Patrick Dahm flaunting his Aviato t-shirt

This is my speech at the first Com­pu­ta­tion­al Law & Block­chain Fest­iv­al – Singa­pore Node on 17 March 2018. In it, I tried to explain what ini­tial coin offer­ings are, why gov­ern­ments all over the world eye them curi­ously, and how gov­ern­ments reg­u­late them – if they reg­u­late them. I also ques­tioned why brick and mor­tar gov­ern­ments reg­u­late some­thing so digital.

Hi, I’m Patrick.

I’m a law­yer. I prac­tise cyber­law, as I like to call it. Although this is derived from the term cyber­space, which seems to be a bit vin­tage. It shouldn’t be, if you ask me.

I’m here to talk about ini­tial coin offer­ings, or ICOs. I shall try to do so, and then some.

To be hon­est, I’m not a fan of ini­tial coin offer­ing as a term. Neither is the MAS, the Mon­et­ary Author­ity of Singa­pore, which doesn’t call them that. The MAS calls them digit­al token offer­ings, which is so much better.

Here’s why.

Initial Public Offerings

Ini­tial coin offer­ing resembles the tra­di­tion­al term ini­tial pub­lic offer­ing. An ini­tial pub­lic offer­ing is the first time shares of a private com­pany are offered to the pub­lic. Think of list­ings on the stock exchange.

Own­ing lis­ted stock means you own a part of the com­pany. You’re a bit of an entrepreneur.

But its mod­ern-day mean­ing doesn’t lie so much in mak­ing us com­pany co-own­ers. It lies in the mon­et­ary value of the stock which, after the list­ing, is trad­able on the fin­an­cial market.

The same applies to oth­er funky things you can find on the fin­an­cial mar­ket. Like deben­tures, units in busi­ness trusts or their deriv­at­ives, or to col­lect­ive invest­ment schemes. Whatever they are. Let’s not even go there. Suf­fice it to say they’re all rights of one party against anoth­er party or even against the gen­er­al public.

But their mod­ern-day value doesn’t lie so much in own­ing these rights. It lies in their trade­ab­il­ity as fin­an­cial assets.

Stocks and deben­tures, busi­ness trust units or deriv­at­ives – they’re all invest­ment objects. Also known as securities.

IPO Regulation

And because of that gov­ern­ments all over the world have said: wait a minute, this is an area with huge inform­a­tion imbal­ances where, at any giv­en stage, one party – say, the com­pany dir­ect­ors who issue the rights – may know so much more than the rest – say, the poten­tial investors. If we let this hap­pen, those who know more may exploit their inform­a­tion advant­age. Hugely undesir­able from an eco­nom­ic point of view.

We must make sure, the gov­ern­ments said, those who know more will dis­close cer­tain inform­a­tion before­hand so every­one can make an informed decision. Hugely desir­able, eco­nom­ic­ally speaking.

And so the gov­ern­ments reg­u­lated the ini­tial offer­ing of secur­it­ies to the pub­lic. Among oth­er things they made it a duty to dis­close a vari­ety of details to poten­tial buy­ers. This reg­u­la­tion was done by way of law. Because rule of law.

Initial Coin Offerings Token Offerings

Enter Mas­ter­coin which, argu­ably, held the first ICO in 2013. They offered crypto­cur­rency, or coin. Eth­ereum and oth­ers fol­lowed. They offered coin, too.

Later offer­ings in the young his­tory of ICOs were not for crypto­cur­rency, but for oth­er rights. For example, as part of a crowd­sale, the right to par­ti­cip­ate with priv­ileges in an online game to be developed with the money collected.

The right to be priv­ileged in an online game isn’t coin. In the world of inform­a­tion tech­no­logy, the right to per­form an oper­a­tion is rep­res­en­ted by a token. So when someone offers a right, she offers a token. This means all crypto­cur­rency are tokens, but not all tokens are cryptocurrency.

That’s why it’s a bit of a mis­nomer to call any token offer­ing a coin offer­ing. That’s why I prefer the way the MAS calls it: digit­al token offering.

Need­less to say tokens carry value, some more, some less.

Bit­coin: hodl!

But this obscure offer­ing where they prom­ise you the right to meet A‑list sport stars face-to-face if only you buy many tokens: maybe less.

In any case, their inher­ent value makes tokens trad­able assets. Neg­at­ively speak­ing, you can lose a lot of money with them.

