1.
A few milestones
According to Wikipedia, the first ICO occurred in July 2013, and was aiming at selling Mastercoins (now
project Omni). A similar, but much more famous ICO occurred in July 2014, where Ethereum raised
approximately 18 million USD to develop the Ether cryptocurrency. Investors received Ethers in
exchange for their contribution. These are two good examples of the first ICOs, the purpose of which
was to offer for sale tokens that were nothing else than new cryptocurrencies (Mastercoin and Ether) in
exchange for Bitcoins (which, at the time, was the “gold standard” for these type of operations).
Another interesting ICO occurred in April 2014: Karmashares. The platform operating the Karma
cryptocurrency Karma issued coins representing a share in their profits. For the first time, the tokens
offered for sale were not just another cryptocurrency, but included specific rights for the holders (in this
case on the governance of the issuer and on its profits). This ICO can thus be considered as the first
issue of equity tokens.
The years 2015-2016 saw a limited amount of ICOs (2016: 95 mln USD), but this accelerated
considerably in 2017, where 3.5 billion USD were raised through ICOs (of which 1 billion USD in
December). Roughly, another billion has been raised in 2018 (to date).
Today, websites such as ICO alert (www.icoalert.com) or Coin Schedule (www.coinschedule.com) list up
more than 100 ICOs closing in the next coming weeks.
How does an ICO work?
Typically:
 issuers set up a website outlining the project to be financed and describing the tokens (i.e. the “coins”)
which are offered for sale. This is set out in detail in a “whitepaper” aimed at providing clarity on
the ICO. Certain more sophisticated ICOs also provide “silver papers” and “gold papers” exposing in
more detail the technical aspects of the ICO and the functioning of the underlying technology.
 tokens are offered for sale in exchange of a cryptocurrency: a smart contract ensures that this
process occurs automatically.
 tokens can be defined as digital assets generated by the issuer and granting specific rights to the
investors in exchange of their investments, which can be traded on a public exchange.
A definition for ICOs?
“Means of financing, functioning via the issue of tokens based on a distributed ledger technology
exchangeable with cryptocurrencies or legal tender.”
The main typical characteristics of an ICO are the tokens and the use of the distributed ledger technology.
These two aspects will also drive the analysis of the legal nature of the operations.
Advocaten/Avocats
Gateway Building
Luchthaven Nationaal 1J
1930 Zaventem (Brussels)*
Belgium
Tel. + 32 2 800 70 00
Fax + 32 2 800 70 01
Laurent Godts
Avocat | Banking & Finance
D: +32 2 800 70 63
M: +32 (0)473 49 68 00
lgodts@laga.be | www.laga.be
Initial Coin Offerings
Legal qualification and regulatory
challenges
Speaking notes – Presentation Fintech Belgium – 8 Merch 2018

