About ten years ago one of the absolutely most unhinged, wildest boom markets ever seen exploded onto the stage: the ICO boom. ICOs, or initial coin offerings, were akin to initial public offerings, but without any of the rules that collar the public sale of equity. ICOs were lawless and manic and raised billions and defrauded thousands, and then largely disappeared.
Are they coming back?
The crypto-structure bill is still on Congress's agenda, but the nation's lawmakers have more pressing concerns right now: they have to pass a bill simply
Wading into that legislative vacuum is the Securities and Exchange Commission, gingerly. The commission
The old SEC's initial stance on ICOs, sketched out a decade ago, was pretty straightforward: they are securities offerings, and need to be regulated as such. The new SEC's proposed rule would soften that stance, allowing smaller firms to issue tokens that would not legally fall under the definition of "investment contract" because what they're issuing doesn't meet the definition of "securities."
If you've been around crypto long enough, it is impossible not to think about the ICO boom that actually created all these questions about whether or not these things were securities and what was the SEC's role in regulating them.
The ICO boom wasn't planned. It started with just a couple of one-off incidents. The Ethereum Foundation sold some tokens to raise money for their project. A couple others did the same. Then there was "The DAO." In the spring of 2016 some folks launched a fundraising project for something called a Decentralized Autonomous Organization. It didn't really do anything beyond raise money, but people were entranced by it, by the idea of being able to use the crypto rails to essentially get around the capital markets.
After that, virtually anybody with even the sketchiest of plans was raising millions, in some rare cases billions. I was just a reporter covering it, and I'd get people coming to me with their schemes, looking to figure out how to tap this seemingly bottomless reservoir of liquidity. The height of the mania was an outfit called Block.One, which promised to build a blockchain platform they called EOS. They ran a year-long ICO for a token that the founder, Brendan Blumer, told me, on the record, had "no purpose." We
They still raised $4 billion (it was only $700 million when our story ran). EOS got built, but the founders
The ICO boom raised possibly more than $20 billion in 2018 alone, estimates vary, and there are only a handful of projects that came out of it that weren't get rich quick schemes or outright frauds. But here's the thing: they weren't illegal. They weren't. Because there weren't any rules around them. In 2018 the SEC stepped in and declared that most of them were securities and had to be registered and that pretty much squelched the boom.
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And, here's the important part, the idea behind it was quite ingenious. You're taking the very laborious, very manual job of raising capital and digitizing and automating it. That could make raising capital faster, more transparent, and more open to the public. It mushes venture capital and IPOs in a really fascinating way. There's no reason it can't work, if the infrastructure is built correctly. And to do that you really only need one tweak to the system we already have.
Are we building the free for all again, or capitalizing on the good idea? It would be nice if Congress could codify the rules. It would be nice if the SEC could craft the regulations that implement the rules. But it seems to me the big problem with "ICOs" and token sales isn't the method; it's just trying to work around the plain reality that tokens sold as an investment are securities.
