The SEC, the agency in charge of securities and trading in the United States, has issued a stern warning to investors. The agency tells people to “be cautious” as regards Initial Exchange Offerings.
The IEO is a way to offer new tokens without having to trust some random process. Instead, users are able to trust exchanges they use everyday, such as Binance and Coinbase.
In the case of Binance, the exchange even owns a new blockchain for tokens to ride on. Despite the apparently controversial nature of the product, Binance has continued to list new assets using the model. The model enables the exchange to collect funds in much the same way that companies did during the ICO boom. The main difference is the involvement of the exchange.
The SEC writes, in part:
There are important issues investors should be aware of before investing in an IEO. As in the case of ICOs, depending on the facts and circumstances of the offering, the offering may involve the offer and sale of securities. This means the IEO may be subject to registration requirements that apply to offerings under the federal securities laws. Among other things, registration means that the company offering the digital asset has to provide important disclosures about itself, its business, the digital asset offered, and the terms of the offering to investors.
The agency goes on to say that US laws are “designed to protect investors and prevent fraudulent and manipulative trading practices.”
Blockchain Brain Drain
Coinbase and other US exchanges have taken an interest in offering IEOs, but Binance and other foreign exchanges have had the upper hand.
It’s not hard to see why. Virtually anything you do in crypto in the US falls under a few different jurisdictions, and you have to answer to each agency in some cases in order to do business.
This being the case, it’s clearly easier for blockchain businesses to get started in other countries. Then there are countries like France which have been welcoming, with Paris aiming to become a blockchain hub through attracting new blockchain tech firms.
The SEC and other regulators are in part responsible for the blockchain brain drain going on, where the brightest talent is considering a move to Europe, where regulations have already adapted to the new technology.
In effect, the warning from the SEC makes sense. Investing in IEOs can’t be much different from investing in ICOs. Whether or not an exchange picks the ICO you’re going to invest in or not is immaterial. What matters is whether or not you profit, and it seems less likely with these types of products. Just look at the historical charts of ICOs, which all peaked shortly after launch.
If you time your exit, they can be profitable. Otherwise, they’re probably just a money pit.