Legal view: the rise of ICO regulations

For great (and sometimes evil) minds ICOs for quite a long time remained an amazingly efficient, but at the same time unregulated way of attracting financing for projects. But this could not last long.

Tremendous amounts of funds (in the form of cryptocurrencies of all sorts) have been attracted by all types of projects recently. But this could not last long. In 2017 regulators became not only interested in understanding modern technologies but in bringing more clarity and transparency (or at least they say so) to this gray field of green banknotes (should cryptocurrencies had a color).

The reason for this attention is a matter of long (and mostly fruitless) disputes. Some say that the primary reason is to protect private investors, others that it is the way of a government to protect its sovereignty.

This way or another, we are now facing a new era of governments attempting to forge chains for this new industry. And the approach of some of them is quite alike (take a look, for example, at the approach of the US and Singapore’s regulators) — they tried to define the nature of a project token and apply existing regulation to the token in particular and thus to the whole project in general. In this context, on July 25, 2017, SEC ruled ( that in certain cases tokens issued as a result of ICO may be considered as securities and as such be subject to the US regulation on securities.

Cryptomarkets reaction on Chinese ICO ban 4.09.2017

In essence, a very similar approach was taken in Singapore — on August 1, 2017, MAS ruled that regulation of securities shall apply to those digital tokens which fall under Securities and Futures Act’s definition of securities (

All this has already created some “problems” for projects which were incautious enough to enter the already-governed field of securities. We all remember that decision of SEC on The DAO’s case. And just a couple of days had passed when another project (“Protostarr”) had to stop its ICO after a call from the regulators (see their press-release for details:

It is evident, therefore, that today it is not even a question whether or not governments around the world will try to apply the existing rules or adopt new legislation for ICOs. The question now is whether those rules will be reasonable enough just not to become an insurmountable barrier for meaningful and exciting projects whose owners chose this way of financing over spending time and money on negotiations with VCs and other conservative investment institutions.

Author: Sergey Sitnikov, Partner at Causa Privata Law Firm, Co-founder DAO IPCI

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