### WordPress - Web publishing software Copyright 2011-2019 by the contributors This program is free software; you can redistribute it and/or modify it under the terms of the GNU General Public License as published by the Free Software Foundation; either version 2 of the License, or (at your option) any later version. This program is distributed in the hope that it will be useful, but WITHOUT ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the GNU General Public License for more details. You should have received a copy of the GNU General Public License along with this program; if not, write to the Free Software Foundation, Inc., 51 Franklin St, Fifth Floor, Boston, MA 02110-1301 USA This program incorporates work covered by the following copyright and permission notices: b2 is (c) 2001, 2002 Michel Valdrighi - m@tidakada.com - http://tidakada.com Wherever third party code has been used, credit has been given in the code's comments. b2 is released under the GPL and WordPress - Web publishing software Copyright 2003-2010 by the contributors WordPress is released under the GPL --- ### GNU GENERAL PUBLIC LICENSE Version 2, June 1991 Copyright (C) 1989, 1991 Free Software Foundation, Inc. 51 Franklin Street, Fifth Floor, Boston, MA 02110-1301, USA Everyone is permitted to copy and distribute verbatim copies of this license document, but changing it is not allowed. ### Preamble The licenses for most software are designed to take away your freedom to share and change it. By contrast, the GNU General Public License is intended to guarantee your freedom to share and change free software--to make sure the software is free for all its users. This General Public License applies to most of the Free Software Foundation's software and to any other program whose authors commit to using it. (Some other Free Software Foundation software is covered by the GNU Lesser General Public License instead.) You can apply it to your programs, too. When we speak of free software, we are referring to freedom, not price. Our General Public Licenses are designed to make sure that you have the freedom to distribute copies of free software (and charge for this service if you wish), that you receive source code or can get it if you want it, that you can change the software or use pieces of it in new free programs; and that you know you can do these things. To protect your rights, we need to make restrictions that forbid anyone to deny you these rights or to ask you to surrender the rights. These restrictions translate to certain responsibilities for you if you distribute copies of the software, or if you modify it. For example, if you distribute copies of such a program, whether gratis or for a fee, you must give the recipients all the rights that you have. You must make sure that they, too, receive or can get the source code. And you must show them these terms so they know their rights. We protect your rights with two steps: (1) copyright the software, and (2) offer you this license which gives you legal permission to copy, distribute and/or modify the software. Also, for each author's protection and ours, we want to make certain that everyone understands that there is no warranty for this free software. If the software is modified by someone else and passed on, we want its recipients to know that what they have is not the original, so that any problems introduced by others will not reflect on the original authors' reputations. Finally, any free program is threatened constantly by software patents. We wish to avoid the danger that redistributors of a free program will individually obtain patent licenses, in effect making the program proprietary. To prevent this, we have made it clear that any patent must be licensed for everyone's free use or not licensed at all. The precise terms and conditions for copying, distribution and modification follow. ### TERMS AND CONDITIONS FOR COPYING, DISTRIBUTION AND MODIFICATION **0.** This License applies to any program or other work which contains a notice placed by the copyright holder saying it may be distributed under the terms of this General Public License. The "Program", below, refers to any such program or work, and a "work based on the Program" means either the Program or any derivative work under copyright law: that is to say, a work containing the Program or a portion of it, either verbatim or with modifications and/or translated into another language. (Hereinafter, translation is included without limitation in the term "modification".) Each licensee is addressed as "you". Activities other than copying, distribution and modification are not covered by this License; they are outside its scope. The act of running the Program is not restricted, and the output from the Program is covered only if its contents constitute a work based on the Program (independent of having been made by running the Program). Whether that is true depends on what the Program does. **1.** You may copy and distribute verbatim copies of the Program's source code as you receive it, in any medium, provided that you conspicuously and appropriately publish on each copy an appropriate copyright notice and disclaimer of warranty; keep intact all the notices that refer to this License and to the absence of any warranty; and give any other recipients of the Program a copy of this License along with the Program. You may charge a fee for the physical act of transferring a copy, and you may at your option offer warranty protection in exchange for a fee. **2.