ITO Regulation

And that’s, of course, why the MAS has got its teeth into tokens in the first place. The MAS and oth­er reg­u­lat­ors world­wide. Because all these new creatures, tokens, were offered unreg­u­lated. If there was any inform­a­tion imbal­ance at any stage – yeah, well, what to do.

But pretty much all reg­u­lat­ors have found tokens have a value and are trad­able. There are just dif­fer­ent schools of thought on how to deal with it.

China has banned token trad­ing entirely. South Korea has banned it, too, but on second thought has star­ted revers­ing this ban. On the oth­er end of the spec­trum is Japan. Not only does Japan allow token trad­ing. It has even enacted laws which accept vir­tu­al cur­rency as pay­ment. In Japan crypto­cur­rency is money. The European Uni­on or Singa­pore are some­where in the middle.

This means: if you want to offer tokens to the pub­lic, wheth­er you call it ICO, ITO or even IPO, then you may want to check out where you offer them. If it’s in China, you won’t be allowed to do it. If you’re in Japan, you will be allowed to do it very much.

Patrick Dahm with an attendee of his talk

In Singapore

If you’re in Singa­pore, it depends on the tokens you want to offer. The MAS’ view on it is still pretty new, they’ve only pub­lished it last Novem­ber. They don’t say it like that, but basic­ally the MAS has taken a look at all the tokens out there. Then it has cat­egor­ised them in three groups.


First cat­egory. On tokens which are crypto­cur­rency the MAS has found: their value may rise or fall. This may attract those who treat them as an invest­ment object. Just like some people invest in tra­di­tion­al cur­rency for the same reas­on. But just like any tra­di­tion­al cur­rency, the main pur­pose of crypto­cur­rency is to be a medi­um of exchange. A pay­ment method.

The only cur­rency we reg­u­late as a pay­ment meth­od is the Singa­pore dol­lar. We do not reg­u­late oth­er cur­rency as such.

Of course, if any­one uses crypto­cur­rency fraud­u­lently, our gen­er­al rules shall apply, includ­ing our crim­in­al law. And let’s nev­er for­get our rules against money laun­der­ing and ter­ror­ism financing.

Utility Tokens

Second cat­egory. On this kind of token the MAS has found: their main pur­pose seems to be that of an entry tick­et to some­thing. They’re also called util­ity tokens. Yes, this may attract those who buy these tokens because they hope to sell them on with a profit. Like the guy who buys a tick­et to the con­cert of a fam­ous sing­er only to sell it on right before the show. But their main func­tion is not to be a trad­able asset.

Our rules against con­ning oth­ers or against money laun­der­ing and ter­ror­ism fin­an­cing not­with­stand­ing, but when a token rep­res­ents the right to par­ti­cip­ate in an online game, this is noth­ing we regulate.

Capital Market Products

Third cat­egory, cap­it­al mar­ket products. On this third cat­egory of tokens the MAS has found: the main pur­pose of these tokens seems to be that of an invest­ment. Gran­ted, they may make their buy­er a co-own­er or cred­it­or of a com­pany. But own­er­ship in a com­pany or being in some oth­er rela­tion­ship with a com­pany is really not why you buy these tokens. Rather, you buy them with a reas­on­able expect­a­tion of profit based sig­ni­fic­antly on the efforts of the entre­pren­eurs or man­agers who run the company.

This is just like tra­di­tion­al secur­it­ies. Tokens in this cat­egory are securities.

We reg­u­late securities.

Thus, if you’re in Singa­pore, you’re allowed to offer your tokens licence-free if your token offer­ing is really an ICO. That is to say an offer­ing for crypto­cur­rency. Or if your token is a util­ity token. But if the tokens you want to offer are a cap­it­al mar­ket product, then that’s reg­u­lated. Then you may have to com­ply with the highest stand­ards of disclosure.

The Prospectus Requirement

This means your offer may have to be made in or be accom­pan­ied by a pro­spect­us. This is a form­al doc­u­ment which you will have to pre­pare and lodge and register with the MAS. It’s full of com­puls­ory state­ments, and believe me, the aver­age token white­pa­per you see out there doesn’t cut it.

There are exemp­tions from the pro­spect­us require­ments. For example for small offers of secur­it­ies worth less than five mil­lion Singa­pore dol­lars. Or for private place­ment offers made to no more than 50 per­sons. Or for offers made to insti­tu­tion­al or accred­ited investors only.

