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ICOs Could be Forced to Pay Back Millions Following SEC Ruling

Cryptocurrency, Initial Coin Offerings (ICOs)–While the crypto markets hit a relative low for the year, with Bitcoin now trading at $3300, the news continues to worsen for the controversial field of initial coin offerings.

ICOs, the innovative fundraising measure that has capitalized on the speed of growth in the space of cryptocurrency, have come under fire by the United States Securities and Exchange Commission over whether they should constitute securities. In November, the Commission announced a landmark ruling which could have broad implications for the landscape of the industry, when it determined that two startups companies were in violation of securities laws. Two projects in question, including Paragon, had managed to raise millions by issuing tokens to non-accredited investors, a breach in which the SEC found grounds for legal action.

Paragon has since announced that it would be forced to pay back investors, leading to a sense of uneasiness among other coin projects which could be facing a similar fate. Crypto hedge funds, which made substantial returns on investment by buying into initial coin offering projects during the bull run of 2017, could be looking at a possible scenario where invested projects are forced to pay back investors en masse, leading to a conundrum for the funds which backed their development.

As reported by Bloomberg, the situation surrounding ICOs is further complicated by the fact that many cryptocurrency projects failed to register with the SEC in addition to selling their tokens to individual investors who lacked the proper requirements for accreditation. While some have hailed the ICO, token-issuing model as one of the more innovative processes to emerge from the development cryptocurrency, others have seen a budding industry ripe with corruption. ICOs allow startup companies to fund and issue projects to investors at a rapid pace compared to the traditional route, including the ability to sell directly to Main Street investors rather than going through venture capitalists.

However, with the SEC ruling potentially being applied to a broader spectrum of currencies than the original two announced in November, hedge funds which supported ICO projects throughout 2017 and 2018 could be left holding the bill in the event of investor funds being returned. Pantera Capital Management, a fund heavily invested in cryptocurrency, is one company in particular that is reporting a shaky outlook following the SEC ruling.

In a newsletter released on December 13, Pantera’s co-chief investment officers Dan Morehead and Joey Krug explained that the SEC had broad implications for both their fund and the ICO marketplace, with one possible outcome being a stifling of innovation,

“While we believe the vast majority of the projects in our portfolio should not be affected, approximately 25 percent of our fund’s capital is invested in projects with liquid tokens that sold to U.S. investors without using regulation D or regulation S. If any of these projects are deemed to be securities, the SEC’s position could adversely affect them. Of these projects, about a third (approximately 10 percent of the portfolio) are live and functional and, while they could technically continue without further development, ending development would hinder their progress.”

While most regulatory bodies have been careful to tread lightly around emerging industries, with cryptocurrency being a possible source of innovation for the broader financial and tech landscape, ICOs have continued to be a source of contention for the SEC.

The post ICOs Could be Forced to Pay Back Millions Following SEC Ruling appeared first on Ethereum World News.

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Brian Kelly Believes ICOs Will Be Held to a Higher Standard

Initial Coin Offerings (ICOs)–Brian Kelly, founder and CEO of the digital investment firm BKCM LLC and a regular on CNBC’s popular crypto-based programming, has said in a recent interview that he believes the days of ICOs coming out of nowhere to million-dollar valuations is over. Instead, he believes the market has already moved towards a more mature view of the innovative funding cycle of cryptocurrency, with ICOs largely being held to a higher standard than they were even at the start of the year.

In part, the new approach has been forced upon the market and investors due to the ongoing bear cycle conditions. Rather than being flush with capital from Bitcoin and altcoin bull-runs to end 2017, most crypto investors are having to take a spare approach to their investment, in addition to legitimate fears over where the price of crypto will be at the start of an ICO buy-in versus when the coins are actually released on the market.

Speaking in an interview with CoinTelegraph, Brian Kelly expanded on his view of ICOs and how he sees the market responding to such a shift. As opposed to doing away with the controversial, and at times outright scammy method for raising capital, Kelly believes the initial coin model will stay for some time in cryptocurrency, albeit at a change from current standards,

“It will stay,” Kelly said, “but with a little change.” He went on to add, “the days of a whitepaper and a dream and $30 million are probably over.”

