One of the biggest problems with ICOs[1] when compared to IPOs is the adequacy and reliability of information disclosed in whitepapers. Unlike IPOs, ICOs have not been vetted by independent professionals like investment bankers or lawyers.
This problem is further compounded by lack of standard rules and market practices with regard to the issuance process. There is no set of well-defined standards with respect to what needs to be disclosed and in what detail it needs to be disclosed.
ICOs also lack all the standard protection mechanisms that are otherwise available to participants in IPOs. Thus participating in ICOs remains a very risky affair for an average contributor.
Gibraltar Blockchain Exchange (GBX[2]), a subsidiary of the Gibraltar Stock Exchange, an EU-regulated stock exchange (since it’s a part of GSX Group[3] along with two more entities), and Gibraltar’s first stock exchange, has made an attempt to solve some of these problems by standardizing many aspects of the ICO process. Furthermore, I will review some of the key features of the GBX token sale platform.
Every issuer seeking to conduct a token sale and listing on GBX needs to appoint a sponsor who will provide admission services. A sponsor is required to conduct due diligence on the issuers it brings for on listing on the GBX. The scope of due diligence includes legal, commercial, technological, and financial crime risks aspects of the token sale.
This concept is similar to the appointment of investment banks in relation to IPOs, who do due diligence on IPO bound companies and independently evaluate the project and vet all the disclosures made in the prospectus.
Additionally, the sponsor needs to handhold and monitor the issuers for a period of two years post the conclusion of the token sale.
Standardized process
Another very useful feature of GBX is the specification of standards with respect to many important aspects of the token sale process, like:
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Standard disclosures to be made in the whitepaper
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Standard terms and conditions for token sale
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Engagement and due diligence procedures to be conducted by sponsors
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Roles & responsibilities of sponsor and issuers
This removes a lot of uncertainty in the process. It ensures sufficient information is available to all stakeholders to make an informed participation decision. Specification of due diligence standards helps ensure that the information disclosed is reliable.
About 20% of the fees paid by an issuer to the sponsor should be paid in the issuer’s tokens, and the sponsor is obliged to hold these tokens for a minimum period of six months.
Additionally, the sponsor needs to make an escrow deposit, equivalent to 0.5% of the value of
