How a sensible ICO regulation could boost the next wave of DLT innovation

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The heart of the issue

There are two core issues in this space:

1. very few token issuers did what they promised to the public; and

2. nobody created the direct link between the increased demand for the issued tokens and the market.

VC Law Firm Helps Blockchain Projects Grow
  • It always starts with the idea — the value-generating structure of the project. In other words — the founders have to explain to the public the nature of the opportunity and the envisaged solution. It is further necessary to outline how it will generate value for the users of their service/product and the economic reasoning for prospective token buyers. At this step, any regulatory interference shall be limited to assessing of the legality of the scheduled activities and the potential licensing regime that they might be subject to. Any feasibility of the successful outcome needs to be left to the market to decide.
  • The community pressure for the project execution to follow the proposed road map is actual, and all founders can feel it. It is essential because ideation without execution is just a delusion, and it can be seen that many ICO funded undertakings didn’t happen at all. The main reason for this is the complete lack of transparency around funds and no mechanisms to ensure that they are spent according to the plan. In this regard, the founders shall present to the authorities their road map with milestones to be achieved on a time and material basis. Further, the continuing execution might be supervised, and funds may be released upon reaching the milestones. This would drastically improve the success rate of all projects.
  • Another vital issue is the detachment of the tokens from the project’s development and progress. One can quickly see how the tokens of accomplished projects went down while other undertakings with less market validation achieved a higher price. ICOs did a tremendously bad job in improving the political and marketing fraudulent pricing established in traditional markets. Instead of linking the price of the tokens to the value generated by their businesses, many teams decided to leave it to the mercy of the market — pure speculation and PR tricks. This creates the “thin air” problem around this industry, which otherwise claims to be changing the world in a better direction. If a product is as good as it needs to be, it will create high demand for tokens purchases — therefore, this demand combined with the scarcity of tokens shall lead to higher prices. Currently, this work is done by promising tweets of CEOs, but the effect is not favourable in the long run. The solution here is to set a clear milestone that will trigger the direct link of the token purchases for platform utilization directly to the market and not to private smart contracts of the projects. And second, the token allocation and market manipulation shall be under strict supervision by the competent authorities. In this way, the token will inevitably become a valid indicator for the value provided by the tokenomics model and the related products/services.
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