Next for ICOs in 2020: Integration of RegTech
Having better understood the good, the bad and the ugly thus far, crypto fundraising could still be a viable option for blockchain projects to obtain capital today when we start to properly deal with its flaws and accompanying legal concerns.
A Quick Look at Regulators and Their Vague Attempts
In our previous article on problems with the blockchain space, we brought up the significance of regulation especially for blockchain, which proved challenging thus far.
Following the 2017 blockchain euphoria by its cult enthusiasts, various jurisdictions and those of the major economies around the world set out to classify and regulate cryptocurrency due to a surge in crypto activity and potential implications for the economy. However, financial instruments in the crypto sector appeared difficult to define for regulatory purposes, as regulators tried very hard to make it work within existing regulatory structures. The SEC contemplates coins as securities, whereas the Commodities and Future Trading Commission (CFTC) treats them as commodities.
ICOs Had to Fail
The tides of crypto fundraising ebbed and flowed with the external situation of legal concerns, lack of standardization, self regulation etc. This is actually a necessary phase because now parties in the blockchain/crypto space have learned (and are still learning of) new ways to cope. There is increased emphasis on investors conducting more thorough due diligence personally, and project developers being more aware of the value creation of their project and paying attention to but working their way around existing regulations.
In today’s environment, crypto-investors have learned not to readily trust their assets to ideas without ground and actually look at real development and results beyond the “blockchain” buzzword. Developers will stop with their get-rich-quick schemes, because the amounting effort does not pay off, and actually develop ICO projects which bring meaningful, genuine value with a sound economical structure.
People often associate an unsuccessful fundraising to an unsuccessful project, but I believe ICO fundraising will now shift away from being the perceived end point with a new demand of raising the quality of projects.
What Is Next?
Just like securities in the early days, in its various shapes and forms, it took a while for new entrants to innovate ways around existing securities laws then and for regulators to play catch-up in categorizing them. Likewise, regulators should not take a one size fit all approach, but attempt to understand and strategically categorize and regulate instead of a blanket policy that displays poor understanding or laziness. Blockchain products belong in a new category on its own; regulators should stop force-fitting their outdated regulations made for instruments of the past and create policies that balances out protecting investor interests while still encouraging innovation.
Meanwhile, investments in crypto will inevitably become more accessible as the flow of information becomes more available. We are likely to see a rise in self-regulation in the sector.
Make Way For RegTech
Regulatory technology (RegTech) is a new technology that uses information technology to enhance regulatory processes. While governance is the means, regulation enabled by RegTech through governance gives the whole ecosystem legitimacy.
Once compliance through RegTech is established, bigger industry players can now integrate or work with blockchain companies with ease of mind, within an ecosystem where its players are held accountable to one another and have their interests more appropriately protected.
Is Crypto Fundraising a Thing of the Past?
On the contrary, we believe that blockchain is the future, and of course fundraising on the blockchain will be a big part of that horizon. That future will see the digitalization of bonds, decentralization of finance, and emergence of national cryptocurrencies, all of which would be immensely beneficial to the average consumer.
Through a combination of smart contracts that are immutable, transparent and customisable through the use of a cross-blockchain explorer (for easy access to data for analysis), with self-regulation in the form of governance to bring in more structure and order, the revamped crypto-fundraising model could actually survive and thrive.