** You may modify your copy or copies of the Program or any portion of it, thus forming a work based on the Program, and copy and distribute such modifications or work under the terms of Section 1 above, provided that you also meet all of these conditions: **a)** You must cause the modified files to carry prominent notices stating that you changed the files and the date of any change. **b)** You must cause any work that you distribute or publish, that in whole or in part contains or is derived from the Program or any part thereof, to be licensed as a whole at no charge to all third parties under the terms of this License. **c)** If the modified program normally reads commands interactively when run, you must cause it, when started running for such interactive use in the most ordinary way, to print or display an announcement including an appropriate copyright notice and a notice that there is no warranty (or else, saying that you provide a warranty) and that users may redistribute the program under these conditions, and telling the user how to view a copy of this License. (Exception: if the Program itself is interactive but does not normally print such an announcement, your work based on the Program is not required to print an announcement.) These requirements apply to the modified work as a whole. If identifiable sections of that work are not derived from the Program, and can be reasonably considered independent and separate works in themselves, then this License, and its terms, do not apply to those sections when you distribute them as separate works. But when you distribute the same sections as part of a whole which is a work based on the Program, the distribution of the whole must be on the terms of this License, whose permissions for other licensees extend to the entire whole, and thus to each and every part regardless of who wrote it. Thus, it is not the intent of this section to claim rights or contest your rights to work written entirely by you; rather, the intent is to exercise the right to control the distribution of derivative or collective works based on the Program. In addition, mere aggregation of another work not based on the Program with the Program (or with a work based on the Program) on a volume of a storage or distribution medium does not bring the other work under the scope of this License. **3.** You may copy and distribute the Program (or a work based on it, under Section 2) in object code or executable form under the terms of Sections 1 and 2 above provided that you also do one of the following: **a)** Accompany it with the complete corresponding machine-readable source code, which must be distributed under the terms of Sections 1 and 2 above on a medium customarily used for software interchange; or, **b)** Accompany it with a written offer, valid for at least three years, to give any third party, for a charge no more than your cost of physically performing source distribution, a complete machine-readable copy of the corresponding source code, to be distributed under the terms of Sections 1 and 2 above on a medium customarily used for software interchange; or, **c)** Accompany it with the information you received as to the offer to distribute corresponding source code. (This alternative is allowed only for noncommercial distribution and only if you received the program in object code or executable form with such an offer, in accord with Subsection b above.) The source code for a work means the preferred form of the work for making modifications to it. For an executable work, complete source code means all the source code for all modules it contains, plus any associated interface definition files, plus the scripts used to control compilation and installation of the executable. However, as a special exception, the source code distributed need not include anything that is normally distributed (in either source or binary form) with the major components (compiler, kernel, and so on) of the operating system on which the executable runs, unless that component itself accompanies the executable. If distribution of executable or object code is made by offering access to copy from a designated place, then offering equivalent access to copy the source code from the same place counts as distribution of the source code, even though third parties are not compelled to copy the source along with the object code. **4.** You may not copy, modify, sublicense, or distribute the Program except as expressly provided under this License. Any attempt otherwise to copy, modify, sublicense or distribute the Program is void, and will automatically terminate your rights under this License. However, parties who have received copies, or rights, from you under this License will not have their licenses terminated so long as such parties remain in full compliance. **5.** You are not required to accept this License, since you have not signed it. However, nothing else grants you permission to modify or distribute the Program or its derivative works. These actions are prohibited by law if you do not accept this License. Therefore, by modifying or distributing the Program (or any work based on the Program), you indicate your acceptance of this License to do so, and all its terms and conditions for copying, distributing or modifying the Program or works based on it. **6.** Each time you redistribute the Program (or any work based on the Program), the recipient automatically receives a license from the original licensor to copy, distribute or modify the Program subject to these terms and conditions. You may not impose any further restrictions on the recipients' exercise of the rights granted herein. You are not responsible for enforcing compliance by third parties to this License. **7.** If, as a consequence of a court judgment or allegation of patent infringement or for any other reason (not limited to patent issues), conditions are imposed on you (whether by court order, agreement or otherwise) that contradict the conditions of this License, they do not excuse you from the conditions of this License. If you cannot distribute so as to satisfy simultaneously your obligations under this License and any other pertinent obligations, then as a consequence you may not distribute the Program at all. For example, if a patent license would not permit royalty-free redistribution of the Program by all those who receive copies directly or indirectly through you, then the only way you could satisfy both it and this License would be to refrain entirely from distribution of the Program. If any portion of this section is held invalid or unenforceable under any particular circumstance, the balance of the section is intended to apply and the section as a whole is intended to apply in other circumstances. It is not the purpose of this section to induce you to infringe any patents or other property right claims or to contest validity of any such claims; this section has the sole purpose of protecting the integrity of the free software distribution system, which is implemented by public license practices. Many people have made generous contributions to the wide range of software distributed through that system in reliance on consistent application of that system; it is up to the author/donor to decide if he or she is willing to distribute software through any other system and a licensee cannot impose that choice. This section is intended to make thoroughly clear what is believed to be a consequence of the rest of this License. **8.