Trust is a vital element of the economy[1]. Traditionally it is based on centralised and established components such as companies, institutions, states, and currencies. However recent crises (subprime, Greek public debt, etc.) have weakened this trust and the entire model it is supports. At the same time, distributed ledger technology (DLT, or blockchain) began to develop and "dispenses with the need for trust in other parties, which is based instead on a network of nodes (servers) that validate all sorts of transactions and information, with or without legal value, in a secure manner and in real time (or almost)"[2]. Rather than placing trust in a single, fallible entity, it spreads the trust among independent players that control one another.
This new version of trust that many would describe as disruptive has uberised fundraising and financing of all types of activities via initial coin offerings (ICOs). ICOs are inherently compliant with DLT and finance the development of activity not by increasing capital, but by the presale of goods, rights or services. ICOs remove the intermediary (at least partially) for fundraising and cut costs. They also provide more liquid financing by organising a secondary market for the sale of tokens that can be used for speculation in a similar way to debt securities.
Since the beginning of the year,[3] there have been more than 28[4] ICOs of more than USD 10 million[5]. This demonstrates just how strong the movement is. And governments cannot remain indifferent. The protection of investors is at stake, as is the strength of local economies finding funding arrangements outside conventional financial networks, deemed too timid with regards to new technology. There is also the potential financial windfall from charging VAT on tokens, corporate tax for the companies issuing them, and income tax on the profits made from occasional or ongoing speculation.
All of this leaves states wondering how best to regulate the sector. It is worth distinguishing between the entities that issue ICOs and those that promote tokens on a primary market (initial subscription) and then secondary market (subsequent sale) and give each of them a status. The legal rules governing each type of entity depend on the functions they would perform.
The entity that issues the ICO would be responsible for establishing a whitepaper. The promoter would be in charge of fulfilling the anti-money laundering rules, checks on non-digital identity, on their own behalf and on behalf of the issuer. They would also be expected to hold a register of token-holders and provide clients with adequate information.
Basically, there is no legal void surrounding ICOs. A situation can always be described in legal terms, but this ideological analysis does little to provide security, which is the only way to create long-term economic development. It is therefore important to campaign for regulation to decide between various legal opinions and establish a model that is beneficial for economic players, the state economic and the population alike.
A legal and fiscal status should be given to issuers and promoters. In return for the ad hoc registration with the authorities, within deadlines that are compatible with the constraints of this new industry and subject to suitable rules, the doors of the banking industry should remain open to them. A market-based policy consisting of opening bank accounts in registered entities and accepting transfers from certified DLT platforms should be encouraged.
By officialising the already existing activity, it will provide the state with more taxable transactions (VAT?) and new economic activity to create jobs and wealth.
In the race to become the best digital financial market, two initiatives are worth underscoring. One is in Malta with a law dedicated to DLT[6], the other in France with the analysis led by the French Financial Markets Authority[7]. But neither of them so far appears to be complete. The role of the state will be to propose legal and fiscal security as soon as possible for investors and all other players (promoters, consultants, banks, wealth managers) in the field of digital risk capital and wealth management.
[1] Economie de la confiance, Eloi Laurent, La Découverte 2012
[2] https://www.lecho.be/opinions/analyse/blockchain-le-grand-ecart-entre-innovation-et-reglementation/9973051.html
[3] https://www.coinschedule.com/icos.html
[4] https://hackernoon.com/best-countries-for-ico-ef710ace2785
[5] https://www.forbes.fr/finance/blockchain-les-pays-qui-savent-tirer-leur-epingle-du-jeu/
[6] https://opm.gov.mt/en/Documents/FSDEI%20-%20DLT%20Regulation%20Document.pdf
[7] http://www.amf-france.org/Actualites/Communiques-de-presse/AMF/annee-2018?docId=workspace%3A%2F%2FSpacesStore%2F57711a6c-4494-4215-993b-716870ffb182
