ICO deserves reconsideration[Opinion]| coindesk JAPAN | Coindesk Japan

In the aftermath of the FTX bankruptcy, U.S. Senate Banking Committee Chairman Sherrod Brown recently announced that he is considering legislation aimed at protecting retail investors from cryptocurrency fraud.

But politicians and regulators should proceed with caution. Those uninformed may be skeptical of cryptocurrency innovation, but the most obvious innovation is the ICO (initial coin offering).

ICOs allow entrepreneurs to raise capital and bypass the Sarbanes-Oxley (SOX) Act, which was created to protect investors nearly two decades ago. Lawmakers who are serious about economic growth should encourage ICOs and curb over-regulation by the U.S. Securities and Exchange Commission (SEC).

Limitations of the SOX and JOBS Acts that hinder fundraising

ICO is a technological innovation that disrupts the current fundraising system, which has become rigid after the passage of the SOX Act. The SOX Act, on the other hand, should serve as a teacher. The purpose of the SOX Act, which was passed following the accounting scandals by Enron and Arthur Andersen, was to increase investor confidence and protect individual investors.

In practice, however, it has made it more difficult for entrepreneurs to access open capital markets. Startups are now sitting in the dark for too long because access to capital market funding is so difficult.

Congress took a step in the right direction in 2013 with the Jumpstart Our Business Startups Act (JOBS Act), which encouraged crowdfunding. The JOBS Act was intended to allow more investors to participate in the growth of startups and, for startup founders, to raise funds from a wider range of people.

While the crowdfunding recommendation steered Congress in the right direction, it failed to predict the growth of the ICO market.

SEC over-regulation

According to data from CB Insights, which provides information on startups, since 2013, 19 billion dollars (approximately 2.47 trillion yen) have been raised through ICOs, while crowdfunding has raised 969 million dollars. remains at $10,000.

Crowdfunding platforms such as Kickstarter and AngelList were innovative at the time and certainly paved the way for equity crowdfunding. However, it was a centralized platform and its scale was limited. Congress’ aim is to make it easier for small investors to raise money, and that’s what ICOs are good at.

The SEC bears most of the blame for the ICO’s bad reputation. The SEC has overextended its powers as a regulator.

The SEC does not have final say on crypto-asset regulation. That’s the job of Congress. JOBS certainly made fundraising easier, but the SEC is trying to create an over-regulated regime that repeats the worst of SOX.

Entrepreneurs avoiding “ICO”

If the SEC gets its way, fewer retail investors will be able to participate in early-stage startup growth, and startup founders will be able to raise money from a limited pool of people. The chilling effect of SEC regulations can also be seen in crypto entrepreneurs avoiding using the term “ICO” for fear of SEC crackdowns.

Entrepreneurs use difficult terms like “initial decentralized offering (IDO)” and “token generation event (TGE)” to describe simple fundraising. Congress should use provisions of the JOBS Act to provide ICO entrepreneurs with a “safe haven” that provides legal protection from SEC crackdowns.

In addition, SEC regulation of ICOs, led by Chairman Gensler, a former Goldman Sachs partner, said that investment banks, auditing organizations, corporate lawyers, and regulators are among the biggest risks posed by ICO disruption. It should be seen as protectionism trying to protect the IPO (initial public offering) ecosystem.

Fraud or failure?

An oft-cited statistic shows that most ICO ventures fail within four months. Lawmakers and regulators need to convincingly distinguish between fraud and failure. Business failures are not crimes and should be encouraged by politicians trying to boost economic growth.

Rules designed to protect retail investors will cost a lot more to entrepreneurs who have to contend with more rules while seeking the capital they need to grow their businesses. is often a zero-sum game.

Senate Banking Committee Chairman Brown and SEC Chairman Gensler may have a sincere desire to support economic growth and tech entrepreneurship, but they risk stifling the most obvious source of funding for future innovation. is affecting

Most retail investors have already heard that crypto is largely a scam to avoid, and the benefits of regulation will probably be minimal. The downside of the new regulation is that it will make it more difficult for entrepreneurs to raise the capital they need to grow their businesses.

If further regulations are passed, it’s easy to predict that innovative future startups will be born overseas, far from Silicon Valley.

Mr. Don Phan: In charge of the crypto asset business of Amazon Web Services (AWS). He has a history of working as a member of parliament.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original: Initial Coin Offerings Deserve a Rethink