Regulatory Guidance on Initial Coin Offerings

What is an Initial Coin Offering (ICO)? An ICO is the rough equivalent to an Initial Public Offering (IPO) in the finance world where a company seeks public funding for its cryptocurrency venture by selling its digital tokens in exchange for fiat currencies or cryptocurrencies. What is a digital token? A digital token is a cryptographically-secured representation of the token-holder’s rights to receive a benefit or a planned future use, such as allowing token-holders to access a digital platform, products, services or utilising an alternative digital token. There are essentially three types of digital tokens, namely, (i) cryptocurrencies, (ii) utility tokens, and (iii) security tokens. i.

Cryptocurrencies are virtual currencies that function as a medium of exchange, a unit of account and/or a store of value. It is a means to pay for products or services that is secured by cryptography (in the form of blockchain technology) to prevent counterfeiting. One of the key benefits of cryptocurrencies is the ease of fund transfer without the need of financial intermediaries, banks and government interference. Popular examples include Bitcoin and Ether. ii. Utility tokens issued by companies can represent a planned future use of the company’s product or service for the token-holder. For instance, Filecoin is a decentralised storage network provider that supplies cloud storage and allows token-holders with utility tokens to access its cloud storage platform. iii. Security tokens issued by companies provide the holder with ownership rights over the company. Just like a stock, the owner buys with the hope of either a dividend payout, capital appreciation, or both. However, since it is treated as a security, it will be subjected to regulations. Regulatory Updates: SGX had on, 19 November 2018, published a Regulator’s Column setting out what is expected of listed companies conducting an ICO. Shortly after, MAS issued its guide, “A Guide to Digital Token Offerings”, on 30 November 2018, that provides guidance on the application of Singapore securities laws for digital token offerings. Key takeaways of SGX Regulatory Column and the MAS Guide will be discussed in this regulatory update. Please click here for a copy of the SGX Regulatory Column and MAS Guide.