Launching a successful Initial Exchange Offering (IEO) is simple if done correctly.

Initial Exchange Offering mode of fundraising was invented after Initial Coin Offerings (ICOs) proved to be hectic to regulate, and thus becoming a playfield for scammers. The IEOs, however, retained the basic framework of the ICOs but placing the process of the token issuance/sale on the hands of cryptocurrency exchange platforms. That is why IEOs are sometimes referred to as ICOs that are issued on cryptocurrency exchanges.

Although IEOs were intended to solve the issue of safety with the ICOs, IEOs ended up introducing lots of other advantages for the token issuers. Some of these advantages include:

  • Trust

An IEO instills trust into your potential investors. The token crowdsale is conducted through a cryptocurrency exchange and investors/ users believe that the exchange properly vets any token issuer before agreeing to sell the tokens to its users. Besides, exchanges are in business and if they allow a scam project to conduct an IEO thought their platform, it could greatly harm their reputation; therefore they have to be vigilant in cross-checking the projects behind the IEO.

A good example of how careful exchanges are when listing IEOs is the recent case where Bittrex, one of the most famous crypto exchanges in the world, canceled the RAID IEO after suspicion of fraudulent activities following the termination of a partnership between OP.GG. (a data analytics company) and RAID.

Therefore, if your IEO gets listed on an exchange, investors will have some trust that your project is not a scam and it could become a success in the future.

  • Security

When issuing an IEO, you do not have to worry about managing the AML/KYC since the crypto exchange handles all that.

  • Easy

Once you have accomplished the hard part of creating a token, doing the tokenomics, and writing the white paper, the rest is left to the exchanges.

Also, you do not require to conduct a lot of marketing and roadshows compared to the ICOs, since the exchange where the IEO is listed already has some users who will get interested in your IEO.

  • Token Listing

There is nothing more precious than to see your project’s token listed on a crypto exchange for trading. It is a painful reality that quite a number of projects that have conducted token crowdsale struggle to have their tokens listed on exchanges.

However, for an IEO the token is easily listed on the same exchange where the IEO was issued since the exchange had already vetted the project before.

Examples of successful IEOs that have been conducted

The first projects that conducted taken crowdsale through IEOs were Bread and GIFTO, which conducted their IEOs in 2017 just after IEO was invented.

IEOs then embarked on a journey to fame that culminated in 2019, during which a number of projects carried out very successful IEOs within record-breaking timeframes.

Some of these projects include:

Steps to launching your successive IEO

Hitting the anticipated target with your IEO is the dream of every blockchain startup or company that launches an IEO. However, to do that, you have to follow through all the necessary steps.

We shall go through the entire process of launching an IEO step by step.

1.      Work on your blockchain project

Remember you are raising funds for your project. Therefore, you have to have a concrete blockchain project that at least seeks to solve a particular problem.

Also, your project should be viable with the prospects of being implemented in the foreseeable near future. A good project idea should include a progressive business model, the use of breakthrough technologies and also have a strong team of experts.

2.      Token Economics (Tokenomics)

This is a very critical step and you should hire experts to do this for you.

Most exchanges prefer issuing utility tokens to get off the hook of being required to apply for the strict regulations that go with issuing security tokens. As a matter of fact, most of the exchanges will require a legal opinion that concludes that the token is a utility token. Therefore, you should ensure that the token that you create for your project is a utility token.

However, if you prefer to create a security token, you should be ready to look for a securities exchange that is registered and authorized to conduct the sale of security tokens. You should also be ready to adhere to the strict rules that go with issuing securities.

3.      Whitepaper

The whitepaper explains your blockchain project, the tokenomics of your project and how you intend to distribute the funds collected through the IEO within the project. Therefore, you should hire a professional to draft and write the whitepaper for you.

Some of the most important parts of a whitepaper are:

  • Legal disclaimer
  • An executive summary of your project
  • The problem statement
  • Overview of the project
  • Description, use cases, advantages and usefulness of the created product/technology
  • Financial model of the project
  • Market analysis
  • Token economics (Tokenomics)
  • Roadmap
  • Team members
  • Partners

The whitepaper should demonstrate to the potential investors why they should invest in the project by purchasing the tokens being issued through the IEO.

The team members should also be well listed alongside their qualifications and contact information.

4.      Marketing

To reach as many prospective investors as possible, you should embark on good marketing strategies. Also, the stronger your project is the high the chances that you will get a strong exchange to launch your IEO.

Some of the marketing strategies that you could employ include:

  • Social media marketing – LinkedIn, Facebook page, Twitter, Telegram chats, and Medium.
  • Community management – You should work at generating as much hype as possible around the project on different forums. Some of the best platforms to use include Reddit threads, Bitcointalk threads, Medium, and Telegram chats, so on.
  • Press Releases – these should work at explaining the advantages of your project and also creating awareness of the coming IEO.

