According to a joint study released by the Canadian government along with the University of British Columbia (UBC), a wide array of new Initial coin offerings (ICOs) are currently facing a regulatory “compliance trilemma”.
According to the UBC, in order to prepare for this report, they sent a team of specialists who studied the American ICO sector in depth for a period of around six months. The targeted area for this study was primarily North America/Canada, and the team questioned nearly 45 different individuals associated with the blockchain space so as to learn more about the issues being faced by crypto enthusiasts in the Western half of the globe.
A Closer Look at the Findings
The aforementioned study claims that ICO heads are currently facing a “trilemma”, wherein they are only able to fulfill two out of the three core criterion that have been laid out by the study group in order to launch a successful ICO. The three domains include:
- Is the ICO fully compliant with governmental regulations?
- Is the ICO reaching a distributed pool of investors?
- Is the offering cost effective in the long run?
In regards to the matter, the results of the study show that:
“If issuers forgo these costs, the risk of being non-compliant rises significantly. The result is a trilemma, whereby issuers currently must forgo one of these goals to realize the other two, or to compromise on all three,”
If that wasn't enough, the research also goes on to state that there are three basic approaches available to individuals looking to issue an ICO. These include:
- The Maverick ICO: This option refers to projects that choose to ignore many of the compliance standards that need to be met in favour of maximizing ICO reach and improving the cost effectiveness of a project. However, sidetracking regulatory rules is never a good idea (because if you get caught, you could be slapped with a massive fine or even some jail time).
- The Private ICO: This approach is designed to target only a very niche customer base (accredited/institutional investors). As a result of this, a private ICO can sometimes run into massive losses if it fails to gather the envisioned financial traction from its backers.
- The Hybrid ICO: This option is one that looks to tackle all three dimensions that are needed to launch a successful ICO (but it also comes with its fair share of risks).
Rounding off their study, the researchers noted that out of the many companies looking to issue an ICO, most of them sought help from regulatory bodies so as to stay within the confines of the law at all times. With that being said, the participants did mention that they were actively pushing for some amendments so as to make the existing economic laws in the US more crypto friendly.
The study ends with the following observation:
“…To date, the ICO has been hampered by a trilemma that has substantially limited its potential… Many actors with legitimate ventures that could benefit from ICOs are likely holding back, due to combination of confusion over how exactly they might comply with financial regulations within and across jurisdictions, and the prohibitive costs of doing so manually.”