Study Reveals Critical Information is Missing from ICO Whitepapers
- The study found that 4% of whitepapers lack "any information as to what the token represents."

A study by the University of Luxembourg Faculty of Law, Economics, and Finance entitled “The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators” has decried the practice of holding ICOs as displaying some--but not all--of the characteristics of a “classic speculative bubble.” The study collected data from more than 100 of the 1000+ ICOs that have taken place over the last 18 months.
The study criticized the widespread practice of presales--at least 60% of the ICOs followed in the study had sold tokens “to a private investor group prior to the ICO.” Giving a small group special access to a large number of tokens on a network can (and does) contribute to “pump and dump schemes,” in which the early investors sell their inflated coins at a profit shortly after an ICO has taken place.
In some respects, some of the other problems that the study detailed should be obvious red flags to ICO participants. For example, “white papers for ICOs typically reveal very little about the issuing entities and their backers,” and failed to provide “physical, postal, or other contact address” for the organizations behind them. All told, only 40% of the whitepapers provided “valid” postal information; 18% of the ICOs in the study did not provide “any information at all about the issuing entity.”
Additionally, 70% of the ICOs failed to provide any legal information relevant to their ICOs. The study noted that “almost all ICOs rely on legislative loopholes or, more accurately, what the issuing entity hopes (or prays) is a loophole or grey area.”
The study noted that the one thing that seemed to be consistent throughout the whitepapers was the inclusion of some technical information about how the corresponding cryptocurrency operated, although 4% of the whitepapers lacked even this.
Naivety or Malice?
The study attributed the lack of legal information (and overall inconsistency in the information provided by whitepapers) to the hypotheses that ICOs are “frequently structured to avoid existing legal and regulatory requirements.”
While the study acknowledges that some of the less-than-legitimate characteristics of ICOs and their corresponding whitepapers can be attributed to the naivety of “the stereotypical crypto-geek about legal or other requirements,” it also nods to the presence of malicious intent.
While governments across the world are taking swift steps to regulate the practice of ICOs, there are a growing number of ICO-related scams that have taken place across the crypto space. Recently, the Confido ICO was dubbed an ‘exit scam’ and is currently in the hands of the FBI.
Additionally, Tezos has been hit with three class-action lawsuits in recent weeks seeking compensation for Tezos ICO participants. The company has been under much scrutiny following a public spat between the individuals at the core of the organization in which all parties accused each other of helping themselves to some of the money raised during the ICO (a whopping $400 million).
A Global Culture of Swift Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (FCA), the US’ Securities and Exchange Commission (SEC), Australian Security and Investment Commission (ASIC), and the Cyprus Securities and Exchange Commission (CySEC) are the most widely dealt with authorities in the FX industry.In its most basic sense, regulators help ensure the filing of reports and transmission of data to help police and monitor activity by brokers. Regulators also serve as a countermeasure against market abuse and malpractice by brokers. Brokers adhering to a list of mandated rules are authorized to provide investment activities in a given jurisdiction. By extension, many unauthorized or unregulated entities will also seek to market their services illegally or function as a clone of a regulated operation.Regulators are essential in snuffing out these scam operations as they prevent significant risks for investors.In terms of reporting, brokers are also required to regularly file reports about their clients’ positions to the relevant regulatory authorities. The most-recent regulatory push in the aftermath of the Great Financial Crisis of 2008 has delivered a material shift in the regulatory reporting landscape.Brokers typically outsource the reporting to other companies which are connecting the trade repositories used by regulators to the broker’s systems and are handling this crucial element of compliance.Beyond FX, regulators help reconcile all matters of oversight and are watchdogs for each industry. With ever-changing information and protocols, regulators are always working to promote fairer and more transparent business practices from brokers or exchanges. Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (FCA), the US’ Securities and Exchange Commission (SEC), Australian Security and Investment Commission (ASIC), and the Cyprus Securities and Exchange Commission (CySEC) are the most widely dealt with authorities in the FX industry.In its most basic sense, regulators help ensure the filing of reports and transmission of data to help police and monitor activity by brokers. Regulators also serve as a countermeasure against market abuse and malpractice by brokers. Brokers adhering to a list of mandated rules are authorized to provide investment activities in a given jurisdiction. By extension, many unauthorized or unregulated entities will also seek to market their services illegally or function as a clone of a regulated operation.Regulators are essential in snuffing out these scam operations as they prevent significant risks for investors.In terms of reporting, brokers are also required to regularly file reports about their clients’ positions to the relevant regulatory authorities. The most-recent regulatory push in the aftermath of the Great Financial Crisis of 2008 has delivered a material shift in the regulatory reporting landscape.Brokers typically outsource the reporting to other companies which are connecting the trade repositories used by regulators to the broker’s systems and are handling this crucial element of compliance.Beyond FX, regulators help reconcile all matters of oversight and are watchdogs for each industry. With ever-changing information and protocols, regulators are always working to promote fairer and more transparent business practices from brokers or exchanges. Read this Term, Although Severity Varies
To deal with the criminal activity associated with ICOs, some countries have banned the practice completely. China announced its ban on ICOs in September; South Korea joined, and others followed. The study points to Switzerland and Singapore as “leading examples” of countries with more “lenient” regulatory practices.
