Blockchain technology provides a fundraising mechanism that differs from conventional methods – an initial coin offering (ICO), also known as token sales or token launches. An ICO provides companies with unique technology and a business value proposition that relies on the token as a core part of the company’s future operating model, a method to raise capital (by selling tokens) that simultaneously builds an ecosystem of stakeholders and users to interact with their product.
Regulation of the ICO industry is still in its infancy, and there are many uncertainties and unanswered questions. While there are no direct regulations of this emerging space, securities, commodities and consumer protection laws in existence do apply to many ICO offering activities. In addition, federal and state regulators increasingly are scrutinizing ICOs. For these reasons, it is important to evaluate current and future legal exposure before participating in any ICO or token sale.
Husch Blackwell advises companies on a comprehensive strategy for structuring and carrying out ICOs in a way that minimizes risk exposure. Our ICO team also assists clients with drafting and evaluating token sale terms, processes and conditions to best position themselves to capitalize from an ICO. Many of the threshold matters regard managing Securities and Exchange Commission (SEC) and state rules on securities transaction registration and exemption.
Husch Blackwell’s ICO group also guides investors through the risks associated with investing in an ICO and performs due diligence to ensure that the offerors have an established business plan and track record in the industry.
Additionally, there may be tax considerations for those who sell tokens in a launch, those who invest in and exchange the tokens, and those who use the tokens in the product ecosystem. We also assist with these issues.