** If the distribution and/or use of the Program is restricted in certain countries either by patents or by copyrighted interfaces, the original copyright holder who places the Program under this License may add an explicit geographical distribution limitation excluding those countries, so that distribution is permitted only in or among countries not thus excluded. In such case, this License incorporates the limitation as if written in the body of this License. **9.** The Free Software Foundation may publish revised and/or new versions of the General Public License from time to time. Such new versions will be similar in spirit to the present version, but may differ in detail to address new problems or concerns. Each version is given a distinguishing version number. If the Program specifies a version number of this License which applies to it and "any later version", you have the option of following the terms and conditions either of that version or of any later version published by the Free Software Foundation. If the Program does not specify a version number of this License, you may choose any version ever published by the Free Software Foundation. **10.** If you wish to incorporate parts of the Program into other free programs whose distribution conditions are different, write to the author to ask for permission. For software which is copyrighted by the Free Software Foundation, write to the Free Software Foundation; we sometimes make exceptions for this. Our decision will be guided by the two goals of preserving the free status of all derivatives of our free software and of promoting the sharing and reuse of software generally. **NO WARRANTY** **11.** BECAUSE THE PROGRAM IS LICENSED FREE OF CHARGE, THERE IS NO WARRANTY FOR THE PROGRAM, TO THE EXTENT PERMITTED BY APPLICABLE LAW. EXCEPT WHEN OTHERWISE STATED IN WRITING THE COPYRIGHT HOLDERS AND/OR OTHER PARTIES PROVIDE THE PROGRAM "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE PROGRAM IS WITH YOU. SHOULD THE PROGRAM PROVE DEFECTIVE, YOU ASSUME THE COST OF ALL NECESSARY SERVICING, REPAIR OR CORRECTION. **12.** IN NO EVENT UNLESS REQUIRED BY APPLICABLE LAW OR AGREED TO IN WRITING WILL ANY COPYRIGHT HOLDER, OR ANY OTHER PARTY WHO MAY MODIFY AND/OR REDISTRIBUTE THE PROGRAM AS PERMITTED ABOVE, BE LIABLE TO YOU FOR DAMAGES, INCLUDING ANY GENERAL, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE THE PROGRAM (INCLUDING BUT NOT LIMITED TO LOSS OF DATA OR DATA BEING RENDERED INACCURATE OR LOSSES SUSTAINED BY YOU OR THIRD PARTIES OR A FAILURE OF THE PROGRAM TO OPERATE WITH ANY OTHER PROGRAMS), EVEN IF SUCH HOLDER OR OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. ### END OF TERMS AND CONDITIONS ### How to Apply These Terms to Your New Programs If you develop a new program, and you want it to be of the greatest possible use to the public, the best way to achieve this is to make it free software which everyone can redistribute and change under these terms. To do so, attach the following notices to the program. It is safest to attach them to the start of each source file to most effectively convey the exclusion of warranty; and each file should have at least the "copyright" line and a pointer to where the full notice is found. one line to give the program's name and an idea of what it does. Copyright (C) yyyy name of author This program is free software; you can redistribute it and/or modify it under the terms of the GNU General Public License as published by the Free Software Foundation; either version 2 of the License, or (at your option) any later version. This program is distributed in the hope that it will be useful, but WITHOUT ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the GNU General Public License for more details. You should have received a copy of the GNU General Public License along with this program; if not, write to the Free Software Foundation, Inc., 51 Franklin Street, Fifth Floor, Boston, MA 02110-1301, USA. Also add information on how to contact you by electronic and paper mail. If the program is interactive, make it output a short notice like this when it starts in an interactive mode: Gnomovision version 69, Copyright (C) year name of author Gnomovision comes with ABSOLUTELY NO WARRANTY; for details type `show w'. This is free software, and you are welcome to redistribute it under certain conditions; type `show c' for details. The hypothetical commands \`show w' and \`show c' should show the appropriate parts of the General Public License. Of course, the commands you use may be called something other than \`show w' and \`show c'; they could even be mouse-clicks or menu items--whatever suits your program. You should also get your employer (if you work as a programmer) or your school, if any, to sign a "copyright disclaimer" for the program, if necessary. Here is a sample; alter the names: Yoyodyne, Inc., hereby disclaims all copyright interest in the program `Gnomovision' (which makes passes at compilers) written by James Hacker. signature of Ty Coon, 1 April 1989 Ty Coon, President of Vice This General Public License does not permit incorporating your program into proprietary programs. If your program is a subroutine library, you may consider it more useful to permit linking proprietary applications with the library. If this is what you want to do, use the [GNU Lesser General Public License](http://www.gnu.org/licenses/lgpl.html) instead of this License. Financial Advisor Guide to Initial Coin Offerings (ICOs) - sinth.info

