Why Sin­ga­pore ranks as the third most favourable coun­try in the World for icos

Eleven of the 100 largest ICOS in the world, ranked by funds raised, are held by firms in Sin­ga­pore.

Singapore Business Review - - CONTENTS -

When blockchain startup Tenx raised close to US$80M from its ini­tial coin of­fer­ing, in 2017, it was a seven-minute event that took months of care­ful prepa­ra­tion and banked on Sin­ga­pore’s sta­tus as one of the most at­trac­tive hubs for such fundrais­ing. Eleven of the 100 largest ICOS by funds raised are held by firms in Sin­ga­pore, rank­ing third in the world just be­hind the U.S. and Switzer­land, which had 30 and 15, re­spec­tively, ac­cord­ing to a July re­port from the Crypto Fi­nance Con­fer­ence.

No­tably, Sin­ga­pore pulled ahead of other Asian coun­tries in the rank­ing, with China at­tract­ing only four of the top 100 ICOS, and Hong Kong and Ja­pan hav­ing two each. Since then, Sin­ga­pore has fur­ther so­lid­i­fied its po­si­tion for ICOS, wherein star­tups drum up cap­i­tal typ­i­cally by sell­ing cryp­tocur­rency to­kens in ex­change for a widely-used vir­tual cur­rency like Bit­coin or Ether, or cash. The to­kens ba­si­cally rep­re­sent a right to re­ceive some sort of ben­e­fit, or rep­re­sent as­set own­er­ship or se­cu­rity in­ter­est over as­sets or prop­erty.

Some of the largest ICO cam­paigns in Sin­ga­pore are Fu­sion Foun­da­tion, a startup build­ing an “in­clu­sive crypto­fi­nan­cial plat­form” which US$110M; Quoine, a cryp­tocur­rency ex­change plat­form which raised US$105M in Novem­ber 2017; and Tenx, a cryp­tocur­rency pay­ments startup which raised US$80M in June 2017.

Mean­while, some of the lat­est ICOS that took place in Sin­ga­pore in­clude Elec­trify, a re­tail elec­tric­ity mar­ket­place busi­ness that raised US$30M in March; Pol­i­cy­pal, an in­surtech com­pany and the first startup to grad­u­ate from the Mone­tary Au­thor­ity of Sin­ga­pore (MAS) fintech reg­u­la­tory sand­box in Au­gust 2017 which raised Us$20m,and Bluzelle, a blockchain so­lu­tions provider and a part­ner of KPMG Dig­i­tal Vil­lage which raised US$19.5M in Fe­bru­ary in a light­ning speed 24-hour cam­paign.

Fu­sion Foun­da­tion, a startup build­ing an “in­clu­sive crypto­fi­nan­cial plat­form” raised US$110M.

Ju­ris­dic­tion of choice

Sin­ga­pore’s over­all pos­i­tive at­ti­tude and en­cour­ag­ing reg­u­la­tory treat­ment to­wards cryp­tocur­ren­cies has made the coun­try a “ju­ris­dic­tion of choice” for ICOS and helped fos­ter a cryp­tocur­rency and blockchain sys­tem, ac­cord­ing to a joint re­port from con­sult­ing firm PWC and the Swiss Crypto Val­ley As­so­ci­a­tion. In Sin­ga­pore, to­kens are treated as as­sets and MAS is­sued guide­lines in Novem­ber 2017, say­ing it will not reg­u­late vir­tual cur­ren­cies, but rather the in­volved ac­tiv­i­ties.

“Essen­tially, if the to­kens be­ing of­fered do not fall within the def­i­ni­tion of se­cu­ri­ties un­der Sin­ga­pore laws, the

ICOS are largely un­reg­u­lated. MAS ex­pects ICO is­suers to

con­duct their own in­de­pen­dent le­gal due dili­gence that the to­kens are not se­cu­ri­ties, and to also ad­dress anti-money laun­der­ing and counter fi­nanc­ing of ter­ror­ism risks when is­su­ing to­kens,” said Nizam Is­mail, part­ner at RHTLAW Tay­lor Wess­ing LLP and head, fi­nan­cial ser­vices and co­founder of RHT Com­pli­ance So­lu­tions.

“This reg­u­la­tory clar­ity has largely made Sin­ga­pore one of the top ju­ris­dic­tions in the world for the is­suance of

ICO to­kens,” said Is­mail, whose firm is ad­vis­ing the likes of Health FX, a health-based ICO that is look­ing to raise up to US$38M on ICO Bench in Septem­ber, as well as Soar, which seeks to cre­ate the global su­per-map us­ing drone con­tent, is look­ing to raise up to $21.8m.

