With over six billion US dollars raised through token sales since the beginning of 2018, the popularity of the ICO model for fundraising has surged while regulators around the world have been closely monitoring the phenomenon.
The term ICO is used to describe a digital representation of value and/or underlying rights that are issued or generated in exchange for fiat currency or cryptocurrencies. Coins issued, also known as tokens, may represent rights to an asset, payment or benefit, or can be exchanged for goods and services. As such, the term “token sale” is more accurate to describe this mechanism than initial coin offering that is derived from the concept of “initial public offering”.
Different classifications have emerged in different jurisdictions. For example, the United States has been proactive in doing so and the Swiss Financial Market Supervisory Authority (FINMA) has published guidance on its classification based on the underlying economic function of the token .
Depending on the qualification retained for the tokens, several legal fields may be involved and one must acknowledge the current legal uncertainty surrounding the recent ICOs phenomena. This also applies to Luxembourg where the Luxembourg Supervisory Authority for the Financial Sector (CSSF) only recently issued a warning on ICOs and tokens (ICO Warning) and another, which is closely related, on virtual currencies (VC Warning). On the EU level, the European Securities and Markets Authority (ESMA) issued an Advice on ICOs and Crypto-Assets in January 2019.
The purpose of this paper is to give an overview about the possible classification of tokens and the possible legal issues relating to an ICO.