The Crypto-Security

This chapter analyses the interplay between initial coin offerings (‘ICOs’) and securities regulation, with a particular focus on EU law. ICOs have come to dwarf traditional venture capital funding in the blockchain space. However, the US Securities and Exchange Commission (‘SEC’) has determined that a number of token types constitute securities under US law, with potentially far-reaching consequences for initiators in terms of liability. Under EU law, explicit regulatory or court guidance is lacking at the moment. Against this background, this chapter develops a taxonomy of tokens by differentiating between investment, utility, and currency tokens. It shows that only investment tokens typically qualify as securities under EU law. Currency tokens are exempted because of their proximity to payment services regulation; and utility tokens will, for the most part, fall under EU consumer law, not securities regulation. These results derive from a functional analysis of EU securities regulation and arguably amount to a comparative advantage of EU law vis-à-vis US law in terms of the regulatory burden for token developers.