Data published by cryptofinance research firm Smith + Crown last week also revealed that of the 169 ICOs that took place in October, only 69 of them were able to reach their fundraising goals without extending or postponing their sales. Some of the failed ICOs were cancelled outright.
Smith + Crown pointed out that market saturation might not be the only factor contributing to the dimming success of the ICO market. The firm wrote that the increased likelihood of ICO failure may be a sign of a market that has become smarter and more discerning--more likely to choose to fund the projects that are likely to succeed in the long term.
In September, Ethereum Ethereum Ethereum is an open source, blockchain-based distributed computing platform and operating system featuring smart contract functionality. Created in 2014, Ethereum now stands as the second largest cryptocurrency by market cap at the time of writing.As a decentralized cryptocurrency network and software platform, Ethereum represents the most prominent altcoin. Ethereum also enables the creation Distributed Applications, or dapps. Understanding EthereumEthereum boasts its own programming language, called Turing Complete, which is used to build the dapps. Dapps run on a peer-to-peer (P2P0 network of virtual machines. These can be just about anything and are optimized to run on Smart Contracts. Smart Contracts are pieces of code that execute a predetermined set of actions once a certain set of criteria are met. The Ethereum network’s native currency is called Ether, or ETH. ETH tokens can be used to pay for things inside of dapps or to receive payouts from smart contracts. They can also be traded off of the Ethereum network inside of cryptocurrency exchanges or OTC trading platforms. For most of its lifetime, Ethereum has remained as the second-largest and most popular cryptocurrency in terms of its market cap. It was briefly outpaced by Bitcoin Cash near the end of 2017.Ethereum’s origin dates back to late 2013 when crypto researcher and programmer Vitalik Buterin proposed its utility.Its development was subsequently funded by an online crowdsale that took place in the middle of 2014 before going live in July 2015. At its inception, Ethereum went live with 72 million coins minted, accounting for approximately 65 percent of its total circulating supply as of May 2020.Like other cryptos, Ethereum has had a checkered past, resulting in splits. Back in 2016, an exploited vulnerability in The DAO project's smart contract software caused the theft of $50 million worth of ether.As a result, Ethereum was split into two separate blockchains – a newer and separate version became known as Ethereum (ETH), while the original chain continued to be known as Ethereum Classic (ETC). Ethereum is an open source, blockchain-based distributed computing platform and operating system featuring smart contract functionality. Created in 2014, Ethereum now stands as the second largest cryptocurrency by market cap at the time of writing.As a decentralized cryptocurrency network and software platform, Ethereum represents the most prominent altcoin. Ethereum also enables the creation Distributed Applications, or dapps. Understanding EthereumEthereum boasts its own programming language, called Turing Complete, which is used to build the dapps. Dapps run on a peer-to-peer (P2P0 network of virtual machines. These can be just about anything and are optimized to run on Smart Contracts. Smart Contracts are pieces of code that execute a predetermined set of actions once a certain set of criteria are met. The Ethereum network’s native currency is called Ether, or ETH. ETH tokens can be used to pay for things inside of dapps or to receive payouts from smart contracts. They can also be traded off of the Ethereum network inside of cryptocurrency exchanges or OTC trading platforms. For most of its lifetime, Ethereum has remained as the second-largest and most popular cryptocurrency in terms of its market cap. It was briefly outpaced by Bitcoin Cash near the end of 2017.Ethereum’s origin dates back to late 2013 when crypto researcher and programmer Vitalik Buterin proposed its utility.Its development was subsequently funded by an online crowdsale that took place in the middle of 2014 before going live in July 2015. At its inception, Ethereum went live with 72 million coins minted, accounting for approximately 65 percent of its total circulating supply as of May 2020.Like other cryptos, Ethereum has had a checkered past, resulting in splits. Back in 2016, an exploited vulnerability in The DAO project's smart contract software caused the theft of $50 million worth of ether.As a result, Ethereum was split into two separate blockchains – a newer and separate version became known as Ethereum (ETH), while the original chain continued to be known as Ethereum Classic (ETC). Read this Term creator Vitalik Buterin said that the world was “in an ICO bubble.” It seems as though that bubble is starting to pop, but not without valid reason. The ICO culture, while providing lots of people with lots of wonderful opportunities, has historically been a space in which advantageous criminal behavior has gone unchecked for far too long. As the markets continue to become more discerning and governments navigate the regulatory seas, we can only hope that ICOs will become a healthier practice.