Also, the MAS has the power to exempt a per­son from hav­ing to ful­fil some or all pro­spect­us require­ments on a case-by-case basis. But this may hap­pen only if the cost of com­pli­ance out­weighs the need of the pub­lic for pro­tec­tion. And if dis­pens­ing isn’t pre­ju­di­cial to the pub­lic interest.

In any case, all these exemp­tions come for a lim­ited peri­od of time or with oth­er con­di­tions, includ­ing advert­ising restrictions.

The Sandbox

For the sake of com­plete­ness I’d like to men­tion the sand­box. I don’t know if you’ve heard of it. The MAS offers a so-called reg­u­lat­ory sand­box for fin­an­cial ser­vices. In the sand­box, leg­al and reg­u­lat­ory require­ments are relaxed for a while. Com­pan­ies admit­ted can exper­i­ment there.

But the MAS will only admit you to the sand­box to exper­i­ment with new or emer­ging tech­no­logy, or with exist­ing tech­no­logy in a new way, or with a new fin­an­cial ser­vice which addresses a prob­lem or brings benefit.

At the moment there’s no one in the sand­box exper­i­ment­ing with token offer­ings. But the MAS seems to be keen. It has stated it would con­sider admit­ting token offer­ings, if such fun­drais­ing efforts were by com­pan­ies focused on new tech­no­logy that will improve the effi­ciency of cap­it­al mar­kets. For example, some­thing that can build a ‘smarter’ ini­tial pub­lic offer­ing. Whatever this is.

How­ever, you don’t enter the sand­box eas­ily. You have to apply and you have to be accep­ted. To be accep­ted you must demon­strate you’re will­ing and able to deploy your fin­an­cial ser­vice in Singa­pore when play time is over. You will have to define test scen­ari­os and expec­ted out­comes and report on them to the MAS. Among oth­er things.

Hence, no one should expect to be admit­ted to the sand­box just because they do some­thing with token in it.

Patrick Dahm with an attendee of his talk


Put anoth­er way, offer­ing secur­it­ies, digit­al or not, is a stiff job, in Singa­pore or else­where. Because of reg­u­lat­ory compliance.

But we know now what kind of token is reg­u­lated in the first place and what kind of token isn’t. That’s settled then.

But, you see, I’ve high­lighted the situ­ation in Singa­pore. What about oth­er places?

Yeah, about that. I have a few ques­tions there.

Why Regulate?

First, a quick repeat­er. Why reg­u­late the offer­ing of secur­it­ies again?

Okay, trivi­al. Any text­book on eco­nom­ics has it. Reg­u­la­tion of beha­viour exists, mainly, to pro­tect the interests of cer­tain mar­ket par­ti­cipants. The offer­ing of secur­it­ies is reg­u­lated to pro­tect worthy poten­tial investors from get­ting fleeced. The inform­a­tion imbal­ance thing I’ve men­tioned at the begin­ning. It’s eco­nom­ic­ally undesirable.

Why the State?

Anoth­er ques­tion. Why reg­u­la­tion of secur­ity tokens by the state?

You don’t hear this one so often. That’s prob­ably because, nor­mally, there doesn’t seem to be a reas­on to ask. I mean, who else, right?

Tra­di­tion­ally, reg­u­la­tion is a ser­vice provided by the state to the cit­izenry. This makes per­fect sense in a set­ting where the state is the first-choice reg­u­lat­or of things in our lives.

But where is there such a set­ting? And where is there not?

We are many in the con­fined space on this plan­et. We live in soci­et­ies. Due to cer­tain bene­fits that we see in it many of these soci­et­ies are con­sti­tuted as states. As part of our social con­tracts, we as indi­vidu­als sur­render some of our freedoms to the state. In exchange the state is to pro­tect us. For example by way of regulation.

Where There’s a Limit, There’s a State

But reg­u­la­tion by the state has lim­its. The state is our pro­vider of reg­u­lat­ory ser­vices only with­in its ter­rit­ory. As soon as we reach the bor­ders, the state meets its lim­its to regulate.

In the era of glob­al­isa­tion, this hap­pens really often. This is why states have come up with supra­na­tion­al and inter­gov­ern­ment­al organ­isa­tions and policies. Cue Irene, who’s going to speak about the UNCITRAL Mod­el Law on Elec­tron­ic Trans­fer­able Records later. UNCITRAL is the United Nations Com­mis­sion on Inter­na­tion­al Trade Law. It’s one of these inter­gov­ern­ment­al organisations.

