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14 Rutgers Bus. L.J. 1 (2018-2019)

handle is hein.journals/rutgblaj14 and id is 1 raw text is: NIT AL COIN OFFER NGS: STRI KNG A BALANCE.... 14 Rutgers Bus. L... 14 Rutgers Bus. L. Rev. 1 Rutgers Business Law Review 2018-2019 Note I Brian MacNiven Copy right C 2018-2019 by Rutgers Business Law Review; Brian MacNiven INITIAL COIN OFFERINGS: STRIKING A BALANCE BETWEEN PROTECTING INVESTORS AND FOSTERING GROWTH I. Introduction Initial Coin Offerings (ICOs) are quickly becoming the preferred method of raising capital around the globe. 2 Issuers and investors alike are boarding this seemingly unstoppable train. Currently, regulators around the world are grappling with how to regulate this new technology. 4 The United States in particular is implementing a case-by-case approach for determining whether the ICO token is a security. 5 This has proven wholly inefficient. Fraud is the new norm 6 and not a single company has registered its token with the SEC. 7 *2 Inherent in ICO regulation is the need for a balance between protecting investors and fostering growth within this promising realm of raising capital. To strike this balance, the United States should declare all ICOs 'modified securities.' Modified exemptions must then be developed and applied to the securities regulatory system. If properly evaluated and implemented, the sky is the limit for this new technology. In this note, Section II will provide an overview of recent ICO growth and explain how ICOs operate. Section III will assess the risks and benefits of this new technology and emphasize the importance of finding a balance between the two competing interests. Then, Section IV will outline how foreign regulators are approaching ICO regulation and address the consequences of fragmented regulation. Section V is devoted to an analysis of the United States' method. Next, Section VI will outline the current securities laws in the United States and explain why they are unsuitable for ICOs. Finally, Section VII offers a potential solution by creating a new exemption for ICOs. II. Overview A. Popularity ICOs are booming. In less than a year, ICOs became the fastest growing capital market in the world. 8 Ethereum, an ICO, raised $18.4 million in just 42 days. 9 From July 2016 to July 2017 ICOs raised $331 million compared to only $140 million raised by venture capitalists. 10 *3 Approximately $900 million was raised through ICOs in the second quarter of 2017 compared to $40 million raised in the first quarter of 2016. That figure jumped as ICOs yielded $740 million globally in November 2017 alone. 12 The total amount raised in 2017 is estimated at $3.7 billion whereas $96 million was raised in 2016. The numbers

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