Appropriate “Inclusive Exemption”, it is advisable to treat ICO – ICO

nJuly 6, the People’s Bank of China Institute of Digital Currency Yao Yao in the “contemporary financier” magazine published entitled “digital encryption token ICO and its regulatory research,” the long text see the network side. Although the article for the former director of Yao’s personal academic point of view, but no doubt caused a close attention from all walks of life.n
nHowever, for those who have a certain concern about technology and investment, it must be no familiar with the term ICO. In the creation of new financing at the same time, ICO also created a wealth of myth.n
nFrom Gnosis to Bancor, ICO’s fundraising records are constantly being refreshed. In the block chain pencil ( near the press release, the start-up block chain platform Tezos ICO has been raised in just four days to more than 200 million US dollars, a new high, and according to predict the final will be more than 500 million US dollars.n
nICO and regulatory blankn
nAccording to the Wanzheng block chain chairman and CEO Dr. Xiao Feng elaborated, ICO refers to:n
nnInitial Coin Offerings; ICO corresponds to ‘IPO’: Initial Public Offerings (Initial Public Offering). Block chain community In order to be in the compliance and legitimacy of the IPO with a distinction, but also to ICO called “Initial Crypto-Token Offerings”, that is, the first public offering of encrypted digital tokens financing.n
nnDr. Xiao Feng said, “The name of the ICO is indeed more in line with the essence of ‘ICO’.”n
nWhile there are differences in specific data, the industry is recognized that ICO’s current pace of development is undoubtedly significantly higher than the chain of chain venture capital, and may become the block chain industry, the main financing channels.n
nBut in the market behind the hot, even aside from those “do not fly” and is clearly a fraud project, ICO still brought a lot of questions. There have been professional investors to the chain pencils that the traditional VC investment start-up company’s success rate of less than one-twentieth, he said the current ICO market that can not understand, and estimate the rate of failure of the project will be higher.n
nOn the other hand, although the current ICO in the world of the legal definition of non-securities, digital tokens itself is rarely recognized as a currency, so ICO are basically in the financial and securities regulatory space. In the United States, for example, the chain chain pencil ( has been reported earlier, although the face of ICO explosive growth, the SEC is still in the observation stage, the delay has not made regulatory decisions.n
nHowever, it is undeniable that ICO and securities have a certain similarity, obviously not long in the line of sight of supervision.n
nIt is noteworthy that, although the regulation itself may cause short-term suppression of the ICO market, but for the existing ICO often opaque and non-normative, the industry is also often hope to monitor the coming of the crisis to protect the block chain industry and ICO The long-term healthy development of this new thing.n
nSo, as the Chinese central bank officials, Yao former director in his research article and revealed what kind of views and information?n

