The Australian Treasury recently released an issues paper outlining opportunities and risks of Initial Coin Offerings (ICOs) with an attempt to harness the potential of the new fundraising model.

According to the paper, the Australian Government has been exploring innovations in financial technology – Fintech – to transform the country’s economy and ICOs are attracting its attention.

“We need to look at whether our regulatory framework is well placed to allow those opportunities to be harnessed whilst appropriately managing the associated risks; and, whether there are other actions that could be taken to best position Australia to capitalise on new opportunities.” the paper says.

“Potential benefits” from ICOs

The ICO fundraising model allows Australian businesses to quickly access new sources of capital by having cross-border transactions for their early-stage platforms and product developments. 

In the meanwhile, cryptocurrencies offered via ICOs enables investors to benefit “if the token’s value appreciates over time”. As a result, an ICO-friendly jurisdiction can attract more crypto-related businesses and generate flow-on effects for the wider Australian economy.

“In particular, it is reasonable to expect that increased ICO activity would result in law and professional services firms investing in these capabilities as well as new specialist firms entering the market.”

Risks involved in ICOs

The treasurer also mentioned about obvious risks that ICOs can pose to businesses and investors. In fact, there have been many failed ICOs that appeared to be scams or illegal fundraising “due to unfamiliarity on the application of the regulatory regime.”

“There may also be challenges in valuing the business and estimating the future financial needs of the business, given the volatility of token prices and that digital tokens may be listed at different prices on various exchanges.” the paper adds.

References to former crypto-friendly regions

The issues paper also cites some official jurisdictions of sub-categories of digital tokens in Switzerland, Malta, and Wyoming state.

“Switzerland’s financial market regulator defines three categories of tokens, including ‘payment tokens’ which provide access to a platform, and are therefore subject  to anti-money laundering (AML) laws.”

“Policymakers in Malta have enacted a new set of laws that define various categories of tokens, including ‘virtual financial assets’ which are subject to separate rules from financial products.”

“Similarly, the Wyoming state government in the United States has implemented measures to exempt utility tokens from certain financial services laws, so long as the tokens are exchangeable for goods and services, and not marketed as investments.”

A public consultation for ICO has reportedly been initiated by the Australian Government’s Treasury. The consultation is expect to closed on Feb 28.