2.
Initial Coin Offerings – Legal qualification and regulatory challenges
Speaking notes
Laurent Godts
2
 The term ICO is derived from the concept of IPO (Initial Public Offering) but differs materially
therefrom:
o In an IPO, the issuer aims at raising capital by bringing new stakeholders into its
business and selling (usually on a public and regulated market) a percentage in its
ownership equity/debt. The investor’s goal is a financial return (dividend, capital gain
or fixed income) and possibly some control on the governance of the issuer.
o In an ICO, the issuer brings stakeholders into its business in a new and different way:
it is a way to build a user base, an ecosystem and a way to sell its products/services to
in turn benefit from it when the technology is released.
o However, an ICO and an IPO come close to each other when the tokens indeed
represent equity or debt-like instruments.
 Some have claimed that the ICO phenomenon could be identified as “Crowdfunding with
cryptocurrencies”. There are similarities between crowdfunding operations and ICOs – namely the
fact that it is a privileged source of capital for start-ups, but the volumes and the liquidity that are
sometimes achieved in ICOs exceed by large the crowdfunding area.
Typology of tokens
Tokens are varied in nature, and it is not even simple to categorise them in function of the rights they
embed. Without being exhaustive, the main categories are the following:
 Currency Tokens (= cryptocurrencies).
 Equity Tokens / Security Tokens / Tokenised Securities: represent a share in a company, imply
ownership, control or encompass a receivable on the company (share in the profits or fixed income).
 Asset (based) tokens: represent a physical asset or product (for example: tokenized gold, euros
or dollars).
 Utility coins / app coins / user tokens: represent a right to access or to use services or goods
from a company.
 Reputation / Reward / Community token…
The nature of the rights embedded in the tokens has to be analysed on a case-by-case basis and will
mainly determine the legal nature thereof, together with the applicable rules and regulations.
Impact of DLT Technology on the characteristics of an ICO
The use of DLT technology in ICOs entails certain characteristics that will cross-apply among all ICOs,
and which will trigger transversal legal issue. For example:
 The inherent anonymity of DLT transactions will pose issues relating to client identification and anti-
money laundering when applicable.
 The fact that the tokens are by nature transferable needs to be taken into account in analysing the
legal nature of the tokens (for example, tokenised financial instruments will almost per definition
constitute financial securities).
 The widespread availability implies that the tokens will likely be offered to the retail public.
 The decentralised nature of the underlying technology will pose important questions of applicable
law, competent regulator and relevant judicial forum.

3.
Initial Coin Offerings – Legal qualification and regulatory challenges
Speaking notes
Laurent Godts
3
Intermediary Conclusion
ICOs combine:
1. the issue of rights, embedded in tokens, which generally correspond to well-known legal concepts;
and
2. a layer of new technology-related features which may or may not influence such qualification.
Regulatory framework
The fact that ICOs are a funding source, and that certain tokens – historically the first – displayed
characteristics which are close to financial instruments or securities, has led to the fact that the first
regulatory initiatives came from the financial supervision authorities.
The table in appendix lists up in detail the regulatory approach of ICOs in the main jurisdictions. In
summary, the position of regulators on ICOs range from outright bans to severe warnings towards
potential investors (retail in particular), and restate the existing legislative framework on public
solicitation of repayable monies to the issuers/arrangers.
Gibraltar
Gibraltar marketed heavily the fact that they were regulating ICOs. In reality, Gibraltar has created a
regulated status for a “Distributed Ledger Technology Provider” under the existing financial services
regulation1
.
Enterprises “carrying on by way of business, in or from Gibraltar, the use of distributed ledger technology
for storing or transmitting value2
belonging to others” have to apply for a license as financial services
provider in Gibraltar.
The example of Gibraltar is interesting in that it constitutes an attempt to regulate the ICO phenomenon
at the level of the technology layer and on a cross-sectorial level. This is likely driven by Gibraltar’s
business activism, but leads to the paradoxical conclusion that the use of the blockchain-based
technology drags any ICO into the ambit of financial regulation. One can ask the question whether this
makes much sense for utility-based tokens for example.
Following the positive responses in Gibraltar, the French AMF is currently holding consultations on a
similar type of regulatory scheme. Switzerland, that is perceived as the most ICO-friendly jurisdiction,
is also looking into setting-up a similar status. However, both jurisdictions continue to adhere strictly to
their rules and regulations on public offer of financial instruments, and, unlike the market perception
may suggest, they do not offer specific safe-harbours for the issuance of tokenised securities.
1
The text of the Gibraltar Regulation is available at http://gibraltarlaws.gov.gi/articles/2017s204.pdf
2
“value” includes assets, holdings and other forms of ownership, rights or interests, with or without related information, such as
agreements or transactions for the transfer of value or its payment, clearing or settlement

