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What is an Initial Coin Offering (ICO)?

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An Initial Coin Offering is an umbrella term, referring to a capital generation event which utilizes digital tokens as a means of compensation for investors.  While not exclusive to utility tokens, the term ICO is most often used when referring to the distribution of such assets.

Antoine Tardif is the CEO of BlockVentures.com, and has invested in over 50 blockchain projects. He is also the founder of Bitcoinlightning.com a news website focusing on the lightning network, and a founding partner of Securities.io

Regulation

Central Bank of South Korea to Host 22mth Pilot for Potential CBDC

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Accelerating

To date, various nations have not only noted the potential need for a CBDC in the future, but have actually embarked on pilot programs to develop them.  The most recent nation to accelerate this process, delving in to a pilot program, is South Korea.

In this recent announcement by The Bank of Korea (also the nation’s central bank), they begin by stating, ‘The need for the introduction of the central bank digital currency (CBDC) by the Bank of Korea will increase.’  It is this recognition that has clearly prompted them to look at the logistics surrounding the creation, dispersion, and usage of such a CBDC.

What Will it Look Like?

While the BOK states that they are looking into the feasibility of utilizing blockchain to underpin a CBDC, usage of this technology is not a given.

Furthermore, the pilot program is expected to look at more than simply the technical requirements behind such a feat.  This extended look includes possible legal hurdles, expected cooperation between other central banks, custody solutions, and more.

The pilot program is said to be structured as a 22 month process, with the following breakdown.

  • Defining CBDC design and functionality
    • 5 months
  • Technological requirements
    • 5 months
  • Business process analysis through external consultation
    • 4 months
  • CBDC construction and testing in controlled environment
    • 12 months

The BOK, notably, refers to Sweden and their CBDC, the e-Krona, with regards to the structuring of their pilot program.

CBDC

The acronym ‘CBDC’, refers to a ‘Central Bank Digital Currency’.  These currencies are digital representations of previously established FIAT – meaning government issued currency.

While their structuring may vary, most believe that CBDCs will be structured as blockchain based tokens; Primarily due to the technologies ability to encode fungibility, while providing easy and cost efficient value transfer.

While digital, because CBDCs are issued by government regulated entities, they would be subject to the same, or very similar, regulations and scrutiny as traditional paper currencies.

Similar Approach

If this approach being taken by The Bank of Korea sounds familiar, perhaps that it because The Bank of Canada has recently announced similar intentions.

The Bank of Canada Could Issue a Digital Currency in the Future

While there is no firm timetable for the launch of a potential digital dollar, development is in the works.  As the adage goes, ‘an ounce of prevention is worth a pound of cure’.  Clearly, this is a stance adopted by each of these central banks, as they look to be prepared for the eventual need of a CBDC.  When the time comes, and a cure is needed for ailing paper currencies, preventative measures will be ready on the sidelines.

The Bank of Korea (BOK)

The Bank of Korea acts as the central bank for South Korea.  Operations are situated in the capital, Seoul.

In operation since 1950, The Bank of Korea is currently spearheaded by Governor, Lee Ju-yeol

In Other News

Recently, we took a brief look at a few ways that COVID-19 is affecting blockchain based endeavours, to date.  One of these revolves around issues which plague paper currency, and the need to go digital.  Make sure to read the following article to learn more about the perks brought forth by CBDCs.

The COVID-19 Effect

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Regulation

Japanese Government Introduces New STO Regulations

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Japanese Regulators Amend STO Regulations

Japanese regulators officially launched their STO market via amendments to the country’s current securities regulations this week. The new crypto exchange-specific amendments add clarity to the market and introduce a number of important customer protections. As such, analysts predict that the Japanese crypto sector is about to experience rapid expansion.

According to new reports, the amendments will go into effect on May 1. Importantly the changes directly alter the Payment Services Act and the Financial Instruments and Exchange Act. The amendments introduced a variety of new measures ranging from new banking regulations and cold wallet requirements, all the way to, new legal terminology.

Storage Upgrades – STO Regulations

Specifically, the new amendments put new requirements on exchanges. For one, all exchanges must now keep in cold storage an amount equal or greater than the number of users’ funds held online. This regulation ensures that exchanges rely on cold storage whenever possible. Along the same line of thought, exchanges are no longer allowed to keep users’ funds and their funds together. Importantly, this regulation extends across both crypto and fiat reserves.

