Initial coin offering (ICO) may be the hottest term in cryptocurrency, but some startups are less than enthusiastic about embracing it.
Far from being able to cash in on its marketing value, many are instead seeking to buck the categorization altogether. Their chief concern? Worries that the language brings undue attention from regulators.
So, in an effort to stay under the radar, the entrepreneurs running these offerings have begun changing the language, sometimes only slightly. “Initial token offering,” “token sale,” “token generation event” or “initial capital building mechanism” or “ICBM” (an acronym more commonly thought of as a delivery mechanism for nuclear bombs) have all cropped up of late.
Amidst this inconsistency, CoinDesk took the topic to the floor of the ICO Forward Summit in New York City last week. The event brought together token projects, interested investors and existing blockchain companies to talk about the use case, its promise and possible pitfalls.
And while there might not be consensus on the issue, those CoinDesk spoke to believe the language is a natural symptom of regulatory tip-toeing.
According to Matt McKibbin, of the blockchain industry consultancy DecentraNet, the rhetorical positioning is just growing pains.
He told CoinDesk:
“I think the industry is still very, very young. Obviously, the lawyers still have a great amount of say in what their thing is called.”
‘If you say ICO’
In this way, McKibbin argued the decision of whether to use the word “token” or “coin” seems like one coming directly from attorneys. In fact, speaking with many entrepreneurs with ICOs on their roadmap, it almost sounded as though they were reading off a memo from counsel as we spoke.
“I think the language holds a lot of power in informing the audience of what you’re doing,” said Nick McEvily of Current, a project looking to roll various kinds of streaming media into one application.
Perhaps unsurprisingly given his attendance, he also plans to do a token sale in a couple months, but he’s thinking about his positioning of the idea carefully.
McEvily continued:
“If you say ‘ICO,’ people perceive that as an investment opportunity.”
And that’s what many of these companies want to avoid, because as an investment opportunity, those tokens and in turn the companies or projects, would fall under a complex regulatory structure.
Currently, the in thing to do is sticking to the term “token sale” to “avoid scrutiny from regulators,” McEvily said.
Max Niebylski, CEO of Gladius, which will run a month-long token sale starting later this month, agreed, saying, “It’s important to distance yourself from selling securities.”
Tricking regulators?
But will regulators really be led off a startup’s scent because of word choice?
During an on-stage discussion Nick Morgan, an attorney at Paul Hastings LLP and a former SEC staffer said it isn’t worth fighting the securities classification.
“Don’t spend all your time trying to figure out how you can be characterized as not being a security,” he said. “Assume you’re a security.”
Morgan points to the SEC’s outlining of its thoughts on The DAO, saying that while he does not necessarily agree with the interpretation, he thinks many token issuers should start thinking of themselves as securities providers.
In fact, again and again, panelists and speakers referred to recent remarks by the SEC chair suggesting that nearly all ICOs could qualify as securities.
“There are a lot of regulatory issues,” Marshal Shichtman, a securities attorney, told CoinDesk. And he didn’t think the phrase a project used to describe their coin would sway regulators.
He said:
“I don’t think they care if they call it a tomato.”
Confusing the public?
And all this raises the question of whether these different terms are doing any good or whether they’re simply confusing potential supporters and a public that barely understands the industry.
According to Robert MacInnis of ActiveAether, a company which will offer a “FogCoin” token later this month to power a system for paying devices to do cloud computing, flipping between words is a problem.
Although, he also thinks what businesses decide to call their fundraising project is a trade-off between accuracy and effective marketing.
Gladius’ Niebylski, on the other hand, thinks it’s too soon to really worry about the public.
For now, the crypto community is small, he argued, and everyone in it understands what the startups are doing, no matter what phrase they use.
But others, like McKibbin, think the term that was given to the industry during its inception will stick, no matter how hard the industry tries to cleanse itself of it.
He concluded:
“I think ‘ICO’ will forever be a term.”
Event image via Brady Dale for CoinDesk