University of British Columbia Study: ‘Compliance Trilemma’ Limits Potential of ICOs

Initial Coin Offerings (ICO) are facing a regulatory “compliance trilemma,” according to a recent study released Nov. 19. The research, funded by regtech platform iComply and “supported by” Canadian non-profit national research organization Mitacs Canada, was carried out by the University of British Columbia (UBC).

To prepare the report, UBC’s research team investigated the ICO space over the course of six months, focusing primarily on North America, but also delving into some other countries and jurisdictions. The team conducted 45 qualitative interviews with individuals in the ICO space, including representatives of the finance, law, and science sectors of the field.

Per the study, ICO issuers face a “trilemma,” wherein they can only address two of three objectives at a time, those being “having a compliant offering,” “reaching a distributed pool of investors,” in a manner that is “cost-effective.” The researchers define compliance as following regulations in the home jurisdiction of both the issuer and investor.

While a broadly distributed pool of investors is said to be the principal benefit of an ICO as a funding mechanism, the cost of complying with financial regulators becomes “much greater” if the investor pool becomes more distributed.

“If issuers forgo these costs, the risk of being non-compliant rises significantly. The result is a trilemma, whereby issuers currently must forgo one of these goals to realize the other two, or to compromise on all three,” the study explains.

The trilemma further reveals four basic approaches available to ICO issues, which are “the Maverick ICO,” “the Private ICO,” “the Hybrid ICO,” and no ICO at all. The first option refers to ignoring compliance for maximizing ICO reach and cost effectiveness, which reportedly runs a huge risk of regulatory enforcement.

The second approach focuses on targeting only accredited and institutional investors by sacrificing distribution, which may not affect cost-effectiveness but raise challenges in secondary market trading control.

Regarding the Hybrid ICO, the report reads that it “compromise[s] on all three dimensions by issuing in select markets, resulting in bounded cost effectiveness, compliance and investor scope,” resulting in a combination of risks.

The researchers found that companies wishing to undergo an ICO sought relief from the trilemma through relevant regulatory authorities. Participants in the study reportedly called for amendments to regulation, including clarifications of existing regulation and development of “fundamentally new” regulatory definitions and frameworks.

The study concludes that this “trilemma” has “substantially limited [the] potential” of ICOs, noting:

“Many actors with legitimate ventures that could benefit from ICOs are likely holding back, due to combination of confusion over how exactly they might comply with financial regulations within and across jurisdictions, and the prohibitive costs of doing so manually.”

As Cointelegraph recently reported, ICO performance in the third quarter of 2018 was in part characterized by “overall disappointment,” in comparison with previous quarters.

Last week, Cointelegraph reported that in a self-described “first,” the U.S. Securities and Exchange Commission (SEC) had imposed civil penalties against two ICOs over their failure to register their token sales with the agency.

Autodesk CEO: Blockchain Can Stem Corruption in Construction Industry

American software corporation Autodesk CEO Andrew Anagnost said that blockchain could fight corruption in the construction industry, finance and investment news outlet the Australian Financial Review reported Nov. 19.

Founded in 1982, Autodesk manufactures software for the construction, architecture, media, and entertainment industries. In 2018, the company’s revenue was $2.06 billion.

Speaking at the 2018 Autodesk University conference in Las Vegas, Anagnost reportedly said that blockchain technology could eliminate corruption in the construction industry, as well as deliver greater trust in the field. The Financial Review quotes Anagnost:

“What is blockchain good at? It’s a distributed, trusted ledger that cannot be altered and allows traceability and accountability. A technology like that in an environment like construction where various people involved in the process don’t trust each other is going to find some kind of application.”

While the CEO believes in blockchain’s ability to improve traceability and bring transparency to the industry, Autodesk purportedly has not yet introduced blockchain-powered products. However Anagnost asserted that the company has considered blockchain as part of their future developments, saying “we just don’t have a point of view we have stated publicly.”

Per the Financial Review, Autodesk has been working on its own non-blockchain digital “escrow” system designed to improve trust in the construction industry. Addressing the problem of corruption, Anagnost reportedly said that “it makes it very difficult to track who is responsible for what, so one of the big technological problems we’re going to have to solve is making sure it is not optional to provide traceability and accountability,” adding:

” …corruption in the construction industry is not uncommon. When people are paying hundreds of millions of dollars on large projects, something is always happening somewhere that isn’t quite right. There’s always someone bleeding off resources or money in some inappropriate way.”