5.      Finding the right cryptocurrency exchange for the IEO Launch

Once the project, tokenomics, and whitepaper are done, you will have to diligently choose the cryptocurrency exchange platform to use for your IEO.

When choosing an exchange, you should consider whether the exchange is registered to operate in your country or region. Regulated exchanges always hold the front seat in the hearts of cryptocurrency investors. Therefore, launching your IEO on a registered exchange is an added advantage. You also avoid the risk of getting your IEO interrupted by legal case battles.

You should also do a background check to find out about its reputation; whether it has been involved in irregularities in the past and if any, how it resolved them.

Some of the cryptocurrency exchanges that are known to conduct IEOs are:

  • Binance
  • Huobi Prime
  • Bittrex
  • BitMax
  • KuCoin
  • Liquid
  • IDAX
  • CoinBene
  • Latoken
  • OKEx
  • Exmarkets
  • ProBit

Once you identify the cryptocurrency exchange where you want your IEO launched, you should approach the exchange’s listing team. The listing teams of most of the exchanges are can be approached through their agencies or partners.

The conditions set by the listing teams vary from one exchange to the other and you should be keen to identify what is required for the exchange you have chosen. For instance, different exchanges ask for different fees; to some, it could be a percentage of the amount received from the token sale while in others it is a standard listing fee while others ask for both.

The listing team will also require enough information about your project. Therefore, they are going to review the entire project to understand the current stage of the project development, the readiness of the token for the sale, the team and the potential of the project to succeed.

Most importantly, exchanges require a legal opinion on your token.

Legal opinion

The legal opinion is a legally abiding document that concludes that the token of your project is a utility token. Different exchanges have different requirements for the legal opinions and you should enquire about what your specific exchange requires from you.

To get a legal opinion, you should contact a legal company that is recommended or trusted by the exchange that you chose. The legal company will then take you through the necessary legal procedure.

Once you are cleared by the legal company, the IEO goes ahead and launches your IEO.

However, it is important to note that the exchange can still cancel the IEO before the set start date in case they realize some anomalies.

Post IEO launching

IEOs generally take a short duration of time to hit the target amounts. Some IEOs have less than 1 minute in the past to sell out.

So, after holding a successful IEO, you should concentrate on ensuring that your project achieves the objectives you have highlighted in the whitepaper following the developed roadmap. Hitting the milestones on the Roadmap gives investors hope that your project is headed for success.

You should also embark on ensuring that the collected funds are distributed as stated in the whitepaper so that they can go into the proper use in the project.

Initial Exchange Offerings (IEOs), which were introduced following the decline of Initial Coin Offerings (ICOs) popularity among blockchain startups and investors, have gone on to become a force to reckon with within the blockchain crowdfunding industry. IEOs are said to be more trustworthy compared to the ICOs.

IEOs are much safer compared to the ICOs and at the same time much easier to run compared to the STOs, which are the safest.

Some of the things that make IEOs a darling among blockchain token issuers and investors are:

  1. Trust

The fact that IEOs are issued on exchanges brings a sense of centralization in IEOs. This in return has brought trust among investors since they see exchanges as secure platforms due to the regulations that they have to adhere to offer their services.

  1. Efficient token listing after the token sale

Contrary to the ICOs where the issuers (the team behind the blockchain project) would be responsible for approaching exchanges to have their tokens listed, Tokens issued through IEOS are easily listed by the same exchange that issued them.

Therefore, investors are guaranteed that it shall not take long before they start selling the purchased tokens on the exchange.

  1. Ease of raising funds

Since IEOs are issued through exchanges that already have registered users, the IEO issuers are guaranteed that they shall get a vast customer base without much advertising as is the case with ICOs.

Also, the IEO issuers do not have to worry about things like AML/KYC. The exchange platform issuing the tokens takes care of that.

  1. Speed of sale

We cannot forget to mention that due to the large influx of ready investors in exchanges, IEOs take a very short time to hit their targets. There have been cases where it has only taken a few seconds for the target to be hit.

  1. Protection from regulatory consequences

Contrary to ICOs where the startups or companies behind the ICOs are the ones responsible for the legal obligations of the token issuing, Exchange platforms have well organized legal frameworks that deal with the legal consequences of the IEO.

However, there are some legal compliances that the startup or company behind the IEO should adhere to and it at times requires the help of an IEO consultancy or advisory firm to maneuver these regulations. Some exchanges go the extra mile of providing legal advice to startups.