De­spite the fall­ing prices of cryp­tocur­ren­cies, ICOS con­tinue to boom, as ICO vol­ume in the first five months of 2018 has al­ready dou­bled that in the en­tire 2017, said the PWC-CVA joint re­port. From Jan­uary to May, 537 ICOS with a to­tal vol­ume of more than $13.7b have been reg­is­tered com­pared with 552 ICOS with a vol­ume of just over $7.0b in the whole 2017. PWC Switzer­land noted that the av­er­age size of an ICO has also nearly dou­bled from $12.8m in 2017 to more than $25.5m.

Ease of do­ing busi­ness

Com­pared to other ju­ris­dic­tions where reg­u­la­tions are hazy or in flux, Sin­ga­pore holds an ad­van­tage in at­tract­ing a big chunk of this ris­ing ICO ac­tiv­ity be­cause it com­mu­ni­cates clearer rules on what is per­mit­ted and what is not, al­low­ing is­suers to make de­ci­sions more con­fi­dently. The coun­try also ap­peals to is­suers that are seek­ing a strong sup­port ecosys­tem as the govern­ment has set up in­cu­ba­tor pro­grams and in­vest­ment funds fo­cused on nur­tur­ing cryp­tocur­rency and blockchain star­tups and devel­op­ment.

The ease of do­ing busi­ness in Sin­ga­pore and its ac­tive lo­cal startup com­mu­nity fur­ther add to its ap­peal. Fi­nan­cial tech­nol­ogy startup PLMP Fintech in July launched a six­s­torey blockchain cen­tre at Seran­goon North that fo­cuses on speed­ing up blockchain ecosys­tem devel­op­ment for Sin­ga­pore small and medium-sized en­ter­prises. The fa­cil­ity, known as the Blockchain Tech­nol­ogy Creata­nium Cen­tre, plans to of­fer con­sul­tancy ser­vices as well as devel­op­ment and train­ing. The fi­nan­cial tech­nol­ogy startup en­vi­sions blockchain as a way to im­prove fi­nanc­ing ac­cess beyond Sin­ga­pore’s large cor­po­rates, as it es­ti­mated that more than half of SMES fail within the first three years pri­mar­ily due to lack of cap­i­tal.

There are ap­prox­i­mately 219,000 SMES in Sin­ga­pore, con­tribut­ing $196.8b in gross value added to the econ­omy and also hire more than 2 mil­lion of the pop­u­la­tion. Of th­ese SMES, up to four out of five do not qual­ify for busi­ness fi­nanc­ing due to losses re­ported in their fi­nan­cials as well as be­ing too young as most banks re­quire loan can­di­dates to have two to three years of op­er­a­tional his­tory, ac­cord­ing to re­search con­ducted by busi­ness loan con­sul­tancy Link­flow Cap­i­tal in late 2017. This gap in fi­nanc­ing has also driven up in­ter­est in pur­su­ing ICOS in the Lion City and glob­ally — and reg­u­la­tory scru­tiny with it.

“Reg­u­la­tors world­wide are look­ing at ICOS with keen in­ter­est, as ICOS gain trac­tion as an ef­fi­cient man­ner of di­rect fund rais­ing for blockchain-based en­ter­prises. ICOS have also af­forded an al­ter­na­tive means of in­vest­ment for in­vestors,” said Is­mail.

Reg­u­la­tory di­ver­gence

Is­mail reck­oned reg­u­la­tors have var­ied in their ap­proach to ICOS, with a hand­ful of ju­ris­dic­tions ban­ning them out­right. In 2017, China and South Korea blocked ICOS, al­though more op­ti­mistic ob­servers be­lieve th­ese are tem­po­rary set­backs whilst the two coun­tries look to set up their reg­u­la­tions.

Some ju­ris­dic­tions have in­tro­duced spe­cific reg­u­la­tions even for util­ity to­kens, which rep­re­sent fu­ture ac­cess to a com­pany’s prod­uct or ser­vice, as op­posed to to­kens that are de­signed as in­vest­ments, Is­mail added. “Some have taken the view that so long as the to­kens do not fall within the reg­u­la­tory def­i­ni­tion of se­cu­ri­ties or reg­u­lated ac­tiv­i­ties, th­ese are al­lowed or tol­er­ated. Most reg­u­la­tors will have is­sued in­vestor alerts on the risks of ICOS.”