Kelly also gave details on what he considers when reviewing a project to invest in, listing positive factors such as promoting activities that will increase network adoption, as well as having a strong presence in industry catalysts such as conferences.

Despite regular news stories of ICOs making off with investor funds or failing to fulfill whitepaper promises (the most damning being a study published in July that found 80 percent of all ICOs could be classified as a scam) the overall health of the market has been strong throughout the year. Since the midway point, ICO volume in 2018 already doubled that of the previous year, with developers in nearly every industry flocking to cryptocurrency to cash in on what they view as easy profit. At the very least, the ICO model does provide a fast and efficient way to raise funds for projects, as opposed to the more gated approach of raising through angel investors and venture capitalists.

However, ICOs also provide very limited returns for investors, particularly those who are hoping to hold their coins for appreciation or as a long-term investment in a project. Research out of the Boston College Carroll School of Management found that over half of all ICOs die within the first four months of reaching the market, with the vast majority of profit to be made occurring in the first two weeks. Investors who fail to sell in that window are not only exposing themselves to much greater risk relative to their early cash-out counterparts, but they also run the risk of the entire project collapsing or failing to gain any adoption via exchanges.

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Ripio Rolls Out Crypto-Powered Loans Across Latin America

Here’s something you don’t see every day: an ICO that has actually led to a shipped, working financial product.

Revealed exclusively to CoinDesk, Argentinian startup Ripio is making peer-to-peer microloans available today to all its 200,000 bitcoin wallet users in Argentina, Mexico, and Brazil. The Buenos Aires-based company raised $37 million in an initial coin offering (ICO) last year to build the Ripio Credit Network, which matches individual lenders and borrowers across the globe through ethereum smart contracts.

Today’s full rollout of that marketplace follows a closed beta in which more than 800 loans were facilitated to customers in Argentina. Ripio said it now has 3,000 lenders on the network, many of them located in Asia, issuing loans for up to $730, though so far the average loan size is $146.

Ripio CEO Sebastian Serrano told CoinDesk:

We have people from Asia funding people in South America, which is something you cannot do with another [app].”

Previously known as Bitpagos, Ripio is one of the longest-running startups in the crypto space, with well-established merchant processing, exchange and wallet services. It entered the credit business in 2016, lending its own funds to consumers in Argentina, before pursuing this more ambitious vision for global p2p lending.

While the borrowers receive their loans in fiat, the new network is powered by an ethereum-based token called RCN. Lenders send the funds in RCN, a cut of the tokens goes to third parties involved in the lending process – such as identity verifiers, credit scorers and co-signers of the loans – and Ripio (and, potentially, other wallet providers) converts the RCN to fiat before disbursing the money to the borrower.

Unlike most exchanges and mobile lending services, Ripio’s offerings are available to unbanked crypto users. This is essential for Latin American markets where people have diverse but overwhelmingly complicated histories with the banking industry. For example, according to World Bank statistics from 2017, around 30 percent of adults in Brazil are unbanked, compared to 54 percent in Colombia.

Although the startup doesn’t have data on how many unbanked users are on its platform, a survey of 1,000 Ripio users revealed 19 percent didn’t have a credit card. They often fund their wallets by depositing cash at convenience stores that partner with Ripio.

With the credit network, however, they now have a way to build a track record of repaying debts, which could help them obtain financial services in the future. Further, “the entire lifecycle of the credit and the loan” is contained in the smart contract on the blockchain, Serrano said.

“It gives the user credit history. Even if the marketplace disappears the code will continue to execute,” he said.

To make credit histories recorded in smart contracts widely useful, Ripio has proposed a standardized way to present claims about an identity (e.g. “Joe made all his car loan payments on time”) on ethereum. Serrano explained:

“In order for it to work across products and networks, ethereum needs to get a standard for identity claims so that every project uses one or two claim standards, kind of like we have ERC-20 [for tokens].”

Cross-border markets

Over the next year, Ripio plans to expand services to Chile, Colombia, and Uruguay.

“Every market has these different characteristics, regulations, things you have to comply with,” Serrano told CoinDesk, “Things you have to do to make it easy for users to deposit cash.”

Political instability can create roadblocks, however. For example, Ripio once operated in Venezuela and still maintains staff there, but security concerns and opaque regulations forced the startup to halt operations.

