Launching an ICO that is ready to bridge the old and new worlds from the outset
Decisions (and Snags) in our Legal, Regulatory, and Financial Backstory
We’ve learned over the past 8 months that connecting our cryptocurrency project to the current regulatory, business, and banking landscape is difficult because regulators, lawyers, and project teams are constantly redefining standards and expectations. Even as trial runs of our ICO mechanics yield great success, and our whitelisting process grows more streamlined, we hit a snag when we went with a change in jurisdiction to Liechtenstein. So let’s look back at how we got where we are.
Criteria for an ICO
When we started this journey, we surveyed the globe for the best place to run our ICO. We did a broad review of the best legal and financial environments for doing an ethical, responsible ICO. Our key criteria were:
- Operates clearly inside an existing regulatory framework which can manage ICOs and is interested in working with crypto organisations.
- Measures taken to ensure long-term security, through strong asset and liability protections.
- Provides options for secure banking operations: bank accounts not severely limited for transfer in or out, and workable for operations not just assets.
- Demonstrates acceptable business conduct, with a strong reputation.
- And ideally demonstrates a strong community of developers, social organisations, service providers all in service of building new economies.
Shortlist of Jurisdictions
Our short list that met most of these criteria included Hong Kong, Singapore, British Virgin Islands, Isle of Man, United Kingdom, Gibraltar, Belize, Switzerland, and Jersey. At this point we had to get pragmatic about our decision in a different way. We decided to select from this pool based on whether or not any of these locales had great legal teams available and strong regulation. Our approach for selecting this team was three-pronged:
- We spoke to people who had successfully run ICOs to ask for their recommendations.
- We spoke with contacts in the UK startup space with experience advising startups (non-crypto) and connections into the legal world to get technical advice free and fast.
- We cold contacted (either through phone or linkedin) legal teams around the world.
The approach worked well because we recognized the need to have a whole range of input and advice. It’s easy to get lost in an uncharted territory, after all. It is important to allow the right lawyers to influence the jurisdiction search to some extent. We interviewed 18 legal firms from these jurisdictions.
The summary of our research on jurisdiction narrowed our choices, and after talking with lawyers, the finalists were:
- Singapore: Changing regulatory environment, 17% tax, and its legal system is political in its enforcement (managed by lawyers, without right to appear and give evidence).
- Switzerland: Long timescales, requires authorization, slow moving, foundations are expensive (legal forms of bribery are almost a requirement — not in line with our current approach!)
- Gibraltar: Has a regulatory framework, excellent tax, lawyers did Gnosis and Stox, works with EU and UK but not as established as Switzerland.
We concluded Gibraltar was the best fit. We began incorporation, worked with the brilliant legal team ISOLAS on our Green Paper in preparation for the launch of the ICO.
For more details on choosing a jurisdiction please read: Choosing a Jurisdiction for your Digital Currency Business.
Organizational Form
Many ICOs followed Ethereum’s lead and created a company and then a foundation, as a tax effective entity to fund further application/ecosystem development. Practically a foundation needs a huge amount of swiss francs and a year of legal set up. We determined the wait was too long.
We decided that a limited company in our chosen jurisdiction is the best approach, at least for now. In the medium term, once capitalized, we will establish a not for profit entity to house our IP, but that can wait. As Tezos and other entities that create complicated legal structures before knowing what they do, it’s just not worth the hassle. Better to spend the time building the technology and the ecosystem.
The back and forth completion of forms for incorporation took about three weeks. Because Gibraltar supports the crypto economy, company formation was relatively easy. Try and start a crypto business in England. It’s impossible! Switzerland was going to take three months. The Isle of Man required an office on the island. The biggest snags we experienced were certifying all our documents and, of course, posting them. One set of signatures didn’t get sent which delayed the release of the incorporation by two weeks.
Banking
Some of my favorite ICO stories involve small raises, say 2–5 million, followed by a surge in the Ethereum price. Suddenly the raise becomes worth 20–50 million before much development was even started. However, when the project wants to start paying their team in national currency, can they get a bank account? No.
One of the biggest issues in the ICO world right now is that hardly anyone who raised money outside Switzerland, Gibraltar, Singapore, and the Isle of Man can get a bank account. Even as regulations change and banks become friendly to crypto projects they are looking at taking money from fundraising with no KYC or AML checks.
When we first were introduced to the Gibraltar private bank they had a base fee of £30,000 to open an account (not a minimum deposit, a fee) and they were set up to handle assets, not an operating environment.
We need a national or international solution that handles large volumes of transactions of an operating business to actually run Holo. The Gibraltar International Bank is entering the crypto world, so we were hoping that they would be online for crypto-companies as our activity levels grew.
On the plus side, we could open a bank account. On the minus, it’s expensive and won’t work for operating our business. We will require a better alternative in the future, but it would have to do for now. This “now” is the end of October 2017.
Then we ran a hackathon in Liechtenstein at THE HUS.institute on 23–24 of November. Through conversations with and connections from The HUS Institute, we discovered superior local options and decided to make the switch to Liechtenstein. In doing so, we believe we got the best legal advice and critique (from starting in Gibraltar) with the best banking and operating environment (by moving to run and bank in Liechtenstein).
Shift to Liechtenstein
Liechtenstein offers the best operating environment for Holo and the Holochain Labs Trust because of its superior business banking, our relationship with The HUS Institute (meaning we can have trusted local directors), and the strong regulatory environment. The shift to Liechtenstein happened in mid-December, after we had launched the crowdfunding campaign and set dates for the ICO to launch. We set up the earliest possible meeting with regulators there for 22 January.
We had previously set our ICO launch date to Jan 9th, but we realized around the New Year that the shift to Liechtenstein meant that we could no longer meet that date. Many we needed to work with would not return from holiday break until the 8th of January. Then we were told that we would have to wait to get regulatory approval on January 22nd. We believed we could then launch on the 23rd. In retrospect, it was naive of us to believe that all would go according to that plan, and we should have given our selves more leeway. For example, in early January we discovered that to operate in Liechtenstein post-ICO we need to be incorporated in Liechtenstein before the ICO starts and have regulatory approval. Processes that we thought we could manage concurrently, or would not be a blocker to launch, became dependencies and blockers in actuality.
Technically we could launch an ICO without a jurisdiction, only using ETH wallets. But that choice went against our ethical ICO commitment. We discussed launching under various scenarios, including reverting back to Gibraltar. The cost would be operational banking for the future of the business. We decided our participants were committed to the business of Holo working (more than a date of launch), so we pushed forward on Liechtenstein solutions.
We recognised that regulatory approval is not a formal process with clear time and date commitments, but we still believe it is by far the best path for us. In the last week the shifting landscape created increased regulatory scrutiny. We believe these delays, while frustrating, are part of the process of establishing greater standards in how ICOs are designed and run.
Given the extraordinary effort we’ve invested in embodying a responsible and ethical ICO, the regulators were pleased with our project. We are confident we’ll exceed all standards and requirements. The main question is the timing. We will now be launching our ICO at the earliest on Friday the 26th of January, but the actual date is out of our control and not subject to a normal time-bound process. Stay tuned for updates on the holo.host website or our social media channels.
While we are frustrated about not meeting our public deadlines, we are proud to stand by our commitment to doing this work ethically, responsibly, and in a way that won’t lead to legal hurdles in the future. Please don’t hesitate to jump into our Holo ICO Q&A channel on our public chat server. Or you can send questions by emailing help@holo.host.
Check out our new ICO video about our Initial Community Offering to better understand why what we’re doing is so different from most other ICOs