In May, MAS stopped an un­named ICO as it did not fol­low the rules on se­cu­ri­ties and fu­tures con­tracts, in­clud­ing mak­ing an of­fer with­out an Mas-reg­is­tered prospec­tus. The reg­u­la­tor asked the is­suer to re­turn all the funds it had ob­tained from Sin­ga­pore-based in­vestors.

The MAS also warned ex­changes that per­mit the trad­ing of dig­i­tal to­kens to con­sult the reg­u­la­tor first be­fore trad­ing in dig­i­tal to­kens that are con­sid­ered se­cu­ri­ties or fu­tures con­tracts. MAS guide­lines sug­gest that many dig­i­tal to­kens that prom­ise a form of re­turn are, in ef­fect, se­cu­ri­ties, which means they must abide by the rules en­com­pass­ing shares, units of real es­tate in­vest­ment trusts and bonds.

“The num­ber of dig­i­tal to­ken ex­changes and dig­i­tal to­ken of­fer­ings in Sin­ga­pore has been in­creas­ing. We do not see a need to re­strict them if they are bona fide busi­nesses. But if any dig­i­tal to­ken ex­change, is­suer or in­ter­me­di­ary breaches our se­cu­ri­ties laws, MAS will take firm ac­tion,” said Lee Boon Ngiap, as­sis­tant man­ag­ing direc­tor (cap­i­tal mar­kets) at the MAS, in a state­ment.

“The pub­lic should be aware that there is no reg­u­la­tory safe­guard if they choose to trade on un­reg­u­lated dig­i­tal to­ken ex­changes or in­vest in dig­i­tal to­kens that fall out­side the re­mit of MAS’ rules,” Lee added. The reg­u­la­tor pledged to con­tinue mon­i­tor­ing the ICO

in­dus­try care­fully, and said it was ready to is­sue more tar­geted leg­is­la­tion if needed.

Is­mail reck­oned the im­pe­tus for fu­ture ICO reg­u­la­tion could fo­cus on spe­cific is­sues such as man­dat­ing cer­tain dis­clo­sures in white pa­pers for bet­ter in­vestor de­ci­sion­mak­ing, reg­u­la­tion of for­ward-look­ing prom­ises or pro­jec­tions, ad­dress­ing li­a­bil­ity for any false or mis­lead­ing state­ments in white pa­pers, putting in place a post-ico com­mu­ni­ca­tions frame­work with in­vestors on pro­ject progress, and ad­dress­ing mar­ket abuse on to­kens that could take place in ex­changes.

How­ever, he noted that reg­u­la­tors are wary about mov­ing ahead of the game from their peers, es­pe­cially in the ab­sence of in­ter­na­tional bench­marks set by supra­na­tional bod­ies. They are also care­ful in is­su­ing reg­u­la­tions be­fore they fully un­der­stand how ICOS work, and their im­pact on en­ter­prises and the in­vest­ing pub­lic.

Trust and trans­parency

Whilst reg­u­la­tory con­di­tions have be­come favourable for ICOS in Sin­ga­pore, there is still the mat­ter of build­ing trust with the in­vest­ing pub­lic to en­sure a suc­cess­ful is­suance. “The big­gest les­son I learned dur­ing Tenx to­ken sale was that trust and trans­parency are ev­ery­thing. In blockchain en­vi­ron­ment that is sup­posed to be ‘trust­less’, peo­ple ac­tu­ally want to trust some­one,” said Dr. Ju­lian Hosp, co­founder and pres­i­dent of Tenx, amidst lin­ger­ing in­vestor con­cerns on the cred­i­bil­ity of ICOS.

“At the end it helps you noth­ing, if you have a great prod­uct but the team is not reach­able. That’s why we put all of our top man­age­ment peo­ple into cus­tomer-ser­vice roles be­fore the to­ken sale to make sure peo­ple knew who we all are,” said Hosp. He re­counted that the Tenx team re­leased reg­u­lar news­let­ters, shot Youtube videos, pub­lished Face­book posts, and en­gaged the com­mu­nity through mul­ti­ple chan­nels such as Wechat, with the added com­plex­ity of trans­lat­ing mes­sages in dif­fer­ent lan­guages.

“Our trans­par­ent and au­then­tic com­mu­ni­ca­tion had mas­sive im­pact on the suc­cess of the to­ken sale,” said

Hosp, adding that “I think the key is also in de­liv­er­ing value. Around half a year be­fore our to­ken sale we started ed­u­cat­ing peo­ple on the to­ken sale. We were de­liv­er­ing value and build­ing a prod­uct with­out get­ting any money for two years lead­ing up to the to­ken sale.”

