Crypto Lawyers Explain How to Keep Your ICO Legal at Crypto Invest
The ICO was the main topic of interest at the 2018 Crypto Invest Summit in Los Angeles. One of the most popular talks at the conference was with a group of veteran lawyers that have switched focus from mainstream topics to various aspects of token sale compliance. In that talk, the group gave their opinions and advice on the most important parts of making sure your ICO is legal.
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Why Do Startups Choose the ICO Model?
When asked why startups chose to hold ICOs, Carman Tate partner Marty Tate gave the crowd a simple answer: because many people consider a token sale “free money”.
However, Tate warned, the SEC has cracked down on ICO organizers in the last year, and they must now comply with strict regulations or face punishment.
Therefore, it is more important than ever for an ICO to comply with financial law, something every member of the panel discussion had an opinion about.
What to Look out for When Organizing Your ICO
According to Homeier Law PC co-founder Jor Law, an important thing to do when organizing an ICO is to make sure your token has an explicit purpose and well-defined coin economics right off the bat. That way, the project has an established direction of progression from the start, which may make it easier to figure out where it fits under SEC regulations.
On the topic of the infamous security vs. utility token debate, Stradling shareholder Ryan Azlein opined that not everything should carry the definition of a security token in the ICO space.
However, Azlein continued, regulators still need to figure out where to draw the line. And until that happens, it’s really anybody’s guess as to what constitutes a security or utility token.
Adding to Azlien’s assertions, Alliance Legal Partners, Inc. principle Jeffrey Marks advised that the best way to stay safe while the SEC figures out how to define tokens is to “hedge it out,” and be prepared to comply no matter what regulators decide.
Marks also brought up a possible workaround to the security vs. utility token divide, saying that defining your token sale as a SAFT could allow you to stay compliant.
A SAFT is a Simple Agreement for Future Tokens, which defines a token sale as a presale rather than an ICO, since participants in a SAFT-based sale receive a promise of tokens in the future, rather than an immediate distribution.
According to Cryptos Today blog editor David Gobaud, Filecoin is set to conduct the first token presale using this SAFT method.
Marks warned, though, that the SEC will likely not be pleased with this potential workaround, and that ICO organizers should be careful and do thorough research when deciding whether to structure their token sales around a SAFT.
Patenting Your ICO?
But before you even have your ICO, should you patent the technology behind it? Sagewise VP Dat Nguyen thinks you should.
While ICOs don’t have many patents right now, with Nguyen reporting a meager 800 patents mentioning the word “blockchain,” she said that could very well change in the future.
Nguyen recommended that blockchain startups use patents as a defensive tool, with the expectation that patent trolls will swoop in and try to make money by patenting blockchain technologies that remain unprotected as the space continues growing.
And according to Nguyen, you should act fast when filing a patent. IP owners have one year to file a patent after disclosing a new product or technology, and Nguyen said white papers — a popular form of preliminary documentation in the blockchain industry — most definitely count as an IP disclosure.
With all the information from this presentation in mind, blockchain startups may be able to proceed with their ICOs and have a little more peace of mind. The question, however, is: how can you increase the chance of your ICO seeing success?
Do you think the members of this panel gave solid advice? Let us know in the comments section below.
Images via Pixabay, Evan Faggart