Initial Coin Offerings (ICOs), the hot crowdfunding market that uses tokenized securities based on cryptocurrencies, is still looking to gain its sea legs. While there have been multiple phenomenal ICOs, like the recent Filecoin home-run that raised over $200 million ($135 million in just one hour), questions linger as to how the legal community should handle these private offerings. The Wall Street Blockchain Alliance (WSBA) is preparing to release guidance as to how the broader community should manage ICOs and the organization has received the assistance of many large law firms to help sort things out.
So who is the WSBA?
The WSBA is an advocacy group for Wall Street in the distributed ledger technology (Blockchain) – cryptocurrency world. It is “a neutral, unbiased steward of education and cooperation between Wall Street firms.” Some of the most prominent law firms around are involved with this group. A short list of the firms represented by certain lawyers include:
- Debevoise & Plimpton LLP;
- Gibson, Dunn & Crutcher LLP;
- Hogan Lovells US LLP;
- Holland & Knight LLP;
- King & Woods Mallesons;
- Morrison & Foerster LLP;
- Orrick, Herrington & Sutcliffe LLP;
- Pepper Hamilton LLP;
- Polsinelli PC;
- Thompson Hine LLP; and
- Wachtell, Lipton, Rosen & Katz LLP
- and there are more…
The forthcoming document on ICOs will ultimately be open for endorsement, not only by other law firms that were not involved in the original drafting process, but also to other organizations (both not-for-profits and commercial entities) that may be outside of the Wall Street Blockchain Alliance. Their intention is to promote collegiality among the many stakeholders and organizations, not to be divisive or competitive with other groups.
“We are trying to develop something that will be practical and useful, rather than just theoretical, and having the views of some of the most experienced firms in the space will be valuable to all of us.”
The WSBA’s first piece of thought leadership will address specific questions that top U.S. legal practitioners are encountering in practice with respect to token sales. The initiative is being led by Lewis Cohen of Hogan Lovells. Cohen says the rise of ICOs has been astounding;
“The remarkable growth in the market for sales of cryptographic tokens has taken nearly all observers by surprise. Interestingly, it is a market that has both benefited from, and been hindered by, a notable lack of clarity in the legal and regulatory “guard rails” that apply to the sales of these tokens. With the scale of demand now clear, the need for guidance from a consensus of the leading legal practitioners in the space becomes all the more critical and timely. We are thrilled to be involved in this important project.”
Klayman says their intent is to provide well reasoned recommendations to real life questions they are encountering – along with fellow US legal practitioners – regarding token sales.
“Rather than providing abstract or theoretical guidance, our objective is to leverage our respective experiences and knowledge to develop a common, private-sector approach and view with respect to certain questions for which we do not have clear answers or bright-line rules,” says Klayman. “We plan to release our initial thought leadership by Thanksgiving because these are questions that we as lawyers need to be able to answer as soon as possible for our clients.”
She adds that the goal is to preserve flexibility and the ability to modify the approach if necessary. They currently expect they will be releasing a Q&A-style set questions that legal practitioners presently are grappling with when working on token sales – essentially a practical, private sector FAQ, rather than an extensive memo.
“For each question, we will propose a brief answer that the group generally agrees on in terms of approach. Currently, many of us have been posing questions to each other, so that we can come up with a common and reasoned view, in the absence of on-point guidance,” says Klayman. “Once completed, the FAQ guidance is expected to give us as legal practitioners some reasoned basis for taking particular stances and views. The FAQs are not expected to address issues about which the group may have strong disagreements. We expect that other lawyers and law firms that agree with any such guidance would be able to sign-onto it.”
The guidance will provide certain common questions relating to tokens that are treated as securities and those that are not. Non-security based ICOs are typically labeled Utility Tokens and do not need to file an exemption. Additional law firms and lawyers will have the opportunity to sign-onto the initiative and the guidance. So if you are interested the WSBA is welcoming interest from other firms.
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Ron Quaranta, Chairman of the WSBA, sees an ongoing need for their organization to help guide and advocate on behalf of both DLT and cryptocurrency utilization.
“The Wall Street Blockchain Alliance was founded as a non-profit trade association with a mission to guide, influence and promote the comprehensive adoption of blockchain technology throughout global financial markets and beyond. With membership across the spectrum of global organizations, including banking, brokerage, financial services, legal, technology and more, our members are laying the important foundations needed for blockchain adoption. These foundations include defining and implementing thought leadership and best practice recommendations, suggesting asset frameworks, proposing interoperability standards and more. We are proud of the efforts of the WSBA team and members, and look forward to further developments in the near future”.
The ICO document should be out by November 24th. We will be certain to share it once it is published. Expect more from the WSBA in the coming months as the group seeks to encourage a compliant, efficient and profitable ICO market.