“We hope to extend service there as soon as this madness ends,” Serrano said. “It’s become very, very difficult to maintain operations in Venezuela, legally.”

In order to expand, Ripio is looking for more fiat-centric partnerships like the ones it established in Brazil with Neon Bank and Banrisul. Since users are handing over cash, Ripio needs banks for storage. Plus, expanding such partnerships in each nation could provide crucial liquidity.

Santiago Siri, the Argentinian founder of a blockchain governance project called Democracy Earth, told CoinDesk that Ripio’s partnerships are already making an impact across the continent.

For example, through its partnership with the e-commerce giant Mercado Libre, shoppers and sellers can transfer funds between their e-commerce accounts and Ripio wallets, offering new avenues for people to earn or spend crypto.

“Large populations in countries like Brazil and Mexico are unbanked,” Siri said. “So companies like Mercado Libre have to find ways to do business without credit cards. Ripio has been leading this, allowing people to do payments [indirectly] with bitcoin.”

Serrano said 15 percent of Ripio wallets’ transaction volume, millions of dollars per month, now comes from Mercado Libre. Rosine Kadamani, the founder of the educational Blockchain Academy in Brazil, praised this partnership with the largest e-commerce platform in the region, as well as Ripio’s crypto-powered loans, saying:

“When we’re trying to get people in the crypto space, it’s a good strategy to reach people where they are already comfortable… Why not provide a space for peer-to-peer loans? I see no reason at all for credit to be monopolized by banks.”

Speaking to the demand for such cross-border conduits, Siri added: “Latin America is a very fertile region for the deployment of cryptocurrency infrastructures.”

Sebastian Serrano image courtesy of Ripio

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Civic to Spend $43 Million In Tokens In Aggressive User Expansion

Like all crypto projects, Civic, the pioneering blockchain-powered identity startup, needs people, lots of people, using its platform.

And, according to Civic founder Vinny Lingham, while the technology is all in place for the system to work, it’s this network of users that the company is still struggling to achieve. In an effort to spur this adoption, Civic announced Wednesday that it will be paying for all identity checks for users and business partners from now until the end of the year.

Well, at least, $43 million worth.

All told, Civic is allocating 333 million of its total 1 billion supply of CVC tokens, a third of which it sold for $33 million in an initial coin offering (ICO) in June 2017. The tokens will be transferred to Civic to pay for the cost of the identity checks, serving to bootstrap growth and stress-test the protocol.

“We basically said we’re going to reserve a third of the tokens to drive network effects,” Lingham told CoinDesk.

For Civic, every new user that’s had his or her identity verified on the platform makes it a little more attractive for the next company looking for an identity solution. In this way, Civic is creating incentives for more people to join.

Lingham has been thinking about the challenge of reaching critical mass since before his company conducted an ICO in 2017.

He told CoinDesk:

“Paypal got it right with the whole $10 free if you invite a friend and it nearly bankrupted the company. They managed to crack the chicken and egg problem doing it that way.”

Fortunately for Lingham, in the new world of crypto, it’s possible for a company to create their own money supply as long as the market sees future potential. So, Civic – being the only entity, currently, that provides the know-your-customer (KYC) verification within the system – will be paying itself in CVC tokens for the service.

Why now?

Civic has built up a lot of partners, companies and entrepreneurs that need to verify a user’s identity, the most well-known of which is Annheiser-Busch.

The two companies verified the identities of users at CoinDesk’s Consensus 2018 in New York City to distribute Budweiser beers from a vending machine to attendees of legal drinking age.

It also has a lot of partners in the crypto space, including ShapeShift, Hilo, 0x and the Chamber of Digital Commerce, according to its partners page, and it’s been able to enlist a lot of ICO projects who need to run KYC before selling tokens.

“We’re at the point now where the product is actually – we’ve tested it,” said Lingham. “A hundred companies have signed up to use Civic. It’s working.”

But it’s hoping that more will consider joining this year on the promise of saving a little money onboarding their customers.

And they’re preparing for that influx by investing in the future of the business.

For instance, the company also recently acquired the URL “identity.com,” the place that will eventually serve as the meeting place between companies that need KYC services and the ones that provide them. That part of the protocol hasn’t been rolled out yet, though.

