Six Chinese blockchain industry associations have jointly issued a protocol to better manage and control financial risks for initial coin offering (ICO) in China, in the country's first voluntary framework to regulate the development of one of the hottest areas in financial technology.
Guizhou Blockchain Industry Technology Innovation Alliance, Zhongguancun Blockchain Industry Alliance, Blockchain Finance Association, Guiyang Blockchain Innovation Research Institute and two other unnamed entities together released "Guiyang Blockchain ICO Consensus" yesterday in Guiyang with an eye to offer investor protection and maintain financial system stability.
Coincidentally, U.S. Securities and Exchange Commission said today that ICO will fall under the regulatory oversight of the American securities regulator in an announcement. This is the first time the U.S. regulator clearly stated its position on the issue.
ICO is a form of unregulated means of crowdfunding, where companies raise capital via issuing virtual currency to qualified investors. Since the first ICO Mastercoin was issued in 2013, the market has exploded. During the first half this year, around US$1 billion was raised via ICOs in the U.S., ten times larger than the total raised in 2016. In July, two American small blockchain companies Tezos and block.one raised a combined US$400 million, setting a new record for the industry. As of May 2017, there were around 20 offerings per month globally.
The growth of Chinese ICO market has been wild. Currently there are 43 platforms providing ICO services in China. The accumulative ICO fundraising value reached RMB2.6 billion (US$420 million), with around 105,000 people participated. Guangdong, Shanghai and Beijing are the three cities with most ICO platforms. The three cities together have over 60% of the total platforms. Bitcoin and Ethereum are top two currencies, together accounting for 90% of ICO fundraising, according to data from China Internet Security Technology Commission.
The explosive growth and financial risks associated with it have led the Chinese blockchain associations to gather and release the protocol. It's unclear how much enforcement power the document has on ICOs in China, but the move highlights the urgency industry leaders feel regarding risks arising from an increasing number of ICOs across the country.
The risks relating to ICOs include investment risks, as it's difficult to evaluate the newly issued tokens and the liquidity of the tokens is uncertain. Security is another concern. Around several million U.S. dollar worth of Ethereum were stolen by hackers a few days ago on a digital currency exchange coinbase.
Currently, China has no regulation overseeing ICOs. Chinese regulators, however, have previously initiated steps to better manage cryptocurrency. The People's Bank of China implemented fintech regulations regarding Bitcoin trading earlier this year, including steps to require real name registration for signing up an account and establishing a digital currency research center.