Financial Advisor Guide to Initial Coin Offerings (ICOs)

[ad_1]

Initial coin offerings (ICOs) are a fundraising model for startups and crypto projects. These ventures raise capital by issuing digital tokens or coins in exchange for cryptocurrency investments. ICOs remain highly speculative, and many operate beyond regulatory oversight.

As an investment advisor, it is crucial to have a solid understanding of how ICOs function, their inherent risks, and the evolving regulatory landscape.

Key Takeaways

  • Initial coin offerings (ICOs) are a method of funding that involves issuing digital tokens in exchange for cryptocurrency.
  • Financial advisors need to understand the risks and regulatory considerations associated with ICOs.
  • ICO investments are subject to potential fraud, lack of investor protection, poor liquidity, and volatility.
  • Thorough technical and financial analysis is required to support any recommendation to participate in an ICO.

For clients interested in cryptocurrencies, ICOs may be an attractive early investment opportunity in a disruptive technology. However, advisors have an obligation to ensure that clients fully grasp the risks involved and that their ICO investments align with their broader financial goals and risk tolerance. You can then set client expectations and uphold your ethical duties even in a newer investment area like cryptocurrency.

With the appropriate due diligence and a measured approach, advisors can navigate the fast-moving ICO landscape on behalf of their clients to give them prudent advice. This remains a “buyer beware” market still needing maturation and regulatory clarity. In the interim, advisors must vigilantly assess each offering and emphasize transparency with clients above all else.

How Initial Coin Offerings (ICOs) Work

The process for conducting an ICO often involves the issuer releasing a document known as a white paper detailing the project, goals, timeline, and use of funds. The white paper serves as an informal prospectus to attract potential investors.

