The world of venture capital is undergoing a great change. Traditional institutions dominated by banks and venture capital companies have found that they are being replaced by individuals dominated by new financial platforms. Initial Coin Offering (ICO) usually does not involve selling the company's equity (or governance rights related to the company). Instead, participants purchase an asset ("token"), and then holders can have access to or control over the network that the sponsor intends to build with the funds raised by the tokens.
The new financial world based on token is different from the traditional transaction model.
Firstly, there are differences in how to allocate entrepreneurs' claims. The traditional capital market requires business owners to strip off their various rights to company assets in the form of contracts. In contrast, ICO can retain economic ownership and legal control.
Secondly, their value sources are different. The stock price should reflect the net present value of the legitimate rights and interests of the company's expected future cash flow, while the encrypted asset pricing reflects the balance between token demand and token supply.
Third, the infrastructure of the capital market can be reviewed, traded, and flowing in a predetermined manner. In contrast, the cryptocurrency market is nascent, and its participants have only participated in it for a few years or months, and there is no Wall Street investment bank to support ICO. But in fact, many investors believe that the ICO lack of specific regulations and intermediaries is its characteristic, not a loophole.
Finally, for lawyers, ICO expands the role of computer code in managing trading relationships. Traditional capital market transactions are largely constrained by laws, regulations, contracts and social norms. While ICO transactions enhance (or even replace) these financial service intermediaries by embedding controls in smart contracts with effective rules. At the same time, it also creates new roles for lawyers and other legal personnel.
