.gov.on.ca/documents/en/Securities-Category1/sn_20180329_11-780_rfc-sop-end-2019.pdf>.

148 PBOC, CAC, MIIT, SAIC, CBRC, CSRC, and CIRC, “Announcement on Preventing Financial Risks from Initial Coin Offerings” (4 September 2017), available at <www.pbc.gov.cn/goutongjiaoliu/113456/113469/3374222/index.html> (in Mandarin).

149 Y Xie, “China to Stamp Out Cryptocurrency Trading Completely with Ban on Foreign Platforms”, South China Morning Post (7 February 2018), available at <www.scmp.com/business/banking-finance/article/2132009/china-stamp-out-cryptocurrency-trading-completely-ban>.

150 See <www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/corporate-news/doc?refNo=18PR13>.

151 See <www.sfc.hk/web/EN/files/ER/PDF/Speeches/Julia_20180413.pdf>.

152 See <www.bnm.gov.my/index.php?ch=en_press&pg=en_press&ac=4783&lang=en>.

153 See <www.assemblee-nationale.fr/15/projets/pl1088.asp>.

154 Note that this solution is akin to option 3(b) from the public consultation.

155 See <gibraltarfinance.gi/20180309-token-regulation—policy-document-v2.1-final.pdf>.