Hybrid ICOs are what analysts call those who compromise in all three areas – reach, compliance and cost efficiency. One example is RightMesh. RightMesh has established a subsidiary in Switzerland and designed its RMESH token to be classified by Swiss regulators as a pay coin (and not as security). A dedicated law firm ensured that RightMesh met the relevant KYC and AML requirements. The token was also not offered in countries where ICO tokens are generally classified as securities, such as the United States. The RightMesh team researched how the RMESH token would be classified in over 27 jurisdictions. However, this care is associated with corresponding costs. In addition, there is no guarantee that a token will retain its status within a jurisdiction.
“This manual review of investors, regulatory research and selective issuance is a good example of how a company can work with regulators to achieve compliant token distribution, although it also illustrates the huge costs in terms of finance, time and human resources that are currently being incurred, the authors of the study state.
The fourth cryptosoft way: head in the sand
Not every cryptosoft company is willing to find a way to counter this trilemma. Although many (even “the silent majority” according to the analysts) have already considered an Initial Coin Offering as a cryptosoft financing scam instrument, they do not do so in view of the associated (and above mentioned) uncertainties.
“We have talked to several stakeholders who have seriously considered raising capital for new companies through token issues, but have so far held back and decided that the (known and unknown) costs of achieving a compliant ICO that reaches a sufficient pool of distributed investors are currently too high to proceed.
As a result, many companies are either taking a blanket decision not to implement an ICO, or are adopting a wait-and-see approach in the hope of a more transparent (and at best global) regulatory environment.
A – not entirely altruistic – proposed solution
Since such globally uniform regulation is not yet foreseeable and passivity is not a viable option for every company, the analysts propose a solution in which ICOs regulate themselves. This reveals the biased character of the study.
The iComply system, i.e. one of the authors of the study, is proposed as a possible approach. The platform iComplyICO is supposed to enable the implementation of ICOs with automated Compliance:
“Before the Token Sale of the ICO begins, the rules for who can hold them and may act are coded into the digital tokens. In order to purchase the tokens, individuals must demonstrate that they meet these requirements by verifying their identity in accordance with the appropriate multijurisdictional guidelines and then whitelisting their wallet.”
Those wishing to follow the process in more detail will find more detailed descriptions of what such self-regulating ICOs can look like, both in the study and on the corporate side.