When it comes to ICOs, regulation might be an investor’s new best friend

You’ve probably heard a lot recently from politicians and market participants alike trying to eliminate legislation at all costs. The common complaint is that businesses would be doing better if many of the laws and rules that constrained them were consigned to history’s trash can. This seems to be the war cry from the halls of Washington DC to the darkest corners of Reddit. And some of it is true. Heavy handed regulation often stifles innovation and business practices, but there is a need for well thought out regulation and market oversight, particularly in markets where buyers are at risk of losing a significant portion of their net worth.

For a millennia, scammers and con artists have preyed on people’s insecurities. From snake oil salesman to Madoff to Theranos, deception and #FOMO have been the tools of choice for miscreants and scammers across the globe.

The crypto economy is an excellent example of such a market. Coins are being created and released on a daily basis, with little more than their own promotional (hype) material to give potential buyers the “insight” and “assurances” that inform them about the business and the team behind the coin. The terms “to the moon” and “when lambo?” have become an all too common a part of the lexicon and is just another sign of abuse, fraud and misunderstanding on behalf of market participants. Even so called “advisors” with big followings have taken to posting negative reviews about new ICO projects without reading any materials, then asking for cash or an advisory position before removing or changing the post (it’s true, it happened to us!).

Just like the securities markets of the 1930s, this market needs regulation before it can truly flourish (a bit of an oxymoron, I know). If the crypto economy is going to live up to its disruptive potential, the US and other major jurisdictions need to get up to speed, and quickly. As active market participants, it is our responsibility to work with regulators to make sure those regulations don’t stifle innovation.

Embracing security

If you’re still unsure of the potential impact of security tokens, or just interested in learning more, we recommend you read The Official Guide to Tokenized Securities by our friend Anthony Pompliano.

Many ICO issuers are going to great lengths to ensure their coins are viewed as ‘utility tokens’, thus avoiding the purview of regulators, but that is changing. As we saw with Munchee, the SEC and other regulators are well aware of what is going on and are watching. Chairman of the SEC, Jay Clayton, has said, most ICOs are securities:

“By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws.”

We totally agree. Consumer protections are needed. From the outset, Property Coin has taken a different approach to the issue of tokens and regulation. We share the view that most, if not all, ICOs are securities, especially Property Coin.

As a result, creating Property Coin has not been an easy process. We’ve spent the better part of 9 months trying to solve the most perfect example of a “square peg round hole” problem. There are decades of existing operating procedures and regulatory governance that don’t fit neatly with the innovations of blockchain technology, smart contracts and pseudo anonymous identities. All the while, less well-intentioned projects have issued tokens and made off with hundreds of millions of dollars for their “projects” leaving investors in the lurch or simply wondering if these projects will succeed.

If we’re honest, it’s been really frustrating to see. With every new story of a scam ICO or some regulatory body investigating an ICO for false or misleading claims, it has made it exponentially harder for the honest and legitimate projects to succeed. New roadblocks seem to be added every day.

In order for this market to succeed and become the truly revolutionary innovation we believe it can be, there needs to be a concerted effort on behalf of the premier names in the industry to work with regulators to help them catch up to this rapidly evolving market.

We here at Property Coin are calling on our fellow innovators and friends in the space (we’ve tagged some of them below) exchanges, advisors, investors, lawyers, bankers, industry groups, influencers and issuers to band together and help show the regulators that there are legitimate operators who want to help advance this market without defrauding investors.

This marketplace is changing rapidly. ICO issuance topped $4 billion last year. This technology has the ability to transform the token and securities market and we all need to be stewards of that change in a responsible and thoughtful manner. We can not sacrifice long term stability for short term gain, as so many have. Instead of fighting regulation, let’s embrace it and work with regulators to ensure the success of this incredible technology we all love!

2016 and 2017 were the years of the utility token, 2018 and beyond is the ERA of the security token!

• Andrew Jewett and Matt Miles, Co-CEOs of Aperture and Property Coin.

Polymath tzero Templum Blog Poloniex Harbor Coinbase Multicoin Capital PCC Medici Ventures Andreessen Horowitz Tim Draper Adam Tyler Winklevoss Cameron Winklevoss Draper Associates Blockchain Capital Pantera Capital SALT ShapeShift.io Ryan Mundy Anthony Pompliano Rob Nance Jeff Keni Pulver Christopher King Henry K. Elder Paul Monsen Ryan Scott Justin Wu