Once the white paper circulates, the issuer sets a date for a token sale to exchange newly created crypto tokens for established cryptocurrencies like bitcoin or ether, usually with the expectation that the tokens being offered will increase in value as the network and demand grow. The tokens are stored in digital wallets and are typically based on blockchain technology.

These newly minted digital tokens have two main varieties:

  • Utility tokens: These provide their holders with future access to a product or service on the platform being developed. Essentially, they grant usage rights or the prospect of such rights.
  • Security tokens: These entitle holders to an investment return, profit share, dividends, or other financial interest tied to an underlying asset. These are usually subject to securities regulations.

To date, the vast majority of ICOs are the utility type. Unlike company shares, these ICO tokens generally do not confer equity ownership in the issuing entity. Instead, they represent a digital asset specific to the project or platform.

For this reason, the value of utility tokens depends on the successful development and adoption of the project’s platform or service. If the project fails to materialize or gain traction, then the tokens may become worthless. Alternatively, while offering potential financial returns, security tokens are subject to the regulatory environment of securities, which can add layers of complexity and compliance provisions.

From a technical perspective, ICOs rely heavily on ERC-20 tokens built on the Ethereum blockchain. Smart contracts automate the execution of token sales and distribute them based on set terms.

Key Differences Between ICOs and IPOs

While frequently compared with initial public offerings (IPOs) of company shares to the public, ICOs differ considerably concerning their regulation, structure, inherent risks, and investor rights. Here are some key differences:

  • Regulation: IPOs must adhere to strict rules in the Securities Act of 1933, which requires company disclosures, financial statements, liability for misstatements, and registration with the U.S. Securities and Exchange Commission (SEC). ICOs, meanwhile, mostly operate outside this framework.
  • Underwriting: For IPOs, underwriters like investment banks conduct thorough due diligence, receive fees, and act as gatekeepers to the public markets while marketing new shares to early investors. ICOs have no intermediaries screening or validating their offerings. Instead, the investing public must do their own research and build trust in the issuer, which directly markets the tokens.
  • Rights and privileges: Stocks bought in IPOs represent equity ownership in a company’s assets and entitle owners of shares to residual profits, voting rights, and the potential for dividends. ICOs rarely confer such rights, as they are typically utility-based tokens granting platform access and usage rights—or nothing at all.

These differences mean that IPO investors have more transparency, oversight, and legal protections than those in the ICO market. Advisors need to underscore these contrasts so that clients appreciate the heightened risks.

ICOs

  • Legal requirements: This depends on where the ICO is based.

  • Transparency: Information given in white papers is mostly voluntary; frequently unaudited

  • Company stage: Early-stage firms

  • Accessibility: If you’re already familiar with crypto and blockchain, it’s fairly easy. No underwriting gatekeepers or intermediaries exist between founders and the market.

  • Rights and privileges: Often little or none since they are usually for utility-based tokens

IPOs

  • Legal requirements: Registration with the SEC, compliance with rules for exchange listing, due diligence, and Know Your Customer (KYC), and anti-money laundering statutes

  • Transparency: Prospectus that details finances, known risks, and legally required and audited information necessary for selling securities to the public

  • Company stage: Typically, well-established with years of audited financial statements available

  • Accessibility: Demand frequently exceeds supply for attractive IPOs, limiting access.

  • Rights and privileges: IPO shares are equity in a company, entitling the buyer to potential dividends, voting rights, and residual profits.

Risks and Challenges of ICOs

Given the lack of mandatory disclosures, regulations, and standardization, ICOs present a high risk of fraud, misrepresentation, and cybersecurity breaches. Advisors should warn clients of potential red flags like statements guaranteeing high returns, fake founder credentials, plagiarized white papers, or pressure to invest quickly.

While many ICO issuers publish white papers, websites, and project details, there are no requirements for audited financials, disclosures of conflicts, or background checks. Therefore, an elevated risk of fraud or misconduct exists in ICOs.