4.
Initial Coin Offerings – Legal qualification and regulatory challenges
Speaking notes
Laurent Godts
4
Belgium
The Belgian FSMA issued a warning notice on ICOs on 13 November 20173
, addressed both to (retail)
investors and to candidate issuers.
To retail investors, the communication essentially sets out the main risks relating to the purchase of
tokens, being:
 ICOs can escape any legal framework, so investors have
no legal protection;
 ICOs are exposed to fraud and may be used for illegal
purposes;
 Information in the white paper is often non-
standardized, subjective,…;
 Subscription is totally digital and often complex;
 Valuation of the ICOs is set subjectively and arbitrarily
by the developers;
 No guarantee that the project will be put on the market;
 Risks of hacking and phishing; and
 Specific risks associated with cryptocurrencies.
These issues typically relate to
the technology/blockchain layer
of ICOs, and demonstrate the
specific challenge for the
regulator to address efficiently
token sales which do not take
place on-shore.
As far as potential issuers are concerned, the FSMA notice re-states the potentially applicable pieces of
legislation and regulation, i.e.:
 The prospectus regulation and the Belgian prospectus act;
 MiFID, AIFMD, MAR, AML4;
 Certain Belgian rules on the commercialisation of financial products; and
 The specific crowdfunding framework developed in Belgium.
The approach of the FSMA in respect hereof is clearly driven by the case-by-case analysis of the rights
embedded in the tokens. However, the FSMA’s view seems to some extent simplistic, in that it only
stresses the potential application of certain pieces of financial regulation which seem to appropriately
target tokenised securities, but not other types of coins.
Utility-based coins, asset-based coins etc. does not seem to have yet triggered much of attention from
the competent regulators, be it in Belgium or in other jurisdictions. This does not mean that such ICOs
fall into a legal vacuum. Quite to the contrary, a specific case-by-case approach will have to be put in
place to properly qualify the tokens and the legislation/regulation applicable thereto. Obvious examples
include:
 For asset tokens: regulations on currency exchange/raw material agencies; PSD2; PAD…
 For utility tokens: product liability regulations, fair commercial practices and consumer protection
rules (Code of Economic right)… and all sector-specific regulation (energy market, telecom market,
pharma,…)
3
https://www.fsma.be/sites/default/files/public/content/FR/circ/fsma_2017_20_fr.pdf

5.
Initial Coin Offerings – Legal qualification and regulatory challenges
Speaking notes
Laurent Godts
5
These speaking notes reflect solely personal perspectives and reflections of the author, have no ambition of being exhaustive and do not purport to constitute legal
advice or recommendations on any topic whatsoever.
Laga is a civil limited liability cooperative company.
Registered Office: Gateway building, Luchthaven Nationaal 1 J, 1930 Zaventem
0471.858.874 - Brussels Trade Register - ING 310-1381442-54
The list of Laga partners can be obtained upon request or from the Laga website.
Laga BV CVBA and Deloitte Belastingconsulenten BV CVBA have entered into a privileged, multidisciplinary cost-sharing agreement.
Conclusion
ICOs do not constitute a legal revolution of the same extent that the technical revolution they cause. On
the contrary, tokens mostly consist in new avatars of well-known legal constructions, with an additional
layer of technology that adds certain features.
However, ICOs do bring up challenges for the lawyers: the first being to understand properly the rights
embedded in the tokens and the consequences of such technology feature attached to them, the second
to identify precisely the legal impact brought along thereby.
* *
*

