The public needs to be convinced that you weren’t just putting lipstick on the pig.
by Kevin Koo
Introduction – Legal Obligations Post-ICO
So, your ICO has run its course. You reached the soft cap, then you reached the hard cap. You are successful, and you have money waiting to be spent. But have you considered your legal obligations post-ICO?
The first thing many ICO teams would do is to enjoy the funds that they have raised. Advisors get a payday, and the core team puts aside tokens for themselves. Some cash out, to pay for bills and housing loans.
They are just relieved to have completed the ICO. They forget that it’s just the beginning, of the next stage. During the ICO, they promised contributors a roadmap. They pushed out white papers, tweets, and videos. They promised to create platforms and technologies. They made representations, and people believed in them. And those people had bought their tokens, with good money.
So, does the ICO team have any legal obligations post-ICO?
With a decentralized file storage protocol like IPFS, anyone can upload a document and have it stored on the Blockchain, in perpetuity. Imagine ICO white papers being uploaded to IPFS and stored in perpetuity. Somebody might dig it up, years later. And that somebody might say, “These guys didn’t do what they are supposed to do!”
This article is to educate ICO promoters, team members, and advisors, on their legal obligations post-ICO. Here are some things to look at.
ICO white papers are promissory notes
White papers contain descriptions of the ICO project. (Normally, they describe the problems that they are trying to solve, but invariably they also describe the ICO project.) These descriptions may be taken to be promises that, if the conditions for fund raising are met, should be carried out.
So, it is not as easy as coming up with grand promises and attracting funds from the public. The plan presented in the white paper, must be executed. White paper writers have to be sure that promises in the ICO white paper can be carried out. If those promises cannot be carried out, then it is no better than a fraud.
Milestones and roadmaps legal obligations post-ICO
Many ICOs were conducted in 2017 and now have roadmaps to meet. Milestones in the roadmap must be achieved. There’s a logic to this.
ICOs are a token distribution mechanism. When Blockchain startups do what they say, people gain confidence — and their tokens go up in value. Investors will benefit.
But when Blockchain startups do not do what they say, people lose confidence — and their tokens plunge in value. Investors will lose money. If the investor were to convert back his tokens to BTC or ETH, they would be worth less than the amount originally invested. And worse yet, people will feel cheated.
So how can ICO teams can do the right thing?
Governance team is important
A successful ICO will need people to oversee the governance of the project. This team would control the flow of funds and ensure, the funds are used for the right purpose. This team would ideally have a good conscience, and pull the brakes when they feel their conscience pricked.
One good example (this is debatable) is when the Tezos Foundation President, Johann Gevers, in 2017 refused to release the funds raised during the ICO to purchase the company that was supposed to develop the technology. You could argue the Tezos Foundation President did what he thought was right.
And if he did that, he was merely fulfilling his legal obligations post-ICO.
(The truth is still unclear, and in the meantime, members of the Tezos community have launched T2 Foundation, to try and revive the project.)
ICO advisors should be retained post-ICO
Yes, you should retain your ICO advisors after the ICO.
Why? Because when you retain the ICO advisors after the ICO, you are signalling to the general public that they were engaged for genuine reasons. And you are telling the general public, you didn’t engage ICO advisors merely as decorations for your ICO website. The general public will be more convinced that you weren’t just putting lipstick on the pig.
And the ICO advisors that you pick, are more likely to be involved in the project in a meaningful way. You need to pick the right ICO advisors, who can provide value to the project. Ideally, these should be guys who can help guide you in realization of the project. Making lofty dreams come true needs some sort of skill, and this is where you leverage your ICO advisors.
This is definitely your legal obligation post-ICO.
Transparency in updates
This is a no brainer. This is in the spirit of open source projects (which your Blockchain project is likely to be).
- Report how much you have made.
- Report on progress in making the platform.
- Report on progress in adding functionality to the code base.
- Report. Report.
Because your contributors have paid to you a lot of cryptocurrency, with the hope that your Blockchain project will be the next big thing. And the last thing they need is someone pulling a fast one on them.
Recently there was a scam ICO called Prodeum, which did an ICO. They had promised to put fruits and vegetables on the Blockchain — a supply chain tracking solution for organic produce. Halfway through the ICO, they disappeared, taking all their contributors’ funds with them. The website was left with only the word, “Penis”. It was definitely a violation of their legal obligation post-ICO.
At the very least they could have left a nicer word.
This article has been prepared to provide general information to visitors of this website. Your case may be very different, and you should consult with a qualified lawyer before making any decision.