Initial Exchange Offerings (IEOs) regulations

Having evolved from ICOs, which have no provision for legal compliance, IEOs still face the challenge of fitting in the various legal provisions within the various state regulatory authorities.

Of essence, the Team behind an IEO must work diligently to ensure that they developed the right kind of a token. In most cases, IEOs are not after security tokens unless the development team ants the token to be a security token. Therefore, the development team must work within the given regulations to ensure that the token that they develop does not fall under securities. To do so, it is advisable to consult with a reputable IEO advisory firm like Gravitas International so that they can guide you through the legal handles within your country and region. Besides passing the legal handles within your locality, it will also be paramount to adhere to the legal obligations within the countries or regions within which your target audience is.

In some countries like the USA, if the token being issued falls under securities, then the startup or team behind the IEO must look for a securities exchange to list the IEO. Besides, the startup or company behind the IEO shall be subjected to the registration requirements of offerings that fall under the securities laws. If the tokens are securities, the company or startup shall be required to make some important disclosures about its business, the terms of token offering, itself and also about the digital asset it is offering.

If the token does not fall under securities, the startup or company offering the IEO only has to look for a registered exchange where the IEO can be issued. In countries like the USA, such exchanges are normally registered as brokers and must be registered with the SEC and be members of FINRA.

With blockchain security tokens garnering interest throughout the world, Autorité des Marchés Financiers (AMF), the French regulator has seen an opportunity that the rest of the European nations should not miss. The AMF recommends that the European nations should create a European digital lab or sandbox that should enable the nations to ease the legal regulations governing security tokens.

Security tokens are known to be the most regulated digital products in the cryptocurrency and blockchain industry. The reason being that the security tokens fall under securities, although they are digital tokens. Therefore, they are subject to the regulations that govern both the cryptocurrencies or digital assets and those that govern securities.

Other countries like China have also suggested allowing security token offerings under a sandbox mechanism.

AMF’s legal review on security tokens

The French regulator recognizes that security tokens have gained a lot of interest across the world. Both incumbents and blockchain ecosystems seem to gracefully embrace security tokens. The IMF looks at tokenization as an accepted step towards the automation of most financial/trade processes.

The French regulator explored two legal facets in its report on security tokens. The first facet deals with the issue and sale of the security tokens. The second deals with the inclusion of security tokens in investment funds.

Normally, there are no regulatory impediments when it comes to including security tokens as investment funds, either in France or any other European nation. The only thing that asset managers that deal with security tokens should do is to apply for a license with the AMF.

The main issue lies with the issue and sale of the security tokens, especially through Security Token Offerings (STOs). For the case of centralized Distributed Ledger Technology (DLT) platforms there are no challenges since the involved parties can comply with the already set licensing requirements.

However, when it comes to decentralized blockchain projects it is quite challenging for the token issuers and sellers since it is difficult to identify a manager. Concerning this, the AMF suggested an outlined a proposal where parties can list buy and sell orders without requiring the endorsement under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID 2 Directive), which has been in effect since November 2007 among European Union nations.

AMF’s suggestion on the issue and sale of security tokens

Currently, the legislation of a security token issue and sale requires a central securities depository.

AMF suggests that the creation of a sandbox or digital lab would allow regulators in the various counties in the European Union to wave certain regulatory requirements. However, it suggests that this should be done as a trade-off.

According to the AMF’s suggestion, the applicant can only be given a waiver or exemption if they are compliant with key regulatory ethics giving the regulators a higher oversight role.

Earlier on, the AMF had released a working document that sought to inspire the European Commission to create a European digital lab that can deal with the financial services around security tokens.

The French regulator is set to release several other papers in support of its security token research in the coming days or months. Most importantly, the regulator recommends that the use of intermediaries in an age where blockchain technology is available is outdated. The AMF would, therefore, like to see the use of more technologically oriented approaches which gives public adoption of blockchain technology a green light.

A few months ago, Polymath one of the most reputable security token offering platforms decided to move its Polymesh Blockchain platform from Ethereum to Parity Substrate, a platform that was developed by Parity Applied Sciences that is owned by Gavin Wooden, who was Ethereum’s co-founder.

This came just a few months after introducing Polymesh, which is a security token specific blockchain. Polymesh was initially built on Ethereum and Polymath had also gone ahead and built an SDK (a suite of developer tools for security token issuers and white-labellers) that want to issue security tokens on Ethereum.

Reason for migrating

The main reason for the fallout is the fact that Ethereum uses proof-of-work (PoW) consensus mechanism, which does not go well with security tokens, though it plans to upgrade to proof-of-stake (PoS).

