Initial Coin Offering, Security Token Offering – Finance and Banking



    To print this article, all you need is to be registered or login on Mondaq.com.

    While the use of DLT-based financial services is rapidly
    transforming the whole picture of financial markets for both market
    investors and market infrastructure providers (payment systems,
    stock exchanges, trading venues, securities custodians, issuing
    companies), these raise specifically challenges for both regulators
    and market participants due to the uncertainty on how the existing
    regulatory framework can be applied toThe Law “On financial
    markets based on the technology of Distributed Ledgers”, (the
    “Law”) in additional to what we have explained thus far,
    also regulates two very important steps for the system organization
    and functioning, in particular the Initial Coin Offering
    (“ICO”) and the Security Token Offering
    (“STO”).

    In simple words, the Initial Coin Offering is the cryptocurrency
    industry’s equivalent to an initial public offering (IPO)
    whilst the Security Token Offering is a type of public offering in
    which tokenized digital securities, known as security tokens, are
    sold in cryptocurrency exchanges, or security token exchanges. The
    Law applies to STOs and ICOs issued by an issuer in or from
    Albania. An STO or ICO is considered to be launched in or from
    Albania, if the issuer is an individual/entity registered in
    Albania (according to the definition of the Law).

    Table of Contents

    ICOs

    Initially ICOs were the first crowdfunding option to surface in
    the Blockchain ecosystem. This method of fundraising enabled
    anyone, from anywhere, to finance the development of a company or
    project. In exchange for their investment, the investor will
    receive a number of utility tokens, or, user tokens in other words.
    These tokens represent future access to a company’s product or
    service. There’s no entry barrier for neither sellers nor
    buyers, it’s open to crowd investing. Once the ICO is launched
    and has a defined timeline, the investors can buy the tokens.
    Compared to STO, it’s a short-term investment. The teams have
    the liberty to use the funds in the way they deem most beneficial.
    Later, the tokens are distributed in a simple automated way via
    smart contracts1.

    The Law defines ICOs as: “…method for raising funds,
    different from an STO, in which a Digital Token and/or Virtual Coin
    issuer offers them in Albania or abroad, in exchange for capital,
    in accordance with this law”. When the offer to the public is
    expected to have a total equivalent value of, or higher than
    8,000,000 (eight million) euros or the equivalent of this amount in
    ALL, within a period of 12 months, inter alias, the issuer has the
    obligation to publish a prospectus.

    For ICOs in which the offer to the public is expected to have a
    total value of less than 8,000,000 (eight million) euros, the
    issuer will be required to publish an information document
    regarding the offer, the form and content of which is determined
    through regulation of the Albanian Financial Supervisory Authority
    (“AMF”), albeit it has less obligations to fulfill (i.e.
    authorization, presentation of whitepaper, etc., do not apply).

    STOs

    As a general concept, an STO is in its essence similar to an
    ICO. STOs surfaced as a reaction to the lack of oversight when it
    comes to ICOs, to bring regulation to Blockchain based crowdfunding
    and offer more guarantees in the space of raising funds using
    tokens issued on a Blockchain. When ICOs are more commonly used to
    raise funds for a tech product, STOs are more linked to financial
    services. Therefore, before the launch of the idea and
    announcement, the company has to come up with a scalable business
    model, which makes the projects more mature and trustworthy. To
    launch an STO, it takes more time to get the regulators on board
    and carry out the necessary tokenization of the assets. Generally,
    it’s limited to accredited investors only and the amounts of
    money required are bigger. Later on, the securities tokens are
    going to be traded via broker-dealers supervised by regulatory
    bodies.

    The Law defines an STO as: “…a public offer, where
    the issuer of DT of securities offers them in Albania or abroad, in
    exchange for funds, according to the provisions of this
    law
    “.

    According to the Law, when the offer to the public is expected
    to have a total equivalent value of, or higher to 1,000,000 (one
    million) euros or the equivalent of this amount in ALL, within a
    period of 12 months, inter alias, the provisions of the legislation
    in force for capital markets, regarding the terms of the offer and
    prospectus and the provisions of the legislation in force for
    collective investment undertakings (in case the issuer of DT of
    securities is an alternative investment fund offered to
    professional clients) shall apply. These provisions shall be
    applicable to the extent they do not run counter to the Law. When
    the offer to the public is expected to have a value of less than
    1,000,000 (one million) euros or the equivalent in ALL, within a
    period of 12 months, STOs are exempted from the obligation to
    publish a full prospectus. For these STOs, the publication of an
    offer will be required, according to the provisions of the Law no.
    62/2020 “On Capital Markets”2.

    As a general rule, legal entities that seek to launch an ICO
    (with an expected value above 8,000,000 Euro) or a STO, must obtain
    a prior authorization by the competent authorities.

    Footnotes

    1 “Smart Contract” is a technological
    agreement, essentially dependent on or linked to a DLT, which
    contains a set of rules and conditions, which set in motion
    predetermined reactions and which are automatically implemented in
    case of fulfillment of the conditions set out in it. Smart
    contracts fall under the definition of “innovative technology
    agreement”, within the meaning of the Law.

    2. Law no. 62/2020 “On Capital Markets” has
    entered into force on September 1, 2020.

    The content of this article is intended to provide a general
    guide to the subject matter. Specialist advice should be sought
    about your specific circumstances.



    Source link