Blockhead assails IEO regulations on May 29, 2023 before new platform is launched.

by Neil Liew


To read this article in Blockhead directly (Malaysia’s Tryst With IEOs: Do Regulators Get it? by Neil Liew), please click here.

The following was published as a LinkedIn post on May 30, 2023 at this link.

No startup wants to be told that there is no Product-Market Fit. Unfortunately, the newly formed IEO platforms were told just that yesterday by Blockhead, a regional trade journal.

In the EU, Japan, the Philippines and Singapore, applicants for crypto platform licences are required to present the sustainability of their business plans. The first three even ask for documentation on exit strategy! In Malaysia, a digital bank is given only 5 years to prove that its business model is viable. If it fails to do so, BNM may revoke its licence.

As much as we root for the local crypto sector, we find ourselves asking the same question: How do IEO products fit in the market as-is?

If you ask a venture capitalist, they are happy with their fit-for-purpose Convertible Notes (CN). If IEO tokens are now used instead, how do they compute pre-money and post-money calculations? How do they convert during the priced rounds (series A onwards)? If they fractionalize their VC fund to IEO investors, can they legally pass on recurrent management fees just like what they do in an LP model?

If you ask a financial holding company, they don’t want to deal with additional prudential provisions by BCBS for tokens. It will be less onerous to invest directly in the reference asset rather than the tokenized form – for the same returns. Even for IEO tokens that are asset-backed and used for investments, they would be regulated like Money Market Funds and Exchange-Traded Funds under IOSCO policy recommendations.

That’s just what we heard from the ground. We’re confident the market will figure it out.

In the meantime however, IEOs are a solution in search of a problem.