Adam Dossa, the head of Polymath’s blockchain, had earlier stated in a telephone interview that though Ethereum has some great attributes, the world of regulated security tokens is quite different from that of Ethereum. Dossa was quick to identify that PoW posses a serious problem known as block reorgs where blocks of data containing transaction information can be rolled again to annul a disputed transaction.

Dossa also touched on the way Ethereum settles transactions, saying that since it uses mining to settle its transactions and miners can operate from any location in the world, establishments dealing with securities could be scrutinized by authorities if the charges paid to the miners are traced to a nation that is already sanctioned.

What did the migration mean?

By changing the platform on which its products are built on, Polymath decided to embark on a journey to migrate its ST20 security token development standard, which was initially constructed through Ethereum’s ERC-1400 token standard, to Parity Substrate. Besides, Polymath also had to migrate its token, the POLY (which is an ERC-20 token) from Ethereum to Parity Substrate.

Adam Dossa, however, stated via an email that they shall maintain a bridge for the POLY token for at least one year.

On their part, Parity agreed to develop a sure business-logic option on the base layer of Ploymesh. It shall also construct decent runtime and contract communication modules.

Why Substrate?

The head of Polymath’s blockchain stated that other candidates had been considered before settling on Substrate. One of the Candidates was Hyperledger Cloth among others.

However, Dossa described Parity Substrate as a “modular, versatile framework”. He also pointed out that it is simple to construct good contracts from the bottom up on Substrate, which is a great thing for Polymesh.

Parity Substrate has offered solutions to a number of consensus mechanisms in the past, some of which are even customized. Also, transactions performed via Substrate are final and cannot be undone.

Regulation authorities in different countries, including the SEC in the US, are doing all they can to ensure that they keep up with the rapidly evolving digital asset industry. One of the recent developments, the Initial Exchange Offering (IEO), has been gathering a lot of momentum since its invention.

IEOs are similar to the Initial Coin Offering (ICO). They are initial offerings of tokens by startups or companies that seek to raise capital.

IEOs evolved from the ICOs. The only thing that the IEOs have done is taking the coin offering process to cryptocurrency exchanges where the exchanges offer the coins/tokens on behalf of the startups or companies. In exchange, the companies or startups behind the IEO pay a small fee to the exchange platform.

IEO issuers have taunted IEOs to be highly secure by arguing that the IEOs are thoroughly vetted by the exchanges before being allowed to run on their platforms. However, the US Security Exchange Commission (SEC) issued a warning in January 2020 saying that some of the exchanges issuing IEOs are not registered with it and yet they are enticing investors with the propaganda that the IEOs they are offering are secure.

Though IEOs are known to be among the most secure coin offerings that investors can invest in, unregulated exchanges are taking that advantage to give investors false promises of high returns. Investors should be wary that IEOs can be conducted in violation of the federal securities laws making them lack most of the investor protections that are associated with the registered exchanges.

As such, there are certain issues that both IEO issuers and investors should take into account when issuing and investing in IEOs in the USA. These include:

Is the IEO offering security tokens?

Since IEOs are built on top of the ICO framework, they mostly do not deal with securities. However, the startup or company issuing the IEO should be well advised by its legal advisors to ensure the tokens they are issuing do not fall under securities (that is if they do not want to issue securities).

However, there is still a probability that an IEO could involve the sale/offering of security tokens. In so doing, the IEO becomes subject to the registration requirements that apply to offerings that fall under the federal securities laws.

If the IEO is a securities offering, the company or startup offering the IEO should among other things provide important disclosures about its project/business, the digital asset being offered and the terms of the offering.

On this issue, IEO issuers could approach IEO advisory firms for directions on how to best formulate the IEO.

Is the platform issuing the IEO a securities exchange?

If the IEO issues security tokens, the exchange platform on which the IEO is being run should be registered with the SEC as a securities exchange. Or alternatively, the exchange should have applied to operate under exemptions; for instance, it could apply to operate as an alternative trading system (ATS).

The regulations that govern the registered national securities exchanges and ATS are aimed at protecting investors from fraudulent or manipulative trading practices that exchanges may indulge in.

If the exchange offering the IEO is a broker, is it registered with the SEC?

Most trading platforms opt to operate as brokers rather than securities exchanges.

The exchanges operating as brokers in the US are required to register with the SEC as members of the Financial Industry Regulatory Authority (FINRA), an independent, non-governmental organization that comes up with and imposes the rules governing registered brokers and broker-dealer firms in the US. Additionally, they should only run IEOs that issue utility tokens but not security tokens.

FINRA members are subject to regulatory requirements that aim at safeguarding investors by ensuring that the brokers and broker-dealer firms act in a manner consistent with SEC’s customer protection standards.

