A recent study by the University of British Columbia describes the difficulties of ICOs in complying with regulations while maintaining economic efficiency and availability for a wide range of potential investors.
The researchers studied the ICO market for six months focusing on the US market, but also analyzed some ICOs conducted in other countries.
According to the research, regulatory compliance is costly for any legislation that needs to be complied with.
As a result, if you want to include many investors, you have to choose between spending large amounts of money to ensure compliance or overshadowing the issue.
This denies one of the main advantages of ICOs: the ability to access finance without having to invest large amounts of capital.
The research explains the difficulties in achieving cost efficiency, legal compliance and openness to many investors in the following way:
“If issuers forgo these costs, the risk of being non-compliant rises significantly. The result is a trilemma, whereby issuers currently must forgo one of these goals to realize the other two, or to compromise on all three”.
In addition, three different approaches to conducting ICOs are indicated:
The first, called “Maverick ICO“, puts compliance in second place to achieve maximum efficiency in obtaining financing, aiming to invest as little as possible in legal fees.
The second, a private ICO, sacrifices openness to investors, limiting itself to institutional or accredited funds to keep costs relatively low and legal compliance good.
The “Hybrid ICO” is the third type of Initial Coin Offering analyzed and is described as the campaign that makes compromises from all three points of view.
This is done by “issuing in selected markets, resulting in bounded cost effectiveness, compliance and investor scope”.
