Practical Aspects of Initial Token Offerings (Part 1)


Your contacts

Each one of the many ICOs on which we have advised or are advising have their own peculiarities and different treatment. However, there are some underlying fundamentals which remain the same for tokens of the same token class.

We have decided to share these insights with the community. This article therefore is the start of a series of blog posts with practical insights on specific things to be considered when preparing an Initial Token Offering.

1. Tokens used for Payment

For example, if we are looking at an issuance of tokens that are intended to serve as a means of payment between independent third parties (not between the token purchaser and the issuer), the tokens classify as payment instrument and the issuing legal entity is deemed as financial intermediary pursuant to the Swiss Anti-Money Laundering Act. As a result, the issuing legal entity must become a member of a self-regulatory organization or put itself subject to the supervision of the Swiss Financial Market Authority.

The role as financial intermediary and issuer of a payment instrument implies various obligations. This includes among others an internal organisation with an AMLA officer and deputy, the planning, supervising and documenting of the ongoing basic and advanced training of all persons and the preparation, if necessary, of the internal directives for combating money laundering and terrorist financing. Whether and to what extent this can be outsourced heavily depends on the rules and regulations of the self-regulatory organisation the issuer joins.

Although qualifying as a financial intermediary represents an obstacle, start-up companies can overcome it with reasonable effort and contribute to the quality and sustainability of Initial Coin Offerings.

2. Tokens qualifying as Securities under Swiss law

Such tokens will require a prospectus under Swiss law. Compared to foreign jurisdictions the legal requirements for a Swiss prospectus are not onerous. However, it is not advisable to go with the bare legal minimum because prospectus standards have evolved and there is a market expectation as to what a proper prospectus should include (e.g. background information about the business of the company, the deemed use of the proceeds and risks related to the business).

Any token requiring a prospectus under Swiss law will with a very high probability also require a prospectus under EU law. These prospectus requirements are significantly higher than under Swiss law. Hence token issuers will often need to structure their marketing in the EU countries in such way to fall under exemptions. Most notably it may be necessary to limit the access of interested investors to a total of less than 150 per EU member state. This has been successfully done in the past and, although it does go against the grain of an ICO being open to the public, it is the only way to correctly address existing regulation.

3. Defining the counter value of a Token

Before conducting an Initial Token Offering the counter value of a token must be defined. Tokens can either be valued against crypto-currencies such as Ether and Bitcoin or FIAT currencies.

Although it might be obvious to evaluate tokens of a blockchain project against crypto currencies, this is not recommended and can lower the attractiveness of an Initial Token Offering. For example, where one token is equivalent to 0.005 Ether, the volatility of Ether may result in a further advantage for the pre-sale participants (as they may purchase tokens earlier before the Ethereum price is rising) and thus later subscribers might well be deterred from participating in the public offering as the proportionality becomes unattractive. The other way around, the pre-sale participants may claim further tokens if the Ethereum price decreases, as their discount or bonus is diminished. Therefore, we advise to link the token offering to a (stable) FIAT currency.

Click here to download this blogpost as a pdf.


Share post



most read


Highlights

MLL Legal

MLL Legal is one of the leading law firms in Switzerland with offices in Zurich, Geneva, Zug, Lausanne, London and Madrid. We advise our clients in all areas of business law and stand out in particular for our first-class industry expertise in technical-innovative specialist areas, but also in regulated industries.

MLL Meyerlustenberger Lachenal Froriep

Newsletter

Much is still unclear in relation to liability questions around AI tools.

Read our latest post about “Liability during the Lifecycle of an AI Tool” and download our white paper.

Show article.

Our Story

MLL Legal is a leading Swiss law firm with a history that dates back to 1885. The firm has grown both organically and by means of strategic mergers, the latest of which took place on 1st July 2021 between Meyerlustenberger Lachenal and FRORIEP.

The merger establishes MLL Legal, a combined new entity as one of the largest commercial law firms in Switzerland with 150 lawyers in four offices in Switzerland and two offices abroad, in London and Madrid serving clients seeking Swiss law advice.

Our firm has a strong international profile and brings together recognised leadership and expertise in all areas of law affecting commerce today, with a focus on high-tech, innovative and regulated sectors. 

About us

Publications

Click here for our latest publications

COVID-19

Read all our legal updates on the impact of COVID-19 for businesses.

COVID-19 Information

Job openings

Looking for a new challenge?

Our talented and ambitious teams are motivated by a common vision to succeed. We value open and straightforward communication accross all levels of the organisation in a supportive working environment.

Job openings

Firm News

Click here for our latest firm news.

Our Team

The regulatory and technological landscape continually require businesses to adapt and evolve.
Our 150+ lawyers are continuously innovating and striving for improvement in everything they do. We embrace new ideas and technologies, combining our wealth of expertise with creative thinking and diligence. With our hands-on approach, we implement viable solutions for the most complex legal challenges.

Our Team.

LexCast – the podcast series by MLL NexGen

Smart legal education on the go. The LexCast hosted by MLL NexGen provides legal insights in a short format that allows listeners to educate themselves on and about legal issues wherever they are and whenever they find the time.

Listen to our podcast series – stay tuned.

MLL Legal on Social Media

Follow us on LinkedIn, Twitter und Instagram.