nPeople’s Bank of China Institute of Digital Currency Institute: Yao beforen
nThe ICO regulatory framework draws on existing regulationsn
nIt was reported that in June this year to participate in the Shanghai New Financial Research Institute (SFI) project review will be “the theoretical basis of digital currency and China’s innovation”, Yao before the ICO phenomenon highlighted that can not be avoided. Therefore, starting from the system construction, ICO should be given legal as soon as possible a statement, a complete regulatory framework. He believes that this is very important for the healthy development of the entire chain chain industry. And July 6 release of the article, you can be regarded as Yao predecessors of this further thinking.n
nThis paper first analyzes the similarities and differences between ICO and IPO and equity.n
nnFirst, ICO financing funds for the bit as currency, currency or other digital encryption tokens; IPO, equity financing funds for the currency.n
nSecond, ICO legal positioning is not clear, the regulation is blank; IPO, equity all have the corresponding regulatory laws and regulations. For example, the Securities Act (Chinese and American), the Measures for the Administration of Private Equity Financing (in), the JOBS Act (US) and so on.n
nThird, ICO occurred in the chain chain industry, the issuer is not necessarily the entity for the entity, may be non-entity business team; IPO, equity ownership of the main issue from various industries, and to be enterprises.n
nFourth, the scope of investment is not limited to the scope of ICO; IPO, equity, although the public is also facing the public, but the regulators on the investors made the relevant restrictions.n
nFifth, ICO is not related to service intermediaries, to go to the center of the network to carry out; IPO and equity all rely on securities brokers, all platforms and other intermediaries.n
nSix is ​​the ICO tokens can be in the various types of tokens exchange for secondary circulation; IPO corporate stocks can also be in the stock exchange and other secondary market circulation, and equity financing of the cash flow to rely on OTC transactions.n
nnSubsequently, he further pointed out that China’s current “Securities Law” in China in 2014, “the private equity financing approach (Trial)” and the United States Securities Regulatory Act, ICO can provide regulatory framework for reference and reference Then
nIt is recommended that the ICO project be given an appropriate exemptionn
nIn the discussion of regulatory thinking at the same time, Yao also believes that, based on the block chain technology and industry development characteristics, simply apply the existing IPO, equity supervision framework for ICO supervision is not necessarily appropriate. Looking back at history, significant technological innovation has never been the result of government planning, design, and dominance. Technological change, innovation and evolution rely on a few “pioneer” brave trial and error and the market spontaneous survival of the fittest mechanism.n
nYao further pointed out that in the process, regulators if the preemptive, excessive intervention, it will damage the market’s automatic clearing mechanism. At the same time, the de-centralization, traceability, non-tampering, transparency and agreement of the implementation of intelligent contract are automatically implemented, and spontaneous formation of a unique democratization network management mechanism (such as DAO model), to a certain extent But also reduce the need for excessive regulatory involvement. In addition, the ICO project is often in the technical incubation stage, the business model has not yet formed, coupled with the technical disruptive and groundbreaking, regulators are difficult to IPO approval, the ICO project prospects and values ​​to make professional and reasonable Evaluation.n
nTherefore, Yao former director that regulators should not be as good or bad ICO project judge, the best role is the market innovation “gatekeeper”, rather than “scavenger.”n
nThus, Yao suggested that the regulatory response should be appropriate to the ICO project “inclusive immunity”. Specifically proposed six regulatory recommendations:n
nnFirst, the amount of control and white list management.n
nICO issuers are not limited entities, but set the amount of financing restrictions. And in the issue of the project on the white list management.n
nnnSecond, ICO financing plan management.n
nAt present, most ICO projects use one-time financing, which will mislead investors that the project will be successful from the outset, and from a risk perspective, the traditional VC investment in the early investment will be a small part of the project Progress and re-assess the risk and the potential of the project to determine whether the additional investment, so the disclosure of ICO financing plan is also the focus of regulation. The introduction of VC’s phased investment philosophy, help investors to protect.n
nnnThird, the issuer to give sustained and strict information disclosure requirements, emphasizing anti-fraud and other liability terms.n
nIn addition to the recommendations, the issuer should submit detailed information disclosure information to the regulatory authorities before the ICO, including the project white paper, the development team (should not be anonymous), the business model, the fund use plan, the project characteristics, the development goals, the development strategy, the risk assessment, ICO time, ICO price assessment methods, and other information that may involve the interests of investors, and to ensure that the information disclosed can be publicly available to investors. Yao pointed out that the need to clearly define the issuer’s main responsibility, bear major information misstatement, omission and fraud, illegal fund-raising and other criminal acts of legal responsibility.n
nnnFourth, strengthen the role of intermediary platform.n
nThere are two options: First, to promote the establishment of a special platform similar to the ICO IC platform; the second is to coin exchange for the regulatory gate.n
nnnFifth, the regulatory authorities take the initiative, early intervention, strengthen the behavior of supervision, the whole to retain regulatory intervention and restrictions on power.n
nWhen necessary, regulators can directly intervene in ICO projects to prevent damage to the interests of investors.n
nnnSix is ​​to strengthen international regulatory cooperation and coordination.n
nFor the district-centered block chain projects and tokens exchanges, single-country regulatory action will lose its grip, and international regulatory cooperation and coordination will become particularly important.n
nnYao predecessors believe that regulatory uncertainty will be ICO long-term face the biggest policy risk. Therefore, it is advisable to implement a regulatory sandbox for the ICO. The regulatory authority may, in the context of ensuring the protection of the interests of investors, apply for exemption or limited authorization in the regulatory sandbox for listing of ICOs, investor restrictions, publicity and promotion of projects , Allowing ICO projects to conduct testing activities without worrying about regulatory consequences, creating “safe” innovation space for ICO projects, reducing innovation costs and policy risks.n
nThe valuation method of ICO tokensn
nIn addition to the most talked about the regulatory part of the study, Yao another study, there is a part worthy of our attention, that is trying to establish the ICO tokens valuation method.n
nHe believes that the value of the stock depends on future earnings (Payoff), generally can be used price-earnings ratio valuation and cash flow discount method for valuation. But some of the characteristics of ICO tokens make it difficult to use the traditional stock valuation model pricing.n
nYao said that the ICO tokens pricing requires a new methodology. One of the feasible ideas he put forward is to use the option pricing method to consider the economic value of the token as a call option for the underlying value of the project.n
nYao said that the advantages of this valuation is:n
nnFirst, not to continue to operate as a hypothesis, assuming that the coin project may be successful or may fail;n
nSecond, the valuation formula is independent of the risk-free interest rate, to avoid the reality does not exist in the tokens risk-free rate of technical problems, there is no need to estimate the risk of premium;n
nThirdly, it is more in line with the economic reality to consider the correlation between the value of the token and its development.n
nnThe specific formula, the reader can go to Yao original director of the original study.n
nOf course, published in the “contemporary financier” magazine this “digital encryption token ICO and its regulatory research” is only Yao as a financial field experts and scholars to write the research articles, does not represent the central bank’s policy. But the text is still one side from the side of our central bank’s attention to the ICO and regulators attitude. There is no doubt that any concern about the block chain technology and industry, people hope that this industry and ICO can be healthy and orderly development and progress.n

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