Guernsey: Goodbye ICOs, Hello ILPs?

Last Updated: 16 April 2018
Article by Luke Sayer

The gold-rush mentality currently surrounding the use of initial coin offerings (ICOs) has at times led to projects being used irresponsibly and investors suffering harm as a result. To date, no jurisdiction has provided a bespoke set of legal and technical controls to manage this risk. Instead, some have acted retrospectively by either banning ICOs or applying existing regulatory frameworks relating to other asset classes that are not necessarily compatible. To avoid an innovative and disruptive space being stifled, whilst offering protections to investors, regulators must act swiftly or risk losing opportunities to newly envisaged 'Crypto Nations'.

Blockchain technology offers a secure, transparent, immutable and globally accessible environment in which businesses can achieve unrestricted access to crowdfunding opportunities by way of the ICO. During 2017, ICOs became recognised in the world of Fintech not merely as a rival buzzword to "cryptocurrency", but as a legitimately effective means of raising capital.

Put simply, an ICO is a process adopted by tech start-ups (predominantly within the digital currency sector), whereby a new virtual coin or token will be created and offered for public sale. It is, in essence, a hybrid of the traditional initial public share offering and crowdfunding.

The value of newly-created tokens differs significantly and is determined by such variables as the coin's utility, the number of coins in circulation (and proposed medium and long-term increases in coin supply) and the demand of the public (typically driven by speculation).

In December 2017, Fabric Ventures, a VC fund, and TokenData, a platform that tracks data on token sales and ICOs, published a report titled, 'State of the Token Market', which indicated that start-up companies and projects had raised US$5.6 billion in 2017 exclusively from ICOs. In contrast, there had only been $1 billion of 'traditional' venture investing in blockchain start-ups in the same timeframe (such as loans and share purchases). The biggest ICO of last year was Filecoin, a project aiming to build a decentralised data storage solution on the blockchain. Filecoin raised US$257 million in September 2017 from its ICO. To demonstrate the inherent volatility of such assets, however, the token price during the ICO was $5; reached an all-time high of $30.15 in January 2018 and, at the time of writing, is now $19.90.

The majority of those investing in ICO-funded projects are retail companies and small-scale investors. However, institutions are becoming increasingly attracted to ICOs due to the potential for high returns, the likes of which are unparalleled by other investment products and opportunities.

According to TokenData research, on average in 2017, tokens returned 1,280% of initial investments, versus 770% for Ethereum and 490% for Bitcoin

Regulatory position

The regulatory stance in respect of ICOs varies from jurisdiction to jurisdiction. Outright bans are in place in South Korea and China, whereas Singapore, Japan, Gibraltar and the Isle of Man seek to welcome ICOs and exploit opportunities.

In recent months, however, the ICO model of raising capital has come under a great deal of scrutiny. ICOs have been established for the sole purpose of extorting money from unsophisticated investors searching for the next Bitcoin. In such cases, the models are very similar; a pretence of genuine and viable products which immediately disappear once the ICO closes, leaving investors with nothing more than a token with little to no value. Regulators are now, quite rightly, seeking to protect investors from such deceptive schemes.

Having said that, it is important that business owners and investors are not shackled by regulations which ultimately prohibit economic and technological growth. A complete ban of ICOs or punitive taxing policies (as seen in instances in the US) are examples of such prohibitive measures.

The Channel Islands have issued statements on the issue of ICOs, highlighting their unregulated nature and the risks involved. On 2 February 2018, the Jersey Financial Services Commission (JFSC) issued a statement on the regulation of ICOs, having become concerned with claims that certain ICOs were regulated when, in fact, they were not. In its statement, the JFSC confirmed that a Jersey company issuing digital coins or tokens from Jersey, just like any other Jersey company raising capital through the issuance of shares, would need to obtain consent from the JFSC to set up the company (pursuant to the Control of Borrowing (Jersey) Order 1958, known as COBO).

The grounds on which the JFSC would determine whether or not to grant consent under these circumstances is limited by statute, and the focus is primarily on whether potential investors have been provided with sufficient information about the company and the risks of investing in it. In addition, the JFSC would consider applying conditions to any consent granted, which may include a clear consumer warning on any marketing materials produced (for instance, that it is a highly speculative form of investment, the investor may lose the entirety of their initial investment, and the fact that the investment is not subject to existing capital market regulations).

First mover

On 12 February 2018, the Government of Gibraltar and the Gibraltar Financial Services Commission (GFSC) confirmed they were developing legislation relating to tokenised digital assets. After taking into account stakeholder feedback, work has now begun on drafting legislation to regulate: (a) the promotion, sale and distribution of tokens by persons connected with Gibraltar; (b) secondary market activities relating to tokens, carried out in or from Gibraltar; and (c) the provision, by way of business, in or from Gibraltar of investment advice relating to tokens.

In a statement, Sian Jones, Senior Advisor on distribution ledger technology (DLT) at the GFSC said. "Token regulation is the natural progression following the regulation of DLT Providers, being vital to the protection of consumers. One of the key aspects of the token regulations is that we will be introducing the concept of regulation authorised sponsors who will be responsible for assuring compliance with disclosure and financial crime rules."

We keenly await the implementation of the legislation, as it will undoubtedly offer guidance to other offshore financial centres such as the Channel Islands.

An alternative to ICOs

While debate around the use of ICOs continues, Initial Loan Procurements (ILPs) have emerged as a new fundraising method. Similar to an ICO but in the form of loans rather than coin acquisitions, ILPs enable borrowers and creditors to enter into a loan agreement through legally binding smart contracts. With an ILP, a creditor's investment is contractually tied to the performance of the company and eliminates the wild swings of volatility that have been associated with a vast number of ICOs. In simple terms, as long as the company makes a profit, the creditor gets annual returns.

Two Estonia-based companies, Blockhive and Agrello, have formed a partnership to provide the first ILP of its kind, 'Blockhive'. Blockhive's model removes the issuance of tokens (in the anticipation of future appreciation of those tokens) and replaces it with a contractual entitlement to 20% of their annual operating profits.

Agrello is a legal technology start-up that builds legally-binding, self-aware agreements on blockchain. The use of Agrello ID, a digital identification and signature solution, provides the support for necessary KYC and anti-money laundering solution, ensuring that the system fulfils all legal requirements. The agreements from Agrello ensure that creditors' data is encrypted and stored unalterably in the blockchain. To access and transact on the Blockhive platform, users must fully register and receive the protocol's Future Loan Access Tokens (FLAT) (transferrable loans that can be assigned to third parties) as soon as they lend funds to the company. This could go a long way to alleviate regulators' concerns about fraud and money-laundering.

The ultimate objective is to continue the decentralised crowdfunding opportunities that are similar to ICOs, only this time, with improved functionality and without restrictions imposed by regulatory bodies.

For businesses that don't need tokens, ILPs provide an attractive alternative whereby more time and energy can be spent on business development, rather than creating tokens with no actual use.

Originally published in Business Brief.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions