With the explosive growth of the ICO market, regulators are paying more and more attention to this emerging field. ICO takes advantage of the cross jurisdictional nature of cryptocurrency transactions and the fundamental tension between anonymous transactions and the goals of regulators.
In a traditional IPO, the U.S. Securities and Exchange Commission (SEC) and national securities regulator conduct comprehensive supervision on the issuer's activities. They stipulate the issuance and registration of securities, require the issuer to disclose a large amount of information during the entire life cycle of securities, restrict the trading activities of all parties. They also have many investigative and law enforcement powers to implement corresponding laws and regulations. However, as of 2018, there is no similar clear legal system for constraining ICO, and the token issuance is only carried out through an informal document (the “white paper”), which has replaced those IPO documents written by a large number of lawyers.
The crypto asset white paper is a public document which is used to describe the initiator’s development plans and encourages community to participate. Authoritative copies are usually published on the initiator’s website in PDF format, which makes the white paper a transparent form of information available to investors and avoids external review before the official release.
In addition to the difference in information disclosure, ICO issuance and IPO issuance are also different in transaction locations. While listed stocks are traded in mature secondary markets such as the New York Stock Exchange or Nasdaq, crypto assets are traded in hundreds of emerging markets, sometimes under loose or even lack of supervision.
Although there are great differences between IPO and ICO, their names are almost identical. Both of them require to issue assets, their values both depend on the success of the company, and both are provided to so-called “retail” investors. Federal securities regulators in the United States also noticed the similarities in their economic functions and began to adopt the provisions of securities law to regulate ICO. Some state regulators are also actively monitoring improper conduct in the ICO market. Assuming that the ICO market is mature, these decentralized regulatory activities will be regulated through a more comprehensive regulatory plan. Therefore, policy makers must have a detailed understanding of the rules of ICO transactions and the institutional environment in which it is located.
