Faculty of law blogs / UNIVERSITY OF OXFORD

Regulation of Initial Coin Offerings


White & Case


Time to read

3 Minutes

What is an ICO?

International Coin Offerings ("ICOs") are increasingly popular among start-up and other companies when raising capital. Investors participate in the fundraising by transferring fiat currencies or cryptocurrencies to the issuer in exchange for digital tokens (“Tokens”), representing a holder’s right of benefit or performance vis-à-vis the issuer. Tokens may also be used (exclusively) for payment to the issuing company for its services or products. Contrary to shares offered in a traditional initial public offering (“IPO”), Tokens typically do not represent ownership interests or dividend rights. ICO investors seek to directly benefit from the issuing company’s future business, while investors in IPOs tend to pursue a long-term interest in the value-creation of the IPO entity.

The underlying technology of the Tokens is based on blockchain which is maintained by a network of participants and computers. Utilizing cryptography to record transactions, blockchains process, verify and track the trade of the relevant virtual currency securely across independent network components.

Similarly to IPOs, the issuer can use the proceeds of the ICO to finance its business operations and future growth. In the event that Tokens are exchanged for other cryptocurrencies, the issuing company can exchange them for fiat currencies. As the features of Tokens issued in ICOs can vary widely, every Token has to be assessed individually. Tokens are typically tradable on virtual currency exchanges, creating a secondary Token market, which makes them fungible in the same way as shares.

Financial Regulation of ICOs

Existing legal uncertainties in relation to cryptocurrencies extend to ICOs. The specific crowd-lending regulation cannot be applied to ICOs, as investors in an ICO do not grant a loan to the issuer. The purchase of Tokens issued in connection with an ICO could be qualified as a purchase of commodities, a purchase of rights or a purchase of securities which may ultimately subject ICOs and the relating documentation to prospectus or other disclosure requirements.

Applicable regulations are not necessarily limited to those of the jurisdiction governing the ICO. When marketed to investors residing or domiciled in another jurisdiction, the laws and regulations of such jurisdiction may equally apply to the ICO.

Documentation Requirements

To market an ICO, it is currently market practice that the issuing company publishes a whitepaper (“Whitepaper”) on its website and certain virtual platforms. In the Whitepaper, the issuing company describes its business operations as well as the structure and features of the Tokens. The transaction documentation may also include a Token purchase agreement stipulating the terms and conditions pursuant to which investors can purchase the Tokens.

Even when Tokens are not qualified as securities, ICOs and Whitepapers have to conform to certain anti-fraud and information requirements. Information requirements may apply to the issuer and any other party involved in the sale and marketing of Tokens.

Generally, transaction documentation must include all necessary information to allow an average investor to make a reasonable investment decision. The documentation must be accurate and not misleading, comprehensive, transparent and include potential risk factors as well as a description of the characteristics of the Tokens and the business of the issuer. Statements on future developments must be reasonable, and disclosure on the use of proceeds is required. If qualified as general terms and conditions, the terms of the sales documentation must comply with certain local requirements.

Transparency and comprehensiveness of a Whitepaper are currently not necessarily examined by regulatory authorities. Risk factors, if included, are frequently limited to vaguely standardised descriptions of potential conflicts. In addition, (audited) historic financial information may not be available to investors who might therefore not be able to make a reasonable investment decision. However, ICOs frequently occur in the early stages of launching a business.

There is currently no established case law available regarding inaccurate, incomplete or misleading ICO documentation. But this may change soon.


ICOs are an innovative and appealing method for companies to raise capital. Although there is currently no specific ICO regulation in place, a diligent analysis of the regulatory framework is necessary to identify and ensure legal compliance with all applicable laws and regulations prior to launching an ICO. Legal challenges arise especially if an ICO targets investors globally. Regardless of the Token structure, the issuing company needs to provide investors with sufficient and accurate information and disclose such information comprehensively and transparently to permit average investors to make a reasonable investment decision.

This post comes to us from White & Case LLP, and has been authored by Karsten Wöckener, Carsten Lösing, Thilo Diehl and Annekatrin Kutzbach.


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