From the September issue: ICO Age

September 26, 2018

Asia has today become a hotspot for initial coin offerings in the past year or so. This has led not just to a growth in legal work, but also to a demand for law firms with specialised skills.

The phenomenon of initial coin offerings (ICOs) has taken the world by storm, and Asia has rapidly emerged as one of the key regions for the same. The number of companies launching ICOs in Singapore and Hong Kong, in particular, has rocketed in recent months, with the former appearing on list of the top three ICO launchpads in terms of money raised, according to information portal Funderbeam.

So, what is an ICO? Simply put, it is a digital token-based fundraising mechanism through which companies create and sell their own virtual currency in exchange for cash or widely accepted cryptocurrencies, such as bitcoin. The buyer of the token can use it to pay for goods or services the company offers, or stash it away as an investment.

Mark Gorriceta, managing partner of Philippine law firm Gorriceta Africa Cauton & Saavedra, says that A unique driver for its popularity is the fact that it has democratized how start-ups gain immediate access to funding. “All emerging regulatory issues notwithstanding, conducting an ICO remains to be a viable and accessible alternative to raising capital today. This is of course in stark contrast to conducting an IPO with all its requirements for voluminous paperwork – which includes establishing a company’s business as well as producing a good financial track record – not to mention meeting substantive capital requirements,” he says. 

“The ease of securing funding via ICOs can also be contrasted with obtaining a loan, the latter being another conventional method of securing funding. Frankly, loans are simply too impractical and sometimes prohibitive for start-ups which are usually formed by a group of ‘technopreneurs’ whose aggregate assets cannot meet a bank’s typical collateral requirements,” Gorriceta adds.


Gorriceta also notes that ICOs can cater to any kind of company. “This is precisely why it has caught the attention of so many industries,” he says. “But so far, we’ve dealt with start-ups and established tech companies which are offering blockchain-based solutions to improve the delivery of goods and services. These are your day-to-day transactions such as money transfer, healthcare, e-commerce, internet access, and the like.  It remains to be seen whether our regulators are able to appreciate both the breadth and depth of the application of ICOs, potentially encompassing, as it were, every line of business.

It is not only the IT sector, but several companies, from industries such as manufacturing, agriculture, tourism, service industry, have also been embarking on ICOs, note Tetsuo Kurita and Kazutaka Mori of the Singapore-based One Asia Lawyers. “In addition, though there are many venture companies, recently ICOs from businesses that collaborate with universities, and spin-out companies came out. It is the speed of financing that they like about ICOs. It seems to be very attractive that their financing may be completed in a few months from the start of the project,” they add.


Globally, Hong Kong and Singapore have emerged as two fo the three leading ICO hubs, with the third being Switzerland.  While Hong Kong has yet to host a large ICO, Singapore on the other hand had several notable token sales in 2017 including QASH, which raised $106.4 million.

Gorriceta adds that does not come as a surprise that Asia has become one of the key regions driving blockchain and cryptocurrency growth. “Blockchain technology is well-suited to address many pain points faced by developing countries, such as the Philippines,” he says. “Moreover, even prior to the introduction of ICOs, fintech hubs in Asia have long been enticing start-ups and tech talents to set up shop within the region due to lower operating and living costs in comparison to what they would normally shell out if they opt for Silicon Valley. From what we have seen, there is definitely a deep pool of untapped local talent in the tech industry who would prefer to work closer to home and apply blockchain technology to problem areas within their immediate communities. Taken together, blockchain presents a perfect opportunity for Asian tech talents to start their own companies locally – hopefully, through funding secured from ICOs.”

Kurita and Mori cite several reasons behind the popularity of ICOs in Asia. “First of all, the law to directly regulate ICOs was not enacted in Asian countries except for a few countries such as China,” they say. “For ICOs, there is no strict regulation like IPO, and there is no limitation on the use of procured funds like cloud funding. Secondly, it is the match of interests. For investors, there is the possibility of a significant price rise, for a company it is possible to raise a large amount of funds through the possibility of the project even if the company itself has not enough economic credibility.” 

“We think that the elements of these ICOs above combined with the worldwide spread of the Internet, global prosperity of SNS, and expectations for blockchain technology, led to the explosive expansion of ICOs seen last year. Moreover, in Asia, the ICOs expanded later than Europe and North America. Regulatory tightening in these areas has been thought to be one of the reasons for the shift in expansion of ICOs to Asia in recent years,” they add.


The surge in ICOs has also led to a surge in legal work. Gorriceta of Gorriceta Africa Cauton & Saavedra says that in relation to ICOs, his firm provides end-to-end legal services which include a number of components. “These are legal and compliance advisory in light of both the present and emerging Philippine regulatory framework, specifically with respect to the review of the business model and the whitepaper; connecting, collaborating, and engaging with international legal counsel, if necessary, as regards general legal support for the proposed ICO; drafting the requisite and ancillary documents for the ICO in collaboration with the chosen international legal counsel; structuring the business itself under a multi-jurisdictional and comparative lens; and liaise and represent the company before the Philippine Securities and Exchange Commission if there is an intent to sell the token in the Philippines,” he says. 

Kurita and Mori of One Asia Lawyers say they review whether the ICOs implemented in Asian countries comply with each countries’ law and regulation. “We also offer comprehensive legal service ICOs, such as reviewing the white paper, preparing a legal opinion on ICO’s legality, a contract for private sale (SAFT), a terms and condition for token sale, and a contract with a token dealer,” they say. 

At the same time, law firms in this space require a specialised set of skills. “To be competitive in this field, a law firm must gain a solid understanding of the blockchain technology, its fundamentals, and the way ICO ecosystems work. A certain level of creativity is also required to navigate throughout legal clutter caused by emerging regulatory frameworks in various jurisdictions vis-à-vis the diverse business models that are being developed with respect to ICOs. Last but not the least, a firm handling ICO-related projects must keep abreast with rapidly-evolving developments both on the legal and technology side of ICOs. An understanding and appreciation over policy trajectory – which usually responds to and follows technology and market trajectory – will go a long way in calibrating one’s legal resources towards achieving frontier legal work,” says Gorriceta.

Kurita and Mori say that it is obviously necessary to have a sufficient understanding of the laws concerning finance and securities. “In addition to this, it is necessary to be familiar with the laws and regulations in the countries where the tokens are sold,” they add. “It is required some knowledge of the business model and international tax as an additional element. We support clients in cooperation with tax specialists familiar with ICOs.”


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