You’ve certainly heard of an ICO by now and are aware that it’s a cutting-edge method for blockchain firms to generate money by creating a new digital asset or “token.” It has also gained a lot of attention; according to Fabric Ventures and TokenData, ICOs raised $5.6 billion in total in 2017.
You may also be aware that the Securities and Exchange Commission is actively looking into ICOs that it believes may have broken federal securities laws and has lately issued dozens, if not hundreds, of subpoenas.
Here are a few things to think about if you’re launching coin as a fundraising approach for your company in 2022.
Key Points to Keep in Mind while Creating an Initial Coin Offering
1: Securities and Exchange Commission
Jay Clayton, the chairman of the Securities and Exchange Commission, has made it very obvious that all tokens are securities, making the offer and sale of tokens subject to federal securities regulations. Therefore, ICOs must either meet the conditions for an appropriate exemption from the registration requirements or register with the Securities and Exchange Commission.
Your token should be viewed as a security even if it has a “utility” purpose. Your next move after writing your White Paper and organizing your token economics should be to employ a seasoned securities lawyer with a mix of experience in capital markets and cryptocurrencies.
2: Reg D 506(c) and Reg A+
Reg D 506(c) grants you the authority to broadly solicit or market your transaction and permits accredited investors to lawfully invest in your ICO. The advantages of Reg D include the fact that there is no cap on raises, it is quick and simple, and legal fees typically range from $25,000 to $50,000. The drawbacks include a one-year lockup on tokens, a cap on affluent investors, and the requirement that your investors provide proof of accreditation.
Anyone over the age of 18 can invest anywhere in the world, and Reg A+ gives you the opportunity to publicize your ICO and has a $50 million raise limit. The main benefit is that anyone can invest, which fits well with the crypto community’s concept. The drawback is that Reg A+ takes three to six months to complete, involves two years of audited financials (assuming you have operating experience), and can cost anywhere between $250,000 and $500,000 in marketing, legal, and accounting services.
3. Figure out how much capital you really need.
There are too many ICO issuers raising too much money. It may seem contradictory, but your three-person blockchain firm doesn’t really require $50 million, does it? ICOs that raise too much money risk being risky and irresponsible at the very least, and limit the upside value to their investors at the best. Plus, raising too much money can have other detrimental effects including cultural deterioration, as renowned investor and entrepreneur Marc Andreessen famously warned. According to Andreessen, such firms are susceptible to becoming “infected with a culture of complacency, laziness, and hubris.”
Read more: What are Some of the Benefits of an ICO?
4. Evaluate your Advisors carefully.
LinkedIn is now overrun with people identifying themselves as “ICO Advisors.” Even while some people might have relevant experience, the great majority do not. Here are some inquiries you ought to put to your potential advisors: What ICOs have you worked on recently and in the past? What role did you play exactly? Do you still have time to work on the project? Was there any evidence of your involvement in the White Paper or elsewhere? How did you get paid for the work you did? Is it legal? What were the results of the ICOs you participated in?
Additionally, it’s essential to request references and request that the advisor arrange calls with their current and previous ICO clients. Two to three recommendations should be no problem for an experienced advisor.
5. Online Reputation Management
Once your coin has been posted on various listing services, you may observe some users writing queries or remarks about your ICO. Anybody, from a YouTube blockchain blogger to an ICO platform reviewer, could participate in these online discussions about your token sale. Similarly to this, not all reviews or feedback are positive, but this content still ranks highly when potential investors search for terms like “Your ICO name + review,” which means that if a negative review is left unanswered, those potential investors will be less likely to participate in your token sales. The profiles of certain dapp entrepreneurs on the various ICO listing platforms are not verified. Investors get doubtful as a result of such factors.
You must monitor what is said about your ICO to resolve this problem. Creating numerous Google alerts will be quite beneficial. You will be notified through Google alerts each time someone mentions your initial coin offering (ICO) online.
6. Organic Reach
Search engine optimization (SEO) enables you to reach a larger audience of people looking for the blockchain solution you are developing. SEO not only draws in investors, but it also increases your exposure. If your ICO website is optimized for the term “blockchain KYC,” anyone looking for information on it can reach your solution through Google searches.
7. Only registered broker-dealers can charge success fees.
Federal broker-dealer rules have been broken by both you and the marketing business if you pay them a percentage of your raise but they are not registered broker-dealers. Offering success- or incentive-based pay to a company that isn’t a FINRA-registered broker-dealer is against the law.
Paying in cash is a secure method of doing business. You can even offer a combination of cash and tokens, but before putting forth or accepting any such proposal, make sure to speak with your securities attorney.
The bottom line is that ICOs demand a very challenging legal procedure. They serve as the cornerstone of a developing digital currency market. But that sector of the economy is no longer the lawless Wild West. In addition to China and South Korea’s explicit bans, US officials have also warned about ICOs. Your ICO must be appropriately planned, thoroughly researched, and based on a basis of compliance with securities regulations in its jurisdiction if you want to guarantee long-term success.