Monday, 7 August 2017

(The Star) Fund-raising disrupter

PETALING JAYA: The advent of initial coin offerings or ICOs has hit Malaysian shores with a few start-up companies seeking to raise funds via new digital currency offerings, by-passing the tradition of seeking venture capital money.

This has brought the debate about the pros and cons of ICOs closer to home.

Forbes recently described ICOs as “the process that takes cryptocurrencies public, namely the generation and distribution of crypto tokens among crowdfunding participants.”

ICOs have become a primary means of fundraising for projects built on blockchain technology.

HelloGold Sdn Bhd, a company that runs an online platform for the buying and selling of gold is embarking on its own ICO of what it calls HelloGold tokens. It will conduct three rounds of sale to raise a maximum of US$8mil in each round.

Like all the other tech companies seeking to do ICOs, the idea is to create a cryptocurrency to power the specific project that the company is pursuing. In Hello Gold’s case, it is to help the man on the street access gold-based savings and investment products.

Curiously though, Hello Gold’s ICO excludes Singapore and US residents from participating. This is likely due to recent pronouncements by capital market regulators in both the markets regarding ICOs. Essentially, the US Securities and Exchange Commission and subsequently the Monetary Authority of Singapore (MAS) have suggested if an ICO is deemed to be a securities offering, it would be regulated. Malaysia’s regulators are so far silent on this matter.

The only notable statement issued by regulators here is that by Bank Negara back in January 2014 which stated that bitcoins (the largest cryptocurrency in circulation) are not recognised as legal tender in Malaysia and that they remain unregulated and that investors ought to be aware of the associated risks. Nothing has been said specifically with regard to ICOs.

ICOs, mostly in the US market, have raised more than US$1bil over the last year and Singapore has been a hotbed too.

Leading the pack is TenX which raised a whopping US$80mil for a project to support the development of a protocol enabling quick and secure transactions across different blockchains.

However, MAS’ ruling has spooked start-ups there, and industry players reckoned that many would move their ICOs to market like Australia or Hong Kong.

Interestingly, Robin Lee, founder and CEO of Hello Gold Sdn Bhd welcomes the Singapore regulator’s move.

“It is great news. The regulator has clarified what constitutes a token offering. The key thing is that the token must not be backed or linked to an underlying security or debt. MAS essentially and rightfully said that those that conduct activities that are already under regulation should continue to be regulated.

“For those that conduct activities outside the regulatory framework, they still need to ensure that they apply appropriate anti-money laundering and counter terrorist funding processes.”

But why exclude Singaporeans and US citizens from participating in Hello Gold’s ICO? Robin said he is following best practice.

“A number of token sales have recently adopted the practice of excluding US and Singapore nationals. We have taken the lead from token sales that we have considered to have adopted best practice,” he said.

Two other Malaysian companies have embarked on ICOs. One was Ecobit which reportedly raised over US$4.5mil and which was seeking to team up with the Kelantan government to manage and maintain one million acres of rainforest for 30 years and also build a market for carbon credits.

However, Ecobit was placed on Bank Negara’s financial consumer alert service on June 23, as “companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by Bank Negara”.

A news report also highlighted that a claim by Ecobit that it was working with the United Nations Development Programme is not true.

Another Malaysian company seeking to conduct an ICO is Farad Energy which is seeking to use blockchain for energy storage.

Regulators are concerned with the development of ICOs because their offerings are being made to the public. However, it should be noted that ICOs are typically paid for using existing cryptocurrencies such as bitcoins and ethereum. “This may mean that only a select group of people are investing in ICOs but still it is keeping regulators awake at night, considering that it is public fund raising without any regulation,” pointed out a corporate lawyer.

Jason Lee, a former banker and now fintech professional, is positive about the development of blockchain and ICOs.

“ICOs are a positive development because it gives birth to an ecosystem which allows investment participation via a value exchange without a centralised third party. Although it could be seen as a platform ‘subject to abuse’ and the mainstream thinking generally views this with caution, ICOs create an opportunity for a review of existing regulations and potentially the birth of new regulations,” he said.

“Blockchain and ICOs are merely tools that enable problem-solving thinkers and innovative visionary leaders to grow the global economy with efficiency and efficacy. The world needs people who are spending their time and resources at the bleeding edge of innovation.”