While many ICOs are legitimate, the largely unregulated arena has been the target of numerous instances of fraud. Here are a few of the most notorious examples:

  • OneCoin: OneCoin was promoted as a new cryptocurrency that would yield high returns. However, it was eventually revealed to be a Ponzi scheme. Its founders have since been convicted of defrauding investors of billions of dollars. Red flags included over-promising future returns, over-promising on the company’s technology, and dubious credentials for their founders.
  • BitConnect: BitConnect promised high returns to investors but was eventually exposed as a Ponzi scheme. When it collapsed in 2018, it led to massive losses for investors spread out around the globe. Red flags included over-promising on high returns, a white paper that was murky at best, and a referral program that used a structure known from Ponzi schemes.
  • Centra Tech: The Centra Tech ICO was backed by several celebrities and raised $25 million in its offering. The founders later pleaded guilty to fraud and other charges, having made false claims about their technology and business relationships with major credit card companies. Red flags included over-promising future returns, over-promising on the company’s technology, unconfirmed relationships with major non-crypto firms, and the dubious credentials of executives (who didn’t exist).
  • Pincoin and iFan: These two ICOs, run by the same Vietnam-based company, Modern Tech, defrauded over 30,000 investors out of a combined total of $660 million. The scheme promised high returns, but investors were paid with tokens from a new ICO rather than cash. Red flags included over-promising on high returns (up to 40% monthly at one point), a pyramid scheme arrangement (returns paid in further tokens), and an opaque business structure.
  • PlexCoin: The PlexCoin ICO promised a 13-fold profit in less than a month, but instead defrauded investors of millions. Red flags included over-promising future returns (1,354% profit in less than 29 days) and the dubious backgrounds of executives.

These cases highlight the need for due diligence and caution when investing in ICOs. The cryptocurrency space, especially over several years in the late 2010s, saw a proliferation of such schemes, taking advantage of the hype, lack of regulation surrounding digital currencies and blockchain technology, and investors wanting to get in on returns seen in legitimate ICOs.

But even legit ICOs have high failure rates. Their speculative nature means that ICO investments tend to have extreme volatility. The principal invested can decline significantly or go to zero after a startup failure. Moreover, studies find that most ICOs lose substantially all their value over time, amplified by persistent delays, project abandonment, or lack of liquidity.

Another challenge is the limited historical data and lack of established valuation models for ICOs, making it difficult to assess their fair value or potential return rigorously. Traditional financial metrics and analysis methods used for stocks and bonds are often not applicable to ICOs.

Liquidity risk is another concern. Unlike publicly traded shares listed on major stock exchanges, many ICO tokens are traded on less regulated and less liquid cryptocurrency exchanges. This can make it difficult for investors to sell their tokens at a fair price (or at all), especially during market downturns.

Evolution of the ICO Market

In the 2010s, ICOs emerged as a method for blockchain-based startups to raise capital outside the traditional venture capital model. They were enabled by the increasing popularity and acceptance of cryptocurrencies, especially bitcoin and ether. The first notable ICO was for Mastercoin (now Omni) in 2013, which raised $5 million, an impressive figure at the time that demonstrated the potential of this new fundraising mechanism.

Over the next few years, the ICO landscape grew rapidly, culminating in a 2017–2018 peak, when billions of dollars were raised by various projects, including notably shady ones. The appeal was simple: It was a way for anyone with an internet connection to invest in projects that seemed to grow in value rapidly. For instance, Dragon Coin (DRG), a payments system targeting the Southeast Asia online casino market, raised $320 million in March 2018, though it has since lost more than 85% of its ICO value.

While many fail, several cases highlight the potential success ICOs can have. Perhaps the best known is Ethereum, which had its ICO in 2014 and raised over $18 million. It has since grown into the second-largest cryptocurrency by market capitalization. Ethereum’s success lies not just in its fundraising but in how it contributes to the cryptocurrency ecosystem more broadly. The platform’s introduction of easily programmable smart contracts changed the industry, laying the groundwork for decentralized applications (dApps) and numerous other blockchain projects.