The current COVID-19 pandemic is threatening to bring the world to a standstill. Everybody, famous or infamous, rich or poor, has currently been rendered equal in fear. Governments in America, Asia, Europe, Middle-East and Africa are going for a total lockdown to try and stop the spread of this killer virus that has claimed thousands of lives around the world and still spreading like bush fire.

Many businesses have closed shops in these difficult times. Others have opted for unorthodox means to try and stay relevant while hoping and praying for the return of better days.

However, for the FinTech industry, it is a race against time to try and offer solutions to the COVID-19 pandemic using Blockchain technology.

Blockchain technology has been hailed as the mother of all inventions in the 21st century. It has offered numerous solutions to many problems that have affected humankind over the ages. Currently, almost all departments ranging from, infrastructure, healthcare, transport, communication, and sports have adopted blockchain technology.

WHO launches a blockchain platform to Fight COVID-19 in partnership with blockchain and tech companies

With the COVID-19 Pandemic unfolding too fast for institutions and governments to keep track of the data concerning the Pandemic, the World Health Organization (WHO) in partnership with tech and blockchain companies launched a blockchain platform called Mipasa that would help in sharing information on the coronavirus.

Mipasa is based on distributed ledger technology (DLT). Its main purpose is to help in the early detection of those infected with the COVID-19 especially in the infection hotspots.

The companies involved in the development of the platform include Hacera, an enterprise blockchain platform, Microsoft, an IT corporation, IBM, a technology company and Oracle a computer firm.

The fact that the platform uses blockchain technology makes the shared information full-proof to doctoring. The platform shall also facilitate private sharing of information between individuals, health institutions and organizations as well as state authorities. Therefore the patient’s privacy is guaranteed.

According to the platform’s official website:

“MiPasa can help monitor and foresee local and global epidemiological trends and detect likely asymptomatic carriers by feeding big data on infection routes and occurrences to powerful AI processors around the world.”

The platform has also received backing from several state health institutions including the Centers for Disease Control and Prevention in Europe, the US, and China. The Department of Health of Hong Kong, China’s National Health Commission and the Government of Canada have also offered to contribute to the project.

UAE’s Ministry of Community Development (MOCD) is also adopting DLT-based solutions

The Ministry of Community Development (MOCD) in the United Arab Emirates has also been reported to adopt DLT-based solutions to facilitate the work from home situation.  DLT shall make it possible for the distribution of official documents and identity verification, thus allowing the customers to engage with the MOCD at the comfort of their homes.

Blockchain proposed as the best means for the US to distribute the stimulus package

There are suggestions that the United States Government should consider using blockchain technology, especially DLT to distribute the stimulus package that the government intends to give. Experts have suggested that the US could launch a “digital dollar” based on the DLT.

China also using DLT to censor the spread of the Virus

China which was the starting point for the Coronavirus pandemic deployed blockchain in a number of areas in its efforts to fight the virus. It has adopted DLT to track the spread of the virus, distribute medical supplies, monitor health records and also distribute charity donations.

Could blockchain help in winning the fight against COVID-19?

It shall only be a matter of time before we get the real answer to this question. However, governments, institutions, organizations, and individuals have adopted the use of blockchain technology as the fight against COVID-19 intensifies.

There are reports that over one million personal computer users have donated their processing power to a distributed computing project being referred to as Folding@Home that is working on the simulation of protein dynamics, to find out therapies that can be used for the COVID-19 patients.

There are also reports that Bitcoin users and miners have also joined in the fight. A group of Bitcoin users calling themselves “CoroHope” are said to be working on a coronavirus vaccine.

On 28th January 2020, Singapore enacted the Singapore Payment Service Act (PSA), creating a legal framework to govern payment systems and Payment service providers. Payment Service providers, including exchanges and platforms dealing with cryptocurrencies or digital payment token providers, must obtain licenses from the Monetary Authority of Singapore (MAS) to operate in Singapore.

The PSA will ensure that the FinTech industry, which is already well established in Singapore due to the favorable conditions, is streamlined.

Businesses categorized as payment services according to the PSA

According to the PSA, the following services are categorized as payment services:

  1. Account issuance services – These include businesses that offer services like issuance of payment accounts, or related to operations that required operating a payment account. This could include an e-wallet or a non-bank issued credit card.
  2. Domestic money transfer services – These include businesses that offer services that provide fund transfer services in Singapore. This could include payment kiosk or payment gateway services.
  3. Cross‑border money transfer services – These include businesses that offer services that provide for inbound and outbound fund transfer remittance services in Singapore.
  4. Merchant acquisition services – This applies where a service provider accepts and processes payment transactions for a merchant. This could include the operation of online payment gateways or the provision of point-of-sale terminals.
  5. E-money issuance services – These include businesses that offer services that allow for the issuance of e-money in Singapore so that users can pay merchants or transfer e-money to other individuals. Examples of e-money include money stored in e-wallets.
  6. Digital payment token services – These include businesses that offer services that provide for the buying or selling of digital payment tokens (e.g. cryptocurrencies), or provide a platform which facilitates the exchange of such digital payment tokens in Singapore.
  7. Money‑changing service – This applies to businesses that deal with the buying or selling of foreign currency notes in Singapore. This would include money changers that profit from the exchange of physical currency notes.