How­ever, glob­al­isa­tion still refers to bor­ders in phys­ic­al space or how to over­come them.

The reg­u­la­tion of secur­ity tokens though.

Where There’s No Limit…

Tokens are inher­ently cyber. Not only that, their main area of applic­a­tion is that lim­it­less, incor­por­eal space which we’ve cre­ated and star­ted to inhab­it a while ago: cyberspace.

State ter­rit­ory is phys­ic­al where­as cyber­space is not. We have star­ted to inhab­it cyber­space with the soft­ware part of what makes us up. But we have not stopped inhab­it­ing phys­ic­al space with our phys­ic­al bod­ies. We just do both.

There is a fairly dis­tinct bor­der between these two spaces, yet many of us do not real­ise it well. Per­haps because it runs right through us and we cross it all the time. As a con­sequence, we tend to oblit­er­ate the dif­fer­ences between both phys­ic­al space and cyberspace.

I daresay states oblit­er­ate these dif­fer­ences a lot. For example, they tend to for­get where the social con­tract grants them power and author­ity and where it doesn’t.

Regulating Remote Areas

Although tra­di­tion­ally they reg­u­late what hap­pens in their ter­rit­ory, states have sought to reg­u­late beha­viour in cyber­space, too. But come to think of it what they really do is reg­u­late beha­viour in their ter­rit­ory. Because they can’t go bey­ond that.

In for­bid­ding token trad­ing, China reg­u­lates beha­viour in China space. In allow­ing token trad­ing, Japan reg­u­lates beha­viour in Japan space. And in apply­ing cer­tain brick-and-mor­tar rules made for tra­di­tion­al secur­it­ies on secur­ity tokens, Singa­pore reg­u­lates beha­viour in Singa­pore space.

Supra­na­tion­al bod­ies like the European Uni­on may go bey­ond that and reg­u­late beha­viour in European Uni­on space. But that’s because its mem­bers are states which allow that.

As of today, there is no cyber state. There’s also no cyber United Nations or cyber European Uni­on. This is why any effect of state reg­u­la­tion on cyber­space is but indirect.

Of course many (per­haps all) laws have, wanted or unwanted, indir­ect effects. But indir­ect effects are usu­ally side effects. I daresay the dir­ect effects of law are usu­ally its main effects. But when it comes to reg­u­lat­ing beha­viour in cyber­space by states, there’s noth­ing but indir­ect effect.

As a res­ult, to me the indir­ect reg­u­la­tion of beha­viour in cyber­space by phys­ic­al-space states smells like a com­prom­ise. Like a work­around, until there’s some­thing bet­ter. Like a colo­ni­al mas­ter who insists his home laws shall apply to his colon­ies far away, as out­land­ish as the res­ults may be.

Then Who? or What? Why Law?

As we con­tin­ue to devel­op tokens, the block­chain tech­no­logy to register them, or the smart con­tracts to trade them, maybe we should reflect on who – or what – could be a dir­ect reg­u­lat­or of token offer­ings in cyberspace?

Who said reg­u­la­tion must be done by way of law any­way, espe­cially by pub­lic law? Yes, it’s a great way of reg­u­lat­ing in phys­ic­al space. But in the cyber­space of today, isn’t code the more appro­pri­ate way of doing it? If so, we may want to make sure our coders are good reg­u­lat­ors. Like we want our law­makers to be good regulators.

Of course this leads to the great­er ques­tion of who could be a bet­ter reg­u­lat­or of life in cyber­space in general.

Is it anyone’s own busi­ness to pro­tect him­self? Or as we spend more and more time there, is it bet­ter to del­eg­ate reg­u­la­tion to some entity in exchange for pro­tec­tion? Some form of cyber social contract?

Per­haps, due to the infin­ity of cyber­space, there will be no cyber states with lim­ited ter­rit­ory and all that. If so, who else might be our social con­tract part­ner? Face­book or Google?


Or will there be some nov­el form of cyber state? With some kind of cyber government?

Call me coo-coo, but I don’t think it’s too early to ask. Because, look, with crypto­cur­rency and digit­al secur­it­ies we have money and invest­ment for cyber­space now. And the emer­gence of money and invest­ment is a token of civil­isa­tion.

Thank you.