Once Civic knows that its system is working with high volume, they will open up the platform to other verifiers.

When gone, sir?

So, how many identity verifications can $43 million pay for? The general average cost for identity verification is $2, Lingham said, but there’s a wide spread.

“We’re offering this for all our services, including the accredited investor test, which is like $60,” Lingham said.

So on its face, it could be feasible for the supply to max out before the year’s end. If in theory, the company ran out of all 333 million tokens before New Year’s Day, the promotion would stop early. Lingham argues, though, there’s really almost no chance this will happen.

“We don’t expect to use all the tokens in the next couple of months,” he said.

That’s because he argued, all those CVC transactions would register to the network as demand for the product. Then increased demand would drive up the price of the token, so each additional verification should cost slightly less in CVC terms.

While Lingham thinks the promotion will succeed in enticing more users, he expects to end the year with lots of tokens left in the reserve. If it came anywhere close to running out, though, the blockchain’s ability to handle all those transactions would present more of an issue.

“The bigger problem would be ethereum. It would make CryptoKitties look like a walk in the park,” Lingham said.

On Identity.com, “it’s literally just the verification you’re being charged for,” Lingham explained. Whereas, “the central identity vendors of the world, the credit bureaus, etc, they resell your information at a profit,” he argued.

If a new entrant comes into the space and offers consumers a different deal and it catches on, that’s something that could ripple out.

As Lingham put it:

“The number of big multibillion companies in this space right now, if we start putting margin pressure on them, we disrupt the whole industry.”

Fingerprint on keyboard image via Pexels (Creative Commons license)

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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ASX Probes Penny Stock Seeking to Raise $15 Million in an ICO

The Australian Securities Exchange (ASX) has launched a probe into an IT firm behind a listed penny stock seeking to raise $15 million via an initial coin offering (ICO) for the launch of a cryptocurrency exchange.

Called Byte Power Group (BPG), the public firm issued a statement on Wednesday with answers to a total of 17 questions raised by the ASX requiring the firm to provide details on its intended token sale, disclosed on July 19.

Based on a release at the time, BPG aims to issue a total of 1 billion Byte Power X Loyalty Tokens (BPX Tokens) and plans to sell 25 percent of the amount to private investors at a price of US$0.06 per unit.

The goal is to raise as much as $15 million for the firm to fund the launch of the exchange, where the BPX Tokens can be further traded and used to offset transaction fees. The remaining 75 percent will be allocated for “pre-registered users of the exchange, company special releases, pre-opening and future marketing drive,” according to the plan.

As BPG aims to become the first publicly traded company in Australia to launch a cryptocurrency exchange via the ICO funding model, the move sparked concerns from the ASX over whether it is “in compliance with the ASX Listing Rules.”

On Aug. 1, the ASX’s compliance team sent a letter to BPG, requiring the firm to justify the legality of the planned operation, listing the 17 questions that asked about the status of the ICO, whether it had obtained any legal advice and more.

In today’s written response, BPG said it had already started selling the tokens to private investors in Australia and Singapore with a plan to further roll out the scheme in Hong Kong. It has not responded to a CoinDesk enquiry on how much it has raised so far, or whether any of the 75 percent of the total tokens would be further sold to investors.

In both of the jurisdictions in which it has started selling tokens, BPG claimed it received legal advice that the tokens are not deemed as securities, claiming they are not regulated as a financial product under the Corporations Act of Australian law.

As previously reported by CoinDesk, the Australian Securities and Investments Commission (ASIC) issued regulatory guidance for ICOs in September 2017.

The financial watchdog said at the time ICOs that offer financial products should be regulated under the Corporations Act and gave further details on how it defined such financial products, stating:

“If the value of the digital coins acquired is affected by the pooling of funds from contributors or use of those funds under the arrangement, then the ICO is likely to fall within the requirements relating to MISs [managed investment schemes]. This is often the case if what is offered through the ICO has the attributes of an investment.”

As of press time, the ASIC has not responded to CoinDesk’s request for comment on the BPG case.

It now remains to be seen how the ASX will respond to the letter and whether it will take any action over the listed firm’s ICO activity.

Australian dollar image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.