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Thu 5 Jul 2018 08:40 AM

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ICOs 'nothing more than unregulated IPOs'

UAE experts call for regulation on blockchain coin offerings

ICOs 'nothing more than unregulated IPOs'
Tobias Young, head of hydrocarbons at Dubai Gold & Commodities Exchange

Initial Coin Offerings (ICOs) are currently “nothing more than unregulated IPOs” according to Tobias Young, head of hydrocarbons at Dubai Gold & Commodities Exchange.

Speaking at the Arabian Business StartUp Academy, which was themed around the practical uses of blockchain, Young told the audience: “There’s no one saying what the rules are or how they work. Regulation is what's going to help us avoid this.”

ICOs have quickly grown in popularity as a means by which funds are raised for a new cryptocurrency venture. A percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies.

In a report released this week, PwC said that there has been $13.7bn in ICO activity so far in 2018, although other reports have said that over a 1,000 cryptocurrency projects globally have failed this year.

Young, who also sits on Global Blockchain Council of Dubai and the DMCC Blockchain working group, said that the lack of regulation was due to the industry in its initial stages of development.

“If we take an analogy of the Internet bubble, the crypto space is probably around the 1997 mark at the moment, so there's a bit of time before we see everything change. But what happened after the dot-com crash was that governments brought in regulations and watchdogs to oversee the space.

"The big concern at the moment is that anyone can say they've used blockchain and then we end up having a scandal, fear spreads throughout the community and then valid projects are tarred with the same brush as fraudulent projects,” he said.

Young noted that Abu Dhabi Global Market (ADGM) last week launched a “framework to regulate spot crypto asset activities, including those undertaken by exchanges, custodians and other intermediaries in ADGM.”

He called it a “huge step forward” but noted that “it doesn't actually change anything for small and medium enterprises. For now it's going to be a watching brief unless they're to get bigger entities involved.”

He was bullish on the longterm future of the industry, however, as a means of raising money for new ventures.

“An ICO is fantastic if you can do it is a regulated environment. You can raise money, sell equity, grow your business and reach a range of investors that you wouldn't be able to otherwise. So the game has changed. Unfortunately regulation hasn't yet done so.”

Jan Grabski, director of enterprise scaling at Consensys, a blockchain software technology company

Young’s views were echoed by Jan Grabski, director of enterprise scaling at Consensys, a blockchain software technology company.

“It's a very interesting way to raise revenue. The conclusions from last year are that you need to do your homework and have your lawyers. And you do need to do some jurisdiction shopping if you want to do an ICO," Grabski said.

"But it's an option and it meets an enormous demand for investment vehicles. People are willing to buy these tokens; the investors want the risk. But the current frameworks and the protections - because the tokens are so strange and new - tend to get in the way sometimes.”

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