A study by the University of Luxembourg Faculty of Law, Economics, and Finance entitled “The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators” has decried the practice of holding ICOs as displaying some--but not all--of the characteristics of a “classic speculative bubble.” The study collected data from more than 100 of the 1000+ ICOs that have taken place over the last 18 months.
The study criticized the widespread practice of presales--at least 60% of the ICOs followed in the study had sold tokens “to a private investor group prior to the ICO.” Giving a small group special access to a large number of tokens on a network can (and does) contribute to “pump and dump schemes,” in which the early investors sell their inflated coins at a profit shortly after an ICO has taken place.
In some respects, some of the other problems that the study detailed should be obvious red flags to ICO participants. For example, “white papers for ICOs typically reveal very little about the issuing entities and their backers,” and failed to provide “physical, postal, or other contact address” for the organizations behind them. All told, only 40% of the whitepapers provided “valid” postal information; 18% of the ICOs in the study did not provide “any information at all about the issuing entity.”
Additionally, 70% of the ICOs failed to provide any legal information relevant to their ICOs. The study noted that “almost all ICOs rely on legislative loopholes or, more accurately, what the issuing entity hopes (or prays) is a loophole or grey area.”
The study noted that the one thing that seemed to be consistent throughout the whitepapers was the inclusion of some technical information about how the corresponding cryptocurrency operated, although 4% of the whitepapers lacked even this.
Naivety or Malice?
The study attributed the lack of legal information (and overall inconsistency in the information provided by whitepapers) to the hypotheses that ICOs are “frequently structured to avoid existing legal and regulatory requirements.”
While the study acknowledges that some of the less-than-legitimate characteristics of ICOs and their corresponding whitepapers can be attributed to the naivety of “the stereotypical crypto-geek about legal or other requirements,” it also nods to the presence of malicious intent.
While governments across the world are taking swift steps to regulate the practice of ICOs, there are a growing number of ICO-related scams that have taken place across the crypto space. Recently, the Confido ICO was dubbed an ‘exit scam’ and is currently in the hands of the FBI.
Additionally, Tezos has been hit with three class-action lawsuits in recent weeks seeking compensation for Tezos ICO participants. The company has been under much scrutiny following a public spat between the individuals at the core of the organization in which all parties accused each other of helping themselves to some of the money raised during the ICO (a whopping $400 million).
A Global Culture of Swift Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (FCA), the US’ Securities and Exchange Commission (SEC), Australian Security and Investment Commission (ASIC), and the Cyprus Securities and Exchange Commission (CySEC) are the most widely dealt with authorities in the FX industry.In its most basic sense, regulators help ensure the filing of reports and transmission of data to help police and monitor activity by brokers. Regulators also serve as a countermeasure against market abuse and malpractice by brokers. Brokers adhering to a list of mandated rules are authorized to provide investment activities in a given jurisdiction. By extension, many unauthorized or unregulated entities will also seek to market their services illegally or function as a clone of a regulated operation.Regulators are essential in snuffing out these scam operations as they prevent significant risks for investors.In terms of reporting, brokers are also required to regularly file reports about their clients’ positions to the relevant regulatory authorities. The most-recent regulatory push in the aftermath of the Great Financial Crisis of 2008 has delivered a material shift in the regulatory reporting landscape.Brokers typically outsource the reporting to other companies which are connecting the trade repositories used by regulators to the broker’s systems and are handling this crucial element of compliance.Beyond FX, regulators help reconcile all matters of oversight and are watchdogs for each industry. With ever-changing information and protocols, regulators are always working to promote fairer and more transparent business practices from brokers or exchanges. Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (FCA), the US’ Securities and Exchange Commission (SEC), Australian Security and Investment Commission (ASIC), and the Cyprus Securities and Exchange Commission (CySEC) are the most widely dealt with authorities in the FX industry.In its most basic sense, regulators help ensure the filing of reports and transmission of data to help police and monitor activity by brokers. Regulators also serve as a countermeasure against market abuse and malpractice by brokers. Brokers adhering to a list of mandated rules are authorized to provide investment activities in a given jurisdiction. By extension, many unauthorized or unregulated entities will also seek to market their services illegally or function as a clone of a regulated operation.Regulators are essential in snuffing out these scam operations as they prevent significant risks for investors.In terms of reporting, brokers are also required to regularly file reports about their clients’ positions to the relevant regulatory authorities. The most-recent regulatory push in the aftermath of the Great Financial Crisis of 2008 has delivered a material shift in the regulatory reporting landscape.Brokers typically outsource the reporting to other companies which are connecting the trade repositories used by regulators to the broker’s systems and are handling this crucial element of compliance.Beyond FX, regulators help reconcile all matters of oversight and are watchdogs for each industry. With ever-changing information and protocols, regulators are always working to promote fairer and more transparent business practices from brokers or exchanges. Read this Term, Although Severity Varies
To deal with the criminal activity associated with ICOs, some countries have banned the practice completely. China announced its ban on ICOs in September; South Korea joined, and others followed. The study points to Switzerland and Singapore as “leading examples” of countries with more “lenient” regulatory practices.
