A study conducted by the University of Luxembourg Faculty of Law, Economics, and Finance, has concluded that the majority of initial coin offerings (ICOs) fail to provide critical information to investors.
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The Study Finds That the Majority of ICOs Fail to Provide Substantial Legal Information to Investors
The study, titled “The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators,” seeks to provide a “taxonomy of ICOs to facilitate thinking clearly about them, analyze the various regulatory challenges they pose, and suggest the first steps regulators should consider in responding to” the ICO industry. The University examined over 150 ICOs whilst gathering its findings.
The report concludes that “At the moment, many ICOs are offered on the basis of utterly inadequate disclosure of information,” and as a consequence, “the decision to invest in them often cannot be the outcome of a rational calculus.”
The findings state that “Only 28.5% of the ICOs in our sample mention the law applicable to the ICOs”, and that “In 69% of the cases there is no information at all as to the regulatory status of the ICO.” The study adds that “Almost all ICOs rely on legislative loopholes or, more accurately, what the issuing entity hopes (or prays) is a loophole or grey area.”
The Analysis Concludes that “ICOs Will in Many Cases Raise Consumer Protection Issues”
Alongside an absence of key legal information, the study also finds that many ICOs fail to provide investors with important information relating to the proposed operations of and entities behind initial coin offerings. The findings state that “25% of the… white papers do not offer any description of the project’s financial circumstances, i.e. nothing about how the capital collected is to be used and in what stages, etc, and that “21% of… white papers do not provide any information at all about the initiators of backers.” The study also finds that 43% of the analyzed ICO whitepapers did not provide “valid postal contact details,” and that “20% failed to provide “any information at all about the issuing entity.” The University states that more than 90% tokens cannot “be put to use; the rest are merely up for trading, indicating purely speculative instruments.”
The study concludes that the lack of legal information provided by many ICOs is a consequence of initial coin offerings “frequently [being] structured to avoid existing legal and regulatory requirements.” Although the paper concedes that some ICOs’ poor legal documentation can be attributed to the lack of knowledge possessed by “the stereotypical crypto-geek about legal or other requirements,” the findings conclude that many ICOs are intentionally trying to create legal ambiguity in order to exploit legislative loopholes and grey areas.
What is your response to the University of Luxembourg’s findings? Share your thoughts in the comments section below!
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