Financial Services Act via Wikipedia - STO Regulations

Financial Services Act via Wikipedia – STO Regulations

ICO and STO Amendments

Another important amendment added to the regulations is the legal definitions of initial coin offerings (ICOs) and security token offerings (STOs). For years, blockchain firms struggled to get regulators to clarify the exact differences in terms of regulations. Now, regulators have a clear cut understanding of what type of fundraising campaign is underway, and how to classify it.

Fighting Fake News – STO Regulations

Interestingly, the new amendments go after all forms of market manipulation. There are now stricter fines and punishments in place for spreading rumors or making false statements. This is an important addition as market manipulation is a real concern internationally. Japanese officials hope they can curb these nefarious actors and weed out bad sources of information.

As part of the new enforcement policies, the new regulations place cryptocurrency asset derivatives transactions under the FSA’s jurisdiction.  Additionally, there are some terminology changes. Moving forward, cryptoassets and not “cryptocurrencies” is the terminology regulators agreed on.

Importantly, a group of Japan’s top securities firms has been patiently waiting for these regulations to become official. The group includes Monex Group, Rakuten, and one of the largest financial institutions in the country, SBI. In March, the group publicly revealed plans to create a regulated security token exchange.

COVID-19 Delays

The group’s wish could have come sooner if the world wasn’t in the middle of the COVID-19 pandemic.  Unfortunately, the virus has wreaked havoc on the markets and caused multiple delays for regulators. Notably, Japan was even forced to postpone the 2020 Olympics.

Japan STO Market is Here

Despite the dreary state of the international markets, Japan seeks to be the blockchain capital of the region. This determination, coupled with regulators forward-looking stance, is sure to give the country an advantage over the competition. For now, you can expect to see progress as the Japanese STO market is officially active.

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Security Tokens

Lawsuits Goes After Some of the Largest Names in Crypto

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Lawsuits Goes After Some of the Largest Names in Crypto

In what appears to be a broad swipe at the crypto sector this week, multiple lawsuits filed with the Southern District of New York claim wrongdoing against a myriad of blockchain-based firms. The class-action lawsuits allege wrongdoing on the part of crypto heavyweights such as Binance, Block.one, BitMEX, KayDex, BProtocol, Status and TRON Foundation, just to name a few.

According to court documents, the latest suit lists three plaintiffs – Chase Williams, Alexander Clifford, and Eric Lee. Interestingly, Roche Freedman is the firm heading the lawsuit. You may recognize the name from their recent lawsuits against Bitfinex and Tether. Additionally, they led the cases against Craig Wright and Bitfinex in the past.

Crypto Lawsuits – Details

The new lawsuit lists eleven companies in violation of regulations. These companies span the entire crypto sector.  Tokens such as ELF, CVC, TRX, TOMO, SNT, and others are listed for their use of IEO and ICO models in the past. The suit claims these tokens are unregistered securities. As such, the token made agreements with exchanges in violation of Section 5 of the Exchange Act.

Section 5 via Cornell Law School

Section 5 via Cornell Law School

The violations also extend to the named exchanges. The lawsuit lists KuCoin, Block.one, Quantstamp, Civic, and Binance as exchanges who sold unregistered tokens. Plaintiffs argue that these exchanges didn’t possess the required broker-dealer license in the U.S. Importantly, the plaintiffs believe that the SEC clarified in the past that the listed tokens are securities.

The suit also lists several crypto stars specifically. For example, Changpeng Zhao (CEO Binance), Vinny Lingham (CEO Civic), Justin Sun (TRON), Brendan Blumer (Block.one) and Dan Larimer (EOS) are all named in the suit.

Serious Allegations

The allegations are not trivial, For example, the trio argues that tokens such as TRX deceived investors about their purpose and level of decentralization. The suit claims that the centralization was “not apparent at that time.” It was only after the passage of time that investors gained the necessary insight to determine this. The suit states that there was a clear delay before the “issuer’s intent, the process of management, and success in allowing decentralization to arise”  become apparent. In this way, the allegations state investors were “misled into believing that TRX was something other than security when it was a security.”

Taking on the Crypto Industry

This case appears to be an attack on some of the most important firms, exchanges, tokens, and people in the crypto sector. The large scope of allegations and the global nature of the case will cause delays along the way. Consequently, it could be a while before this trial makes its way to the courtroom.

Lawsuits for the Stars

It’s hard to imagine a scenario in which the plaintiffs win this case. They would need to establish numerous precedents during the trial. These new rulings could stifle innovation in the US blockchain sector for years to come. As such, you can expect to see a measured response to this lawsuit in the coming weeks.

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