Commonly referred to as ICO, initial coin offering is an activity to raise capital in the blockchain and cryptocurrency industry. As the name suggests, it is similar to the concept of an initial public offering (IPO), redefined for the crypto landscape. Interested investors can make purchases in an ICO and receive a token (like shares or stake in an IPO) issued by the company.
The token subscribed may offer a stake in the company or provide utility to the products and services provided by the company. If the capital requirements mentioned in the whitepaper are met, the amount is further utilized to pursue the project’s goals.
If not, the ICO is considered as failed and the capital raised is given back to the investors. The Australian Securities and Investments Commission (ASIC) drafted an information sheet to provide guidance on raising funds through ICOs. The information sheet confirms the legal position of an ICO depending on how it is structured, operated and the rights offered with the token.
The Financial Conduct Authority (FCA) in the UK has issued several warnings related to ICOs. FCA has stated that whether or not an ICO falls within its boundaries will be evaluated on a case-to-case basis. FCA has also mentioned that ICOs are very risky and speculative investments.