With the explosion of innovation surrounding blockchain and cryptocurrency technologies, it is unsurprising that organizations are leveraging similarly innovative financial instruments to raise capital. Token launches, commonly known as ICOs (initial coin offerings), are a popular new strategy where organizations sell a limited number of bespoke digital tokens to the public, usually in exchange for cryptocurrencies such as Bitcoin or Ether.
Thanks to their simplicity and popularity, the number of token launches has increased rapidly in recent months, with no sign that this trend is slowing. Switzerland has established itself as the premier location for token launches; four of the five biggest launches have been based here, raising bitcoin and ether worth a combined total of over US $600m.
The Crypto Valley Association (CVA) fully supports innovation in the blockchain space. However, rapid development of token launches has come at the expense of the traditional support structures which usually accompany such instruments. Token launches are largely unregulated, because the exact function and legal and tax status of such tokens is unclear. Investors are often unaware of the true nature of their investment, and the documentation published to accompany token launches often minimizes or ignores the associated risk.
At the same time, the publicity surrounding token launches has made them a target for criminals, with multi-million-dollar hacks occurring monthly. In the rush to launch, many organizations have failed to provide adequate security to ensure investors’ transactions proceed safely and smoothly. In addition, a small minority of unscrupulous organizations appear to be capitalizing on the current excitement, raising investments for projects they are unable to or do not intend to complete. These factors combine to create a large risk of negative publicity. This could seriously damage investors’ impressions of token launches and the wider blockchain industry.
The CVA is fully convinced that, in the long-term, token launches are a sound, innovative approach to raising investment capital. Switzerland should support this trend by being the first country to recognise and support these tokens and token launches. This will foster an environment that encourages blockchain and related companies to establish themselves here, bringing jobs to the region and providing investors with the clarity, confidence and security they need.
This should be achieved with clear, comprehensive yet flexible regulation that clarifies the legal status of token launches, tokens and the investments made therein.
We also believe the industry would benefit from a clear code of conduct surrounding token launches, to help companies fulfil their legal and moral obligations and give investors a clear understanding of the risks involved.
To this end, the CVA and its members have begun a project to draft such a code of with the help of a multi-disciplinary team from the fields of law, tax, accounting, cybersecurity, communications, and more.
The CVA hopes the widespread adoption of this code of conduct, combined with careful and supportive regulation, will bring stability to an exciting but uncertain trend in blockchain, and encourage an influx of jobs and investment to Switzerland.
Edit: January 9th, 2018. The Code of Conduct mentioned in the article above has now been published and is available at: http://cryptovalley.swiss/codeofconduct/