Licenses to apply for

To start a business that offers any of the above seven services, one must apply for one of the following licenses with the Monetary Authority of Singapore (MAS) depending on the scope of the business:

  1. Money-changing license – if the business intends to carry out money changing services only.
  2. Standard payment institution (SPI) license – if the business intends to offer payment services specified in the following thresholds (as stipulated under section 6 (5) of the Act):
      • Average monthly transactions of S$6m for two or more activity types
      • Average monthly transactions of S$3m for any activity type
      • Daily outstanding E-money float of S$5m
  1. Major payment institution license – if the business intends to offer payment services without being subject to the above-specified thresholds.

It is worth noting that even the already running businesses had to apply for new licenses or else be considered as operating illegally without any license and they can be charged with an offense.

Requirements for applying for a license

To apply for a PSI license, one must:

  1. Have a company registered in Singapore or overseas and have a permanent business place or registered office in Singapore.
  2. Have at least one executive director who is a permanent resident of Singapore or at least a Singapore citizen.
  3. Have at least one executive director who holds a Singapore Employment Pass.
  4. Have at least one non-executive director who is a permanent resident of Singapore or at least a Singapore citizen.
  5. Fulfill the prescribed operational and financial criteria.
  6. Have a minimum base capital of at least S$100,000.

In addition to the above-mentioned requirements, the MAS also takes into account other factors like the track record of the applicant, experience, qualifications, the ability to comply with the regulations under the PAS and also the financial condition of the applicant.

License application fee

All license applicants are required to pay a nonrefundable license application fee corresponding to the type of license they are applying for.

  1. Applying for a Money-Changing License costs S$500
  2. Applying for a Standard Payment Institution License costs S$1000 to S$5500 depending on the threshold.
  3. Applying for a Major Payment Institution License costs S$1500 to S$8000.

In addition to the application fee, the applicant must also be ready to pay an annual license fee plus other applicable fees depending on the chosen license.

Issues that can result in the cancelation of the license

License holders can lose their license if:

  • They do not start the stated business within 6 months upon receipt of the license.
  • They stop offering payment services for 6 months.
  • They do not make any payments within 6 months.
  • If the business no longer offers services related to the categories stated in the PSA.

PSA regulations governing controllers and directors of payment service providers

In addition to setting a new presence in Licensing of Payment services, the Payment Service Act (PSA) also sets some restrictions for the directors and controllers who intend to control at least 20% of the service provider businesses.

According to the PSA, a 20% controller in a service provider business is a single person or a person together with other associates that:

  • Owns at least 20% in shares of the company/businesses.
  • Can control at least 20% of the votes of the company/business.

However, to become a 20% controller of the company, the said individual must first apply with the MAS. Then, according to the guidelines of MAS, the authority can approve or reject the applications. Upon approval to become a 20% controller, the MAS may also impose other restrictions on the individual.

Reasons why MAS could refuse an application to become a 20% controller

  1. If the person has been earlier convicted of dishonesty and fraudulent offense in Singapore or elsewhere.
  2. If the person is declared bankrupt in Singapore or elsewhere.
  3. If there are complaints about the individual about unsettled debts.
  4. If the person has been a previous director of a financial institution that has been accused in court in Singapore or elsewhere and its license revoked.

Penalties for contravening the rules and restrictions on control over companies

PSA has set harsh penalties for individuals found contravening the rules set aside for the 20% controllers.

The penalties could include fines of between S$250 000 and S$25 000 per day or imprisonment for a term of up to 3 years for unlawful control of a payment service provider.

Need help with registering for a PSA license?

Gravitas International sister company, MT Chambers LLC, which is a leading Singaporean law firm with an international reach can assist you in the following:

  • Preparing and submitting a PSA license application to MAS to obtain the appropriate license to be allowed to operate in Singapore.
  • Drafting and/or updating current compliance policies and procedures, including AML/KYC procedures to meet new regulatory requirements.
  • Conducting ongoing compliance support that includes assisting with regulatory filings, conducting periodic monitoring and reviewing and amending internal controls.
  • Conducting an internal audit to review the Company’s preparedness to adhere to new PSA regulations.