6.
Initial Coin Offerings – Legal qualification and regulatory challenges
Speaking notes
Laurent Godts
6
Appendix – Main jurisdictions and their ICO regulatory approach
China Banned ICOs
ICOs would have disrupted the economic and financial order:
 China has accused cryptocurrencies of being an
instrument of criminal activities;
 Such currencies encourage speculation to destroy the
financial system;
 No solution to regulate the mobilization of capital;
 No solution on how to license the exchange of
cryptocurrencies;
 China may have plans to offer its own cryptocurrency in
the future.
South-Korea Banned ICOs
ICOs would have disrupted the economic and financial order.
There is a risk of fraud and of money laundering according to
the South-Korean authorities:
 Government sees ICOs as increasing the risk of financial
scams;
 Ex: Youbit bankruptcy in South-Korea in December 2017.
17% of the assets of this cryptocurrencies stock exchange
market have been stolen (hacking).
Singapore Intent to regulate
Singapore issued guidelines on ICOs providing guidance on
how tokens should be applied under its Securities and Futures
Acts (SFA). If digital tokens fall within the definition of
securities under the SFA, issuers of tokens would be required
to lodge and register a prospectus with MAS prior to the offer
of such tokens.
USA Intent to regulate
According to the SEC, digital tokens are considered as
“securities” under the Securities Act.
In this case, information for potential investors on ICOs is
needed.

7.
Initial Coin Offerings – Legal qualification and regulatory challenges
Speaking notes
Laurent Godts
7
Canada Intent to regulate
ICOs might be governed by Canadian securities laws (“four-
prong test”) or by Canadian derivative laws: “In determining
whether or not an investment contract exists, businesses
should apply the following four-prong test. Namely, does the
ICO/ITO involve:
1. An investment of money
2. In a common enterprise
3. With the expectation of profit
4. To come significantly from the efforts of others
Securities law requirements that apply”.
Australia Intent to regulate
Legal status ICOs depends on the circumstances of the ICOs:
 ICOs are subject to Australian general laws and to
Australian consumer laws regarding the offer of series and
products;
 ICOs may be subject to the corporations act (ICO=
management, investment scheme).
If the rights attached to a coin are similar to the rights
attached to a share (ownership, voting right, …), a coin is
considered as a share.
United Kingdom Intent to regulate
Communication of the FCA, on 12 September 2017, regarding
the risk of the ICO.
“Whether an ICO falls within the FCA’s regulatory boundaries
or not can only be decided case by case” (depending on the
operation’s structure, …)
Hong Kong Intent to regulate
Tokens may qualify as securities under the Securities and
Futures Ordinance.

8.
Initial Coin Offerings – Legal qualification and regulatory challenges
Speaking notes
Laurent Godts
8
Switzerland Intent to regulate
ICOs are susceptible, depending on their structuring, to be
governed by anti-money laundering laws, banking laws,
securities laws, collective investment scheme laws.
Japan Intent to regulate
Cryptocurrencies are regulated in Japan. Currently, 15 stock
exchange markets are authorized as crypto currencies
exchange platforms.
ICOs could fall under the scope of the payment services
legislation and the financial instruments legislation depending
on their structure.
New Zealand Intent to regulate
The coins and the cryptocurrencies are considered as
securities under the Financial Markets Conduct Act 2013.
However, some ICOs could receive a derogation from the FMA
to avoid the application of the Financial Markets Conduct Act
2013.
Dubai Intent to regulate Public warning on the risks associated with ICOs.
Abu Dhabi Intent to regulate
Token sale would fall under or outside the definition of a
security under Abu Dhabi law depending on the operation’s
structure. KYC and anti-money laundering laws would be
applied in this case.
Companies wishing to execute an ICO must approach the
FSRA to see whether it will fall under the body's regulation.

9.
Initial Coin Offerings – Legal qualification and regulatory challenges
Speaking notes
Laurent Godts
9
Malaysia Intent to regulate Public warning on the risks associated with ICOs
Russia Intent to regulate Public warning on the risks associated with ICOs
France
AMF launched on 26 October 2017 a public consultation in
order to receive opinions from the interested parties regarding
the potential ICOs regulations.
AMF has realized a program named “UNICORN” to provide
issuers with a framework for their ICOs and to explore
potential future regulatory actions.
Gibraltar
First country to have regulated ICOs since January 1, 2018:
“firms in Gibraltar, that use DLT (also known as blockchain) to
store or transmit value belonging to others, now have to apply
for a licence from the GFSC.”