The ICO for Start-Ups is similar to a crowdfunding operation during which investors commit virtual money to help a company pre-finance a service or product. These funds can go to blockchain projects such as companies active in more traditional sectors.
Sometimes called ‘levée de fonds en cryptomonnaie" in French or Initial Token Offering (ITO), in English, Initial Coin Offering (ICO) can be similar to some kind of initial public offering but made on the blockchain. ICO is launched by a start-up that has assessed its financial needs beforehand and has drafted a ‘white paper’, a document describing its entrepreneurial project. Investors can then finance this company by paying with cryptocurrency such as bitcoin or ether.
In exchange for their capital, investors receive tokens. These tokens can have different functions. For example, they can be used as money or can give access rights to a platform to buy goods or services offered by the start-up. Depending on their nature, tokens can also give the investor access to dividends as well as voting rights within the company.
This approach has several advantages. On the one hand, it allows a start-up to raise significant funds within a short period of time and at reduced costs. On the other hand, it ensures a distribution of access rights. The ICO, however, presents several risks. The speed and the simplicity of the process encourage young companies to request for funds for emerging projects for which no prototype has been realized. This offers little guarantee to the investor who has no right to the project. Moreover, since tokens are not regulated or are sometimes issued by individuals who are not identified, the risk of fraud is high.
Regarding Swiss legislation, the Swiss Financial Market Supervisory Authority (FINMA) published guidelines in February 2018 explaining how it deals with applications for liability in the area of ICO.
Source: page verified by a Swiss law firm in June 2018.