“And then within 7 min­utes we ba­si­cally cashed in on all that work with­out spend­ing at all on mar­ket­ing, be­cause we al­ready had the cred­i­bil­ity. Many com­pa­nies don’t want to work up­front, they want to get money first,” added Hosp.

The Tenx founder ad­mit­ted though that he is not fol­low­ing other ICOS that much since it takes a lot of time to eval­u­ate them. This dif­fi­culty in un­der­stand­ing and keep­ing track of ICOS, cou­pled with a lack of spe­cific reg­u­la­tions, has prompted in­dus­try ini­tia­tives to pro­mote trans­parency and ac­count­abil­ity in to­ken sales.

“We are aware of ICO is­suers who en­gage in­de­pen­dent pro­fes­sional firms to pro­vide cus­to­dial ser­vices for funds raised, those who con­duct as­sur­ance au­dits on cer­tain as­pects of their ICOS,” said Is­mail, whose firm is part of the Global ICO Trans­parency Al­liance that aims to lift the in­dus­try stan­dards and self-reg­u­la­tory mech­a­nism amongst ICO is­suers through co­op­er­a­tion with ICO rat­ing agen­cies, cryp­tocur­rency ex­changes and global blockchain as­so­ci­a­tions. “In­vestors are also get­ting more dis­cern­ing and ask­ing tough ques­tions,” noted Is­mail, drilling down on the value propo­si­tion of the ICO, the track record of the founders, the team’s abil­ity to ex­e­cute the pro­ject, the qual­ity of the ICO ad­vi­sory team, amongst oth­ers. “This en­gage­ment takes place even af­ter the con­clu­sion of the ICO.”

On its web­site, AC­CESS, Sin­ga­pore’s lead­ing in­dus­try as­so­ci­a­tion pro­mot­ing cryp­tocur­rency and blockchain, ad­vises ICO pur­chasers should start their due dili­gence by iden­ti­fy­ing the un­der­ly­ing rights the to­kens are of­fer­ing.“if the coins do not of­fer se­cu­ri­ties, but of­fer some other un­der­ly­ing rights to ser­vices, goods or util­ity, it is largely un­reg­u­lated by MAS. It would still be pru­dent for an in­vestor to find out from the white pa­per, or from their own due dili­gence, how the com­pany in­tends to use the pro­ceeds from the ICO,” AC­CESS added.

In­vestors must also scru­ti­nise the com­pany’s pro­mot­ers, ad­vis­ers, phys­i­cal pres­ence or lack thereof in Sin­ga­pore, and track record. How­ever, AC­CESS warned that a com­pany lo­cated out­side of Sin­ga­pore may present “prac­ti­cal le­gal dif­fi­cul­ties in tak­ing le­gal ac­tion against the com­pany, or en­forc­ing judg­ment against it.”

Look­ing for­ward to the reg­u­la­tory fu­ture of ICOS, Is­mail paints three po­ten­tial sce­nar­ios pan­ning out:

The first is a “doom and gloom” sce­nario wherein most ju­ris­dic­tions place an out­right ban on ICOS, the sec­ond is a “heavy-handed reg­u­la­tions” sce­nario in which reg­u­la­tions are “very pre­scrip­tive, closely mod­elled af­ter se­cu­ri­ties reg­u­la­tions” that re­quire prospec­tus re­quire­ments. The third is a “bal­anced and sen­si­ble reg­u­la­tions” sce­nario wherein reg­u­la­tors work closely with the in­dus­try to frame rules that are not too pro­hib­i­tive but still of­fer high pro­tec­tion to in­vestors.

Is­mail said the level of ICO is­suer re­spon­si­bil­ity and amount of in­vestor com­plaints on ICOS will likely play key fac­tors in how heav­ily reg­u­lated to­ken sales will be­come in Sin­ga­pore and the rest of the world. “This is likely to be a quickly-evolv­ing space. The out­come of ICO reg­u­la­tions will largely de­pend on the in­ter­play of th­ese driv­ers,” said Is­mail.

Fu­sion Foun­da­tion, a startup build­ing an “in­clu­sive crypto­fi­nan­cial plat­form” raised US$110M.

Tenx Sin­ga­pore raised US$80M in an ICO that only took seven min­utes to raise.

Lee Boon Ngiap

Nizam Is­mail

Ju­lian Hosp, founder of Tenx

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