Initial coin offering

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An initial coin offering (ICO) is a method in which companies can raise money using cryptocurrency. Investors in the ICO are offered the chance to buy into a new company using cryptocurrency in exchange for virtual tokens. These tokens offer investors access to a product or service offered by the company and can fluctuate in value.[1]

Typically, an ICO includes a new digital currency at a discount - also known as a token. If that cryptocurrency increases in value, the investor can make a profit. The tokens, however, do not grant the investor any stake or ownership in a company like a stock.[2]

ICOs are not bound by the same rigorous rules that govern initial public offerings.


The first known ICO was held in July 2013 by a firm called Mastercoin, later renamed Omni, owned by J.R. Willett. Willett, a software engineer, published a white paper in January 2012 called "The Second Bitcoin Whitepaper" which outlined the concept. In it, he posited the idea that "new currency layers" and "new protocol layers" could raise funds for services. Ethereum, the cryptocurrency, held an ICO in 2014.[3]

In the first nine months of 2017, ICOs raised more than $2 billion in token sales in about 140 ICOs. Through the first three quarters of 2018, ICO's raised $18 billion, according to

Legal cases for ICOs

In late 2017, the Securities and Exchange Commission set about extending its oversight to the ICO market. In November 2017, SEC Chairman Jay Clayton said during a speech at the Institute on Securities Regulation in New York "I have yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security." In February 2018, Clayton said "I believe every ICO I've seen is a security." during a US Senate hearing. Such comments pushed the SEC into the ICO space with a series of cases to establish its authority.[4][5][6]

In December 2017, the SEC got involved with its first two ICO cases. The first case was against PlexCorps, which raised $15 million on an ICO with a promised 13-fold return in less than a month. The other SEC case effectively forced California-based Munchee Inc. to halt its ICO in December 2017. The SEC found that Munchee's ICO "constituted unregistered securities offers and sales." In that case, Munchee, an online food review platform, sought to grow its network and eventually pay users for reviews with tokens. The SEC said Munchee emphasized that investors could expect the value of the tokens to rise, and it would support a secondary market for them, leading investors to believe they could generate a return on investments. Munchee halted its ICO quickly and returned any proceeds to investors.[7]

In September 2018, a federal judge effectively ruled the SEC's oversight does cover initial coin offerings. The case, the first for a US federal court, revolved around charges brought by the US Department of Justice against Maksim Zaslavskiy for illegal unregistered securities offerings and fraudulent conduct related to two ICOs, one involving REcoin Group Foundation LLC and another called DRC World Inc. The SEC said Zaslavskiy misrepresented the amount of money REcoion could raise, saying it could generate $2 million to $4 million, when the actual amount was about $300,000. Zaslavskiy also claimed the ICO tokens were backed by real estate and diamonds, and argued that the investments were not securities but currencies, which are outside SEC jurisdiction. The judge ruled, however, that "simply labeling an investment as a virtual currency or cryptocurrency does not transform an investment contract - a security - into a currency." The judge also ruled that Zaslavskiy would stand trial on SEC fraud charges related to the ICOs.[8][9] [10][11] [12]


  1. SEC And The ICO. Crow & Cushing.
  2. The ICO craze, explained. Recode.
  3. Here's The Man Who Created ICOs And This Is The New Token He's Backing. Forbes.
  4. SEC Chair Clayton Comments on Initial Coin Offerings (ICOs). Duane Morris on Capital Markets blog.
  5. SEC Chief Clayton: 'Every ICO I've Seen Is a Security'. Coindesk.
  6. SEC Chief Fires Warning Shot Against Coin Offerings. Wall Street Journal.
  7. The Dawn of Crypto Regulation: The Regulatory Response to Cryptocurrencies. Institute For Financial Markets.
  8. Federal Judge Affirms Securities Laws Can Be Applied to ICO Fraud. Bitcoinist.
  9. Brooklyn Businessman Charged with Fraud in Connection With Two Initial Coin Offerings. Department of Justice.
  10. Brooklyn Businessman Charged with Fraud in Connection With Two Initial Coin Offerings. Department of Justice.
  11. Judge Lets Cryptocurrency Fraud Case Go Forward, In Win for SEC. Wall Street Journal.
  12. Cryptocurrency Firms Targeted in SEC Probe. The Wall Street Journal.