Data published by cryptofinance research firm Smith + Crown last week also revealed that of the 169 ICOs that took place in October, only 69 of them were able to reach their fundraising goals without extending or postponing their sales. Some of the failed ICOs were cancelled outright.
Smith + Crown pointed out that market saturation might not be the only factor contributing to the dimming success of the ICO market. The firm wrote that the increased likelihood of ICO failure may be a sign of a market that has become smarter and more discerning--more likely to choose to fund the projects that are likely to succeed in the long term.
In September, Ethereum Ethereum Ethereum is an open source, blockchain-based distributed computing platform and operating system featuring smart contract functionality. Created in 2014, Ethereum now stands as the second largest cryptocurrency by market cap at the time of writing.As a decentralized cryptocurrency network and software platform, Ethereum represents the most prominent altcoin. Ethereum also enables the creation Distributed Applications, or dapps. Understanding EthereumEthereum boasts its own programming language, called Turing Complete, which is used to build the dapps. Dapps run on a peer-to-peer (P2P0 network of virtual machines. These can be just about anything and are optimized to run on Smart Contracts. Smart Contracts are pieces of code that execute a predetermined set of actions once a certain set of criteria are met. The Ethereum network’s native currency is called Ether, or ETH. ETH tokens can be used to pay for things inside of dapps or to receive payouts from smart contracts. They can also be traded off of the Ethereum network inside of cryptocurrency exchanges or OTC trading platforms. For most of its lifetime, Ethereum has remained as the second-largest and most popular cryptocurrency in terms of its market cap. It was briefly outpaced by Bitcoin Cash near the end of 2017.Ethereum’s origin dates back to late 2013 when crypto researcher and programmer Vitalik Buterin proposed its utility.Its development was subsequently funded by an online crowdsale that took place in the middle of 2014 before going live in July 2015. At its inception, Ethereum went live with 72 million coins minted, accounting for approximately 65 percent of its total circulating supply as of May 2020.Like other cryptos, Ethereum has had a checkered past, resulting in splits. Back in 2016, an exploited vulnerability in The DAO project's smart contract software caused the theft of $50 million worth of ether.As a result, Ethereum was split into two separate blockchains – a newer and separate version became known as Ethereum (ETH), while the original chain continued to be known as Ethereum Classic (ETC). Ethereum is an open source, blockchain-based distributed computing platform and operating system featuring smart contract functionality. Created in 2014, Ethereum now stands as the second largest cryptocurrency by market cap at the time of writing.As a decentralized cryptocurrency network and software platform, Ethereum represents the most prominent altcoin. Ethereum also enables the creation Distributed Applications, or dapps. Understanding EthereumEthereum boasts its own programming language, called Turing Complete, which is used to build the dapps. Dapps run on a peer-to-peer (P2P0 network of virtual machines. These can be just about anything and are optimized to run on Smart Contracts. Smart Contracts are pieces of code that execute a predetermined set of actions once a certain set of criteria are met. The Ethereum network’s native currency is called Ether, or ETH. ETH tokens can be used to pay for things inside of dapps or to receive payouts from smart contracts. They can also be traded off of the Ethereum network inside of cryptocurrency exchanges or OTC trading platforms. For most of its lifetime, Ethereum has remained as the second-largest and most popular cryptocurrency in terms of its market cap. It was briefly outpaced by Bitcoin Cash near the end of 2017.Ethereum’s origin dates back to late 2013 when crypto researcher and programmer Vitalik Buterin proposed its utility.Its development was subsequently funded by an online crowdsale that took place in the middle of 2014 before going live in July 2015. At its inception, Ethereum went live with 72 million coins minted, accounting for approximately 65 percent of its total circulating supply as of May 2020.Like other cryptos, Ethereum has had a checkered past, resulting in splits. Back in 2016, an exploited vulnerability in The DAO project's smart contract software caused the theft of $50 million worth of ether.As a result, Ethereum was split into two separate blockchains – a newer and separate version became known as Ethereum (ETH), while the original chain continued to be known as Ethereum Classic (ETC). Read this Term creator Vitalik Buterin said that the world was “in an ICO bubble.” It seems as though that bubble is starting to pop, but not without valid reason. The ICO culture, while providing lots of people with lots of wonderful opportunities, has historically been a space in which advantageous criminal behavior has gone unchecked for far too long. As the markets continue to become more discerning and governments navigate the regulatory seas, we can only hope that ICOs will become a healthier practice.