The MT Chambers LLC is one of the 65 law firms that have been handpicked for a pilot phase program for the new Payment Services Act (PSA) known as the Singapore Academy of Law’s of Payment Regulatory Evaluation Program (PREP).

Compared to other forms of crowdfunding, Initial Coin Offering (ICO) offers a more democratic approach. It gives tech startups and firms the ability to net-in a wide range of investors.

The beauty of it is that ICOs have no limitations on who should invest or how much one should invest. There are basically no regulations or laws that define how ICOs should be conducted. All the powers of the token sale are usually at the hands of the issuers and third parties, like ICO advisors, helping in the ICO.

By allowing any investor to invest any amount of money into the ICOs, the issuers are able to raise the required capital faster owing to the fact that investors flock to get a share of the ICO tokens.

However, the lack of a provision for regulations has also become a disadvantage to the ICOs. Crooks found the loophole and started airing fake ICOs targeting vulnerable investors. Compared to other fundraising methods like Security Token Offering (STO) and Initial Exchange Offering (IEO) that have provisions for regulations, ICOs simply had no provision for regulations.

Between 2016 and 2018, a collective of over $10 billion was raised by startups through ICOs. An example of a successful ICO was that of Ethereum (ETH). Ethereum issued ETH tokens whose value appreciated as the project rose to become the second-ranked cryptocurrency.

But Ponzi Schemes and doggy projects started using ICOs to defraud investors making investors more cautious. This cost ICOs greatly. In 2019, ICOs hardly raised $1 billion.

Finding genuine ICOs

Even with the current trend, tech-startups are still conducting ICOs. Therefore, it is still very possible for investors to find genuine ICOs.

However, due to the high cases of Ponzi schemes and scammers using ICOs, it has become increasingly difficult to identify a genuine ICO. It requires a thorough investigation into a project to verify if it is fake or something worth investing in. In this case, ICO advisory companies like Gravitas International comes in handy in helping to identify genuine ICOs.

ICO advisory companies have become the best platforms where investors can get genuine ICOs. The advisors play a key role in managing how startups run their ICOs and they are therefore able to identify if a project is a scam or legit. And no ICO advisory company can advertise and run a scam because that would place its reputation on the line.

The intervention by IEOs

In late 2018, Initial Exchange Offering (IEO) was invented to incorporate regulation in ICOs. An IEO is an ICO that is run on a cryptocurrency exchange. The exchange helps in verifying the projects, thus ensuring that investors (who are usually the exchanges’ users) are shielded from Ponzi schemes.

IEOs approach brought a sense of regulation to the chaotic market. It shifted the power of token sale from the hands of the issuers to exchanges which are regulated by regulatory authorities.

In 2019, over $3 billion was raised through IEOs and the trend seems to gather momentum in 2020.

Coinbase, a US-based cryptocurrency exchange, is set to join the league of cryptocurrency exchanges with IEO Launchpads soon. Kayvon Pirestani, the head of Coinbase institutional sales in Asia, revealed that the exchange was currently exploring a number of capital-formation tools including an IEO Launchpad.

According to the head of sales, an Initial Exchange Offering (IEO) Platform is a great opportunity and Coinbase is carefully exploring it. Though also hinted at developing a Security Token Offering (STO) platform, the IEO platform seems to have stolen the show and it could be the first to be launched.

However, Pirestani careful to say that he could make a formal announcement on the development yet. Nevertheless, the revelation is already an indicator that the IEO platform could be coming within the next few months.

If successful, Coinbase shall join its peers, the likes of Binance, KuCoin Bitfinex, Probit and OKEx. This would greatly enhance Coibase’s revenue and reputation, which is already high at the moment following years of great cryptocurrency exchange services.

A strategic choice for the US Market

Coinbase’s move to launch an IEO Launchpad could be viewed as a strategic move considering the trouble that US investors are going through trying to invest in ICOs. In the US, ICOs are either classified as stocks or securities depending on whether the tokens meet the Howey Test or not. And being a US-based exchange, it stands to benefit the most from US clients who wish to use IEOs instead of ICOs to solicit funds for their blockchain projects.

Compared to ICOs, IEOs offer a better investment opportunity for investors since they are not very much sought after by the regulatory authorities, especially the SEC. The only hectic part is getting an exchange to allow to host the IEO. Once the token sale is allowed to be offered on the exchange platform, authorities do not come looking for the IEO. The exchange is the one responsible for scrutinizing the IEO token sale.

Exchanges scrutinize the IEO token sale issuers to ensure that they are not scams. They also evaluate the project to see whether it will be of any economic value to the exchange.

Source of revenue

In addition to creating an opportunity for investors, IEOs also come in handy in attracting users to register with crypto exchanges. For investors to cash in on any IEO, they have to first register with the exchange running the IEO.

