WHAT IS AN INITIAL COIN OFFERING? (USA REGULATION)
An initial coin offering, or ICO, is a method of crowdfunding. ICO’s exist in a legal grey area and, depending on the opinion of your legal team, can be structured several different ways.
In general, an ICO is the issuance of a custom token to a community for investing purposes. Enthusiasts and supporters of the company purchase the token in hopes that they’ll earn a return on their investment. In return, the company issuing the token gets access to immediate and liquid capital.
No equity is exchanged during an ICO however in many cases the custom tokens can be redeemed for utility on the network sometime in the future — compute cycles, storage space, or some other form of credit.
The presence of “utility” can change the legal nature of a custom token. If a token has utility, it likely can’t be classified as a security. However, if a token lacks any sort of utility — like being sold prior to the launch of a product — the sale looks like an investment and would likely be classified security, falling under SEC regulation.
ICO’s are considered highly risky investments.