The University of Luxembourg conducted a study regarding the liability of ICOs held by various startup crypto-firms. The university’s faculty of Law, Economics and Finance took part in the research. Their results, published in the study “The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulator,” concluded that the majority of ICOs fail to provide adequate information to their investors.
An Initial Coin Offering (ICO) is a critical step when introducing a new cryptocurrency and is used by the startups to raise capital. ICO campaigns involve selling a percentage of the cryptocurrency to early investors in exchange for a fiat currency or crypto money.
The university observed 150 ICOs during the course of their research and intends to provide a categorization of the various ICOs. Their hopes is that the categorization will help regulators manage ICOs and regulate them in such a way that benefits the crypto industry.
The research found that many ICOs provide insufficient information and, therefore, seeing them as ICOs to invest in cannot be the product of logical reasoning. Most of these ICOs count on legislative ambiguities and do not deliver any key legal information regarding their ICO. In addition, the ICOs do not provide any information regarding the operations of the project, or the parties supporting the ICO.
According to the findings:
- Out of 150 ICOs observed in the study, only 28.5% mentioned the laws applicable to ICOs.
- 69% of cases did not provide any information regarding the regulatory status of the ICO.
- 25% of the whitepapers did not explain company’s financial situation, or the project’s fiscal requirements, that may include consumption of the capital collected and the stages of its consumption.
- 21% of the white papers provided no information at all on initiators or backers.
- 20% of the analyzed ICOs could not provide any information on the issuing unit.
- 43% of the ICO whitepapers did not provide valid postal contact details.
The university also stated that 10% of the tokens are only developed for trading, which indicates purely speculative instruments and the remaining 90% cannot be put to practical usage.
According to the research paper, the poor legal documentation of many ICOs may be due to little knowledge about legal or other requirements regarding crypto firms. However the conclusions suggest that the ICOs are deliberately taking advantage of these legislative loopholes and gray areas in order to prevent current regulatory and legal requirements.