Chicago Journal of International Law

Start Page



In 2016, when Initial Coin Offerings (ICOs) were first introduced, financial markets, scholars, and entrepreneurs were captivated by the opportunities and challenges the technology offered. ICOs quickly became one of the hottest topics in the financial markets. They typically use blockchain technology to offer so-called “tokens” that can confer various rights to their holders. The amount of money raised via ICOs has reached $27 billion by the end of 2018. Commentators have described the ICO bonanza as a new gold rush. Nevertheless, the legal framework for ICOs remains unclear because traditional securities regulation is designed for classical securities that are traded on a stock exchange. In late 2017, the U.S. Securities and Exchange Commission (SEC) released two statements suggesting that tokens may be subject to U.S. securities regulation if they meet the requirements for an “investment contract” as laid out in the Howey test. However, regulators in Asia and Europe remain quite vague on the issue. In this Article we analyze the legal framework for ICOs in the E.U. It is our view that investment tokens (including hybrid tokens with some investment functions) are “transferable securities” under Directive 2014/65/EU on Markets in Financial Instruments. Although this definition appears to be quite different from the “investment contract” definition under U.S. law, the financial markets law of the E.U., if applied correctly, comes to results that are comparable to the outcomes of the investigations carried out by the U.S. SEC. The result would be a similar framework in two of the most vibrant regions for ICOs. It would be a first step towards a harmonized application of securities laws to ICOs, avoiding regulatory patchwork and a possible “race to the bottom.” 