German regulator approves reversible ICOs to tackle ICO scams

On April 20, German regulators approved a new "reversible ICO (RICO)", bringing new on-chain investor protection to this controversial financing mechanism. It is reported that reversible ICO allows investors to gradually purchase tokens and cancel their support and funds at any time. The first RICO will raise funds for the LUKSO blockchain project.

It is understood that RICO was originally proposed by Ethereum developer Fabian Vogelsteller in 2018, mainly to solve the problem of ICO fraud.

In this regard, Hu Xin, CEO of the MXC Foundation based in Germany, told Caijing.com Chain Finance: Unlike the popular ICO in Singapore, which only requires a SAFT, the traditional ICO in Germany requires a prospectus and consumer rights protection documents. There are several more documents for investors to sign than in Singapore. Now the reversible ICO should add another document, so investors need to read a lot of documents to participate, which raises the threshold.

Hu Xin pointed out: "They are not the first to be approved for legal financing. They should be one of the few to obtain conditional ICO, that is, investor protection clauses. Germany has always been very open to cryptocurrencies, which is also the reason why blockchain companies gather in Berlin. It has always been legal to deposit and withdraw funds here. The German Financial Authority has also long had regulations on cryptocurrency taxation, which is very reasonable and friendly."

It is understood that the German Financial Authority BaFin has always been open to ICOs and has issued a series of policies in this regard. In 2020 alone, Germany has issued a number of guidelines or policies.

In early 2020, BaFin allowed banks to treat Bitcoin or Ethereum as stocks or bonds and provide related services.

In March 2020, BaFin stated that it would classify cryptocurrencies as financial instruments. As a "new type of financial instrument", Germany allows banks to provide cryptocurrency custody services subject to approval.

According to the financial regulator, virtual currency is a digital representation of value that is not issued or guaranteed by any central bank or public institution, is not necessarily linked to legal tender, and does not have the legal status of legal tender or money. However, it is regarded as a medium of exchange by natural or legal persons and can be transmitted, stored and traded electronically.

However, despite Germany's open regulation and clear policies, it has not developed into a new "cryptocurrency paradise."

First of all, although the German Financial Authority BaFin has always been open to cryptocurrencies or blockchains, it has put forward a series of strict regulations in terms of specific implementation.

"The German Financial Authority actually has regulations for everything, but they are rather cumbersome, which results in more technical people having to deal with the cumbersome steps, and fewer people working on blockchain finance. Take ICO as an example. ICOs can be legally conducted in places like Germany and Switzerland, but the threshold is very high, there are a lot of documents, and law firms charge a lot of money for doing it. Singapore is much simpler in comparison." Hu Xin said, "But Germany's blockchain ecosystem is the world's leading, with many large teams such as Ethereum, Polkadot, and Lisk here. There are more people doing development and fewer people speculating on cryptocurrencies. So Germany may not be that powerful, but it is also a very important force in the industry."

Secondly, Germany's traditional institutions, such as banks, remain conservative towards cryptocurrencies.

According to a report by Coindesk on April 7, German banks refused to open bank accounts for cryptocurrency startups, and the banks’ negative attitude became the most unexpected “internal obstacle” for the authorities.

According to Luo Tao, chief compliance advisor of the Global Blockchain Compliance Alliance, the reason is that banks do not understand the cryptocurrency industry, and the bill does not provide sufficiently clear rules and guidance. Therefore, cryptocurrencies with many uncertainties are not very attractive to German bankers who are trying to avoid risks.

Regarding RICO, which was recently approved by German regulators, many industry insiders told Chain Finance that although RICO can prevent ICO fraud to a certain extent, it is difficult for RICO to achieve significant development due to various factors such as its cumbersome procedures.

“I’ve been in contact with global investors and most of them prefer simple documents. They just sign a page and then pay the money,” said an industry insider.