Therefore, if a promising project chooses a certain crypto exchange to run its IEO, the exchange can be sure that new users will sign up with it for them to be able to invest in the IEO.

The new users who sign up with the exchange start trading the IEO tokens once they become tradable and in the process pay commissions as they trade, which adds up to the exchange’s source of revenue.

On the other hand, IEO issuers also pay a certain amount of fee to the exchange running their IEO so as to be allowed to issue their tokens through the exchange’s IEO Launchpad.

As a blockchain or fin-tech investor, you have to keep up with the pace of the ever-changing market and investment opportunities. Two years ago, ICOs had dominated the fin-tech industry, especially the blockchain/cryptocurrency space. Blockchain startups easily raise funds through ICOs as long as the whitepaper is convincing enough to prove that the underlying project is viable. For the startups, they benefit by raising the required capital while investors benefit by making profits from the sale of the tokens at a later stage or using the tokens in paying for services connected to the project.

However, since mid-2018, ICOs have gradually become less attractive to investors, especially due to scammers taking advantage of the lack of proper regulations on the ICOs. Instead, investors are now going for IEOs and STOs since they have some degree of safety compared to the ICOs.

However, IEOs seems to be stealing the show. Though IEOs are newer than the STOs, STOs are yet to pick in the industry probably due to their strict requirements.

But how do you go about investing in IEOs to ensure that you make the most profits? How can you be sure that the IEO is profitable or not?

Below are the number of things that you should consider as an investor before commit yourself in an IEO:

  1. Carry out thorough research about the IEO

You may wonder why the research and the project have already been Okayed by the exchange platform that has better experts than you. But remember, the Exchange does not look too much at the end result of the project. The exchange is only concerned with whether the project is genuine and whether its users will be attracted to the IEO token sale. The exchange is in business and it has to find something that will be well received by its customers. Therefore, it is paramount that you do in-depth research about the project itself to find out if it is a viable investment opportunity.

As you do the research, you could try to find answers to the following questions:

  • Does the project seem to attract the interest of the general public?
  • Is the project a new concept or just a copy-paste?
  • Who are the people behind the project offering the IEO?
  • How experienced are the members of the development team?
  • Is the exchange listing the IEO reputable?
  • Is the exchange secure?
  • Has the exchange been involved in any malpractices?
  • What is the history of the exchange in line with IEOs?

Always remember that the exchange is also looking for profits from the IEO token sale. Therefore, don’t just rush to buy the tokens, do a background check on the project first.

  1. Find out about the work that the development team has done so far

You have to look at what the team behind the project has done so far. You can’t just invest your money into a project that is not yet started; it might end up not starting at all. The software should be completed. You should be able to look at the program to verify if it will indeed be applicable.

You should invest in a project that has already started and the team can show some commitment to the project. This shows that the team behind the project is serious about the entire project.

Things like a whitepaper, well-designed websites, and the development team must be there.

  1. Research about the exchange that offers the IEO

Once you are convinced that the project behind the IEO is viable and looks to be profitable, you have to consider the platform where the IEO is launched. For security reasons, you have to look at the reputation of the exchange platform.

In addition, you have to consider the onboarding processing that the platform requires for you to participate in the IEO. Remember, different exchanges have different requirements for you to become an investor in an IEO. But most importantly, you have to be a registered member with the exchange for you to participate. You have to go through the entire registration process, including the KYC/AML process.

Since it may take some time depending on the exchange that you choose, it is important to do this some days before the actual IEO.

The common exchanges with IEO Launchpads are Binance, Huobi Global and Gate.io.

  1. Find out how the payments for the IEO are to be made

This is a very important factor. You cannot participate or invest in an IEO unless it allows you to buy tokens through a means that is accessible to you. Again, you have to consider the asset that the development team together with the exchange sets as the accepted currencies to buy the project tokens. Some of the most used currencies include Bitcoin (BTC), US Dollar (USD), Great British Pound (GBP) Euro and Ethereum (ETH).

You should also look at the processing time. How long does the processing take after making a purchase?

  1. Look at the tokenomics of the IEO

You have to closely examine how the tokens are distributed. You have to clearly understand the number of tokens available. You also have to see what percentage is assigned to what.

One of the things that you should carefully look at is the percentage of tokens given to the development team. If the development team is given the majority share of the tokens, then that is a red flag. Most of the tokens should go to the investors so as raise sufficient funds for the project.

You should also closely look at the distribution of the funds that are raised through the IEO. How does the development team intend to distribute the funds? The development team should not be the one taking the lion’s share of the funds. A good IEO distributes the majority of the funds to the project development.