University Study Breaks Down The ICO Compliance Trilemma

iComply Investor Services commissioned a study to identify the challenges that ICO issuers face when attempting to meet the regulatory standards for issuing and tracking digital assets. The results showed that these projects face significant barriers, resulting in trade-offs that hold back ICOs from achieving what they are truly capable of. The research collaboration was supported by Mitacs’s Accelerate Program.

A research team from the University of British Columbia (UBC) conducted more than 45 interviews and dozens of observations from industry experts to explore the past, present, and expectations for the future of ICOs from diverse perspectives.

The Findings:

Blockchain technology allows token issuers to gain access to customers, partners, and capital from all across the globe. However, there remains a major challenge: The burden of the cost of regulation.

In 2017, there was great uncertainty about whether and how digital assets were regulated, and many issuers simply chose to disregard it altogether. While a large number of ICOs were well-intentioned, many others, unfortunately, moved to exploit the prospect of unlimited access to global investors. Early ICOs could often raise more with savvy marketing than a strong business and technology plan, and others even were eventually discovered to be little more than Ponzi schemes. Today, regulatory clarity and enforcement are essential to enable ICOs to become a safe and legitimate fundraising mechanism.

The study discovered “a compliance trilemma,” whereby only two of the following three goals in ICO can be realized:

• Cost-effectiveness
• A distributed investor base
• Regulatory compliance

While the focus of this study is ICOs, the compliance trilemma also holds true for other cryptoassets.

Issuers have adopted various approaches to address the trilemma:

• Sacrificing compliance and hoping to fly under the radar
• Restricting token sales to a limited group of investors
• Compromising on all three dimensions in a hybrid approach
• Forgoing an ICO until this becomes more cost-effective

However, each of these current approaches is sub-optimal.

The study also explored how industry experts expect compliance trilemma to be resolved and most advocated for new regulation and definitions that could reduce the “burden” of compliance on issuers. However, this approach places the responsibility on regulators alone, who would need to coordinate within and across jurisdictions to develop a regulatory framework that would solve these problems. However, we argue that holding regulators solely accountable is incomplete and misguided, and that other approaches are needed to reduce the costs and uncertainties of regulatory compliance.

Read the full report: http://bit.ly/ICOComplianceTrilemmaResearch