Businesses and governments globally have considered deploying blockchain technology in combating corruption and tax evasion. Spain has been actively fighting corruption by amending its anti-corruption laws and by developing blockchain and artificial intelligence (AI) solutions. Per Spanish regulators, blockchain can be used as a preventative measure against corruption.

In China, tax authorities of the city of Shenzhen and a state-owned aerospace firm have turned to blockchain for immutable and transparent record-keeping, in order to combat paperback corruption. The organizations introduced blockchain-backed e-invoices, which purportedly allow authenticated and “credible” invoice issuance, traceable circulation, and efficient and cost-effective oversight by tax authorities.

Catalan Government Considers Blockchain for Public E-Voting System

The head of the Catalan government‘s citizen participation council states that the authority is considering blockchain for the community’s voting system, Spanish daily newspaper La Vanguardia reports Monday, Nov. 19.

Earlier in October, the Generalitat of Catalonia approved a preliminary bill to establish an e-voting system for residents abroad in major elections and other voting processes in the autonomous community.

Recently, Ismael Peña-López, director of Citizen Participation of the Government of Catalonia, revealed that the government hopes to introduce an external e-voting system by the year 2020, as well as to extend electronic voting to all voters.

According to Peña-López, who is a professor of Law and Political Science at the Open University of Catalonia (UOC), the use of blockchain in the state e-voting system is still being considered, although the Generalitat has still not decided on the matter:

“An interesting option is to use blockchain. […] The Generalitat has not made a clear commitment to the blockchain and is still exploring what options there are before deciding.”

The director noted that, regardless of what technology the government decides to use in the voting system, it must instill trust. La Vanguardia quotes Peña-López, “It’s an issue of awareness. The Government is more respectful than a trade. I would like to think that we are able to convince people that [it] is reliable.”

Earlier in July, the Government of Catalonia revealed a plan for blockchain tech deployment within its public administration processes in order to improve “digital services to the public.”

The Catalan community has been striving to gain independence from the Spanish government since 1922. On Oct. 27, 2017, the Catalan Parliament declared independence from Spain, following a controversial referendum.

In October 2018, Spanish news agency El Confidencial reported that former Catalan president Carles Puigdemont requested donations in crypto from the public. Puigdemont reportedly requested crypto donations in order to hide financial support to politicians of the Catalan Government.

According to major daily Spanish newspaper El Mundo, the government of Carles Puigdemont used Bitcoin (BTC) in order to fund initiatives promoting independence.

Columbia University, IBM Launch Two Accelerator Programs for Blockchain Enterprises

IBM and Columbia University have announced two blockchain accelerator programs that aim to help startups in the space innovate at scale, according to an IBM news release Nov. 19.

Both programs form part of the Columbia-IBM Center for Blockchain and Data Transparency, a joint innovation center that was established by the tech giant and U.S. ivy league school this summer.

According to the release, each program will support ten startups, offering them a network of business mentors, technical support, access to Columbia’s student talent and “research community,” design assistance, and IBM cloud technology resources.

The stated aim is to help network creators translate ideas into “sustainable and scalable” blockchain enterprises, which will in turn spur “meaningful enterprise blockchain adoption and drive business efficiencies across industries.”

The eight-week Columbia Blockchain Launch Accelerator, set to take place in New York City, has been designed for pre-seed “idea-stage” companies that are affiliated with either Columbia or another NYC-based school, as the release outlines.

The second eight-week program, dubbed IBM Blockchain Accelerator, is targeted at later-stage companies globally, and will aim to help participants establish a business network and client base for their blockchain application. It will be partially run in-person in New York and San Francisco, and partly “in combination with virtual programming” to give participants more free time to devote to their business scaling efforts.

Each participant startup on both programs will reportedly be supplied with around $400,000 worth of access to technology and services. Neither program takes equity or charges a fee for participation.

As reported earlier this fall, fellow New York-based school New York University (NYU) has claimed to be the “first” U.S. school to offer a major in blockchain technology, to be provided by the NYU Stern School of Business. Many other top-ranked universities globally already offer a host of blockchain and crypto-related courses.

IBM, which has its own Hyperledger-powered cloud blockchain platform, has made major inroads into the enterprise blockchain space. The firm is ranked second worldwide in terms of number of blockchain-related patents filed, as of Aug. 31, 2018, second only to China’s e-commerce giant Alibaba.

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