A study conducted by the Luxembourg University, Faculty of Economics, Law and Finance has shown that most ICO teams do not provide all necessary information that might be needed by investors or regulators. The study conducted in the wake of the upsurge in ICO with the price increase of Bitcoin shows that many startups fail to reveal important legal information that could enable investors make informed decision on their crowdsale.
The University, which in the study reviewed 150 ICOs, said the essence of the study was to gather and analyze data in an effort to have a proper framework with which regulators and investors could properly evaluate ICOs using definite legal, financial and ethical standards.
The research which sought to find out if what it called the “ICO Gold Rush” was a scam and a bubble concluded that startup is not just an issue of concern but a super challenge to regulators and sought to offer blueprint for appropriate response.
In their findings, it reported that most people participating in ICOs do not do so based on appropriate verifiable information and rationale because these data are routinely omitted or concealed by ICO teams. For instance, just 28.5 percent of ICOs studied mentioned the relevant statutes backing their operations, 69 percent left no information about the legitimacy or otherwise of their activities.
This situation subsists because ICO is still a grey area among national legislators and the companies behind them are taking advantage of these legal loopholes to avoid scrutiny.
It seems obvious that many investors think that ICOs are fully backed laws and if Whitepaper has been produced, it must have been approved. The study found that some projects never provided clear information on what the funds raised would be used for. Rather, their emphasis seems to be on what’s in it for the investors if they bought tokens. 25 percent of these ICOs never clearly spelt out the financials of the startups nor the stages involved in the disbursement and utilization of the funds. At best, to these set of ICOs, the venture is like a donation in which the investors needed not details.
21 percent of the ICOs studied did not provide accurate information on those behind it. There were no verifiable contact details with which investors could reach the people behind the project. 47 percent had no verifiable postal details, a routine information that would have alluded to the existence of such businesses in time and space. It gets worse, 20 percent of ICOs never revealed information about the individuals or group behind the idea. One would have thought that investors wouldn’t have missed such obvious an anomaly.
90 percent of tokens sold by ICOs were not associative to any closed community created around the issuing entity. In a technical sense, the tokens had no backing, they just stood alone and investors buying them had the responsibility of figuring out token utility. There was no way the tokens can be put to immediate use by the investor and so have to be used mainly as a speculative instrument.
In conclusion, the study reported that the inability or unwillingness of most startups to provide detailed legal information is the consequence of the absence of appropriate legislations guiding ICO. The university however noted that that oversight might be as a result of the fact that most techies may not be aware of what should ordinarily be the minimal legal requirements for such ventures. Nevertheless, it is obvious that there are many projects that side-stepped the law in a bid to scam investors. These and the uninformed geeks may be the albatrosses on the future of ICO.