Asia Blockchain Review recently had the privilege to get the thoughts of Professor Dr. Christophe Schinckus, Head of the School of Accounting and Finance in the Business School, Faculty of Business & Law at Taylor’s University, about the importance of Initial Coin Offerings (ICOs) and Utility Tokens for Malaysian SMEs. His opinion piece is as follows.
In January, the Securities Commission Malaysia (SC) published new guidelines on digital assets; prescribing the regulatory requirements to conduct an offering of digital tokens. They stated that offerings of digital tokens must only be carried out through an initial exchange offering (IEO) platform operator that is registered with the commission. Although Initial Coin Offerings (ICOs) is an innovative way of raising capital, they are not reputable – essentially, anyone could publish a white paper on a website and raise funds. The Securities Commission guidelines defined a more cautious and pragmatic frame for the ICOs, where an issuer will have to submit their application, including a white paper to an IEO operator for approval. The SC will then collaborate with the IEO operator in assessing the IEO issuer. If approved, the public may invest in the issuer’s offering from the IEO platform. The issuers must also satisfy criteria in terms of governance and a capital requirement of at least MYR 500,000 to qualify for fundraising through the IEO.
In a very ‘scammy’ environment (80% of the ICOs are estimated to be scams), these SC guidelines are welcomed and pave the way to a real move towards digital economy. This will offer companies alternative way raising capital with the aims to help SMEs and to support what specialist called “reversed ICO” (i.e. established companies do an ICOs) in which the issuer is already able to secure a significant capital. However, some SMEs or start-ups might not be able to meet the capital requirement to issue security tokens and would probably prefer to opt utility tokens. Basically, there are two major types of ICOs: security tokens and utility tokens – while the former can be roughly considered as an IPOs (Initial Public Offer of stocks), the latter offer the opportunity to issuer to pay through the start-up’s service and might be more appropriated for start-ups with few capital – FileCoin, for instance, offer coins in its ICO allowing an investor to pay other users to store their files.
The utility token mechanism offers entrepreneurs an alternative way of fundraising based on the competition for the token. If the consumer willingness to use the companies’ goods or services is high, this usage can be a way of rewarding investors. A utility token is not comparable to securities because the investor does not really spend in the said security (which is expected provide a yield return) but rather, buys a voucher that can be redeemed for goods or services.
There are debates on the legal scope of the utility token and how it should be considered, and whether or not it should come under the securities regulation. This is especially if profit expectation is the major motive of the purchaser or if there is a high possibility of generating profit with a voucher. SC guidelines is a great decision supporting a gradual digitization of the economy. However, this process must go together with a progressive educational move in which education providers will play a key role: educate the future generation to master all these new technologies to ensure a smooth transition into a more digitalized economy.
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Anil started his career in journalism all the way back in 2003. After traversing the sphere of editorial, corporate communications and advertising, he has now come full circle and is back in the world of journalism. He believes in the power of the written word, and its ability to enthrall, delight and inform the reader.
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