By Michael Bacina and Sina Kassra -
Snapshot
- Token sales (also known as Initial Coin Offerings) offer a new form of fundraising which involves an exchange of fiat currency (US or Australian dollars for example) for a digital token. The sales are proving immensely popular with high risk investors.
- The digital tokens generally fall within the category of either protocol tokens (such as Bitcoin) where the token itself has intrinsic value, asset-backed tokens (such as The DAO tokens) where a token holder is entitled to a real underlying asset, or access tokens (such as Golem) where tokens are used to access a network, which has often not yet been built.
- There is a risk of token sales falling under securities law regulations, in addition to potential GST issues under the ‘Netflix tax’, which creates uncertainty for businesses looking to harness this new source of potential funding.
Token sales (also known as Initial Coin Offerings (‘ICOs’)) have made headlines this year as part of huge price increases in the cryptocurrency space. They bring a decentralised form of crowdfunding to the blockchain which is not managed by a third party (such as Kickstarter). The prices of popular cryptocurrencies such as Bitcoin and Ether skyrocketed during early 2017. Huge amounts of money have flowed into the sector, far exceeding the funds made available under traditional forms of fundraising for tech start-ups. This shift in the fundraising landscape has occurred just as the Australian government has finally regulated and permitted crowdfunding for public companies via the Corporations Amendment (Crowd-sourced Funding) Act 2017, with a potential extension to proprietary companies expected later this year.