Another prominent example is EOS, which raised a record $4 billion in its yearlong ICO ending in 2018, though its market cap has since decreased to about $750 million by the end of 2023. These successes underscored the massive fundraising potential of ICOs and how these funds could be channeled to create platforms that aimed to improve the crypto space.

However, more recent trends in the ICO market indicate a shift toward more regulatory compliance and investor protection. The explosive growth and subsequent scams and failed projects caught the attention of regulators worldwide. This has led to increased scrutiny and the implementation of more stringent rules around ICOs.

As a result, there has been a decline in the number of ICOs, with a noticeable shift toward security token offerings and initial exchange offerings, which are said to be better regulated and more secure alternatives. These trends could reflect a market that is gradually aligning with traditional financial and regulatory standards while maintaining the best aspects of the crypto space.

Considerations for Financial Advisors

ICOs require advisors to conduct extensive due diligence. Here are some of the most crucial elements in an ICO to evaluate:

  • Founder/company credentials and track record
  • Proposed product or service viability and competition
  • Token utility and use cases
  • Code audits and cybersecurity
  • Token valuation and sale structure
  • Planned uses for the proceeds
  • Market conditions and growth projections

Advisors should thoroughly vet white papers, interrogate assumptions, and assess alignment with client goals before endorsing any ICO investment. From a suitability perspective, clients should only use discretionary risk capital for ICOs that they can afford to lose. Conservative allocations are prudent.

Ongoing client and advisor education is paramount so that individuals understand what ICO investments entail. Transparency and knowledge build trust in advising on novel areas like crypto.

Legally, advisors must follow all applicable regulations should they recommend ICOs, a largely unregulated space. Ethical obligations persist. As the market evolves, advisors must regularly advise clients on current trends, risks, and developments to make informed decisions on any ICO opportunities. Advisors should monitor the changing regulatory landscape, especially provisions around Know Your Client (KYC) and anti-money laundering that can determine a client’s eligibility to participate in ICOs.

While risky, ICOs offer exposure to emerging technologies and business models that can diversify and contribute to an overall investment portfolio. Well-equipped advisors can guide clients to make informed decisions about this complex, rapidly evolving ecosystem.

When Should an Advisor Endorse or Recommend an ICO to Clients?

Advisors should not endorse ICOs unless they determine an offering is suitable after exhaustive due diligence. Even then, allocations should be minimal given the risks. A high level of caution is warranted.

What Blockchain Platforms Are ICOs Most Often Built on?

While some ICOs are issued via their unique blockchain, most today launch on the Ethereum network and issue ERC-20 standard tokens because of Ethereum’s maturity and smart contract capabilities.

What Are Secure Token Offerings?

Secure token offerings (STOs) are public offerings of security tokens sold in cryptocurrency exchanges. These tokens are subject to federal securities regulations, distinguishing them from ICOs. Aimed at more traditional investors, STOs are a more regulated, secure, and legally compliant way of raising funds and investing in blockchain projects.

What Are Initial Exchange Offerings?

An initial exchange offering (IEO) is a type of fundraising for new cryptocurrency projects like ICOs. However, in an IEO, the sale is done through a cryptocurrency exchange, not by the project team. Thus, the crypto exchange, which is supposed to vet the token, acts as an intermediary between token issuers and buyers. This added layer involving the established exchange is supposed to increase investor trust and reduce the risk of fraud, which is a significant concern with ICOs.

The Bottom Line

ICOs are an evolving method of fundraising that has opportunities and risks. Financial advisors must understand these dynamics, as well as the evolving regulatory environment, to guide their clients effectively in this space, balancing these investment opportunities with the need for due diligence and risk management.

[ad_2]

Source link

Previous Article

Santa Maria investment advisor, SEC reach deal in $2.25M alleged elder fraud scheme | Crime and Courts

Next Article

Australia to Simplify Financial Advice Rules