Julio Faura is head of blockchain research and development in Santander.

Many things are written these days about the need to regulate initial coin offerings (ICOs) and – where possible – access to cryptocurrencies.

With a market value (theoretical) of nearly $ 350 billion, crypto-currencies have begun to hit the general public and it is urgent to find an appropriate and enforceable regulatory framework that protects investors and helps businesses to take advantage of the benefits of ICOs. way to access funding.

Here are some ideas that might be useful for structuring and launching the debate.

Speculation about utility is a bad idea

In my opinion, it would be a good idea to clearly separate the functionality of the funding. Blending them together eventually produces artificially high transaction costs, since access to the feature is subject to speculation.

A good example is the case of the ethereum network, become very difficult to use for real things because of the high price of ether in US dollars and because the network is overwhelmed with speculative applications and trading.

I've always understood the role of the ether as a payment mechanism for using a network that implements a shared supercomputer, which is a really amazing construct that can change the world for good. But its dual role of access token and currency to store value makes the construction very expensive and difficult to use in practice.

The implication of the above is that utility chips are not a good idea. First, because they are subject to uncontrolled speculation about basic goods and services that will be out of reach of the less fortunate segments of the population.

The problem is particularly acute in this digital field, where the network effect is important and where most companies display a "win-win-all" behavior. As a result, the lack of mechanisms to curb speculation on deconcentrated and unprofitable networks leads to higher service costs and a high concentration of wealth.

The other reason why utility tokens are a bad idea is that, if we are honest, in most cases, they are actually titles, and treat them as s & # 39; they were not it would be essentially a lie.

A comparison often made in response to this point is the down payment for a house that still needs to be built, or the payment for a Tesla car that still needs to be manufactured and even designed. But in either case, users 1) buy these commodities for their own use, and 2) have a pretty good idea of ​​what they're buying.

Utility chips, on the other hand, are probably sold as a means of raising money, they are bought as (speculative) investment, and buyers rarely have a good idea of ​​what will be built.

ICOs can be an alternative to VC

Having said that, country offices are proving to be an excellent instrument to help businesses and entrepreneurs obtain funding.

In my opinion, we should collectively work on a framework to build a clearly defined system for country offices, recognizing from the outset that they are securities.

Indeed, they constitute an alternative to traditional venture capital since 1) they provide a much more liquid capital instrument (VC will usually lock you for 5-7 years until an exit is either possible), and 2) they provide access to a much larger, diversified and atomized investor base with fewer intermediaries and in a more democratic way.

In fact, they look a lot like initial public offerings (IPOs), which can be considered nothing less than crowdfunding programs for big companies.

IFAs could emulate the same process, but on a numerically much more efficient digital platform, suitable for small projects and an atomized investor base.

If the above is true, the ICO process should be designed in conjunction with the regulators to comply with securities legislation, which exists for one reason: to protect investors.

The key elements of this process would be:

The titles would be issued on the shared ledger as tokens living on a smart contract, rather than in a symbolized form. In other words, these smart contracts would implement titles as native digital objects, instead of being digital representations of (real) titles living in traditional systems (or on paper ).

The information required on the project must be classified and audited, so that it is clearly understandable to potential investors.

In accordance with the rules of the client's knowledge, the token holders must be identified before the sale by the company, as well as when they are transferred to other cardholders.

Tokens should give access to dividends and give the right to vote. Non-KYC holders should not receive dividends and their votes should not be considered

The role of cryptocurrences

The use of cryptocurrencies in the ICO process, as described above, provides further optimization points compared to traditional IPOs and corporate governance. subsequent.

First of all, the possibility of using cryptocurrencies as a source of capital, provided that the world accepts them as a legitimate instrument to store value and facilitates the means of exchanging them for Fiat money.

But secondly, because their digital nature can be used to execute corporate actions in a more efficient and transparent way compared to the traditional system.

In fact, smart contracts are a perfect mechanism for determining the behavior of securities contracts, since all conditions, agreements and actions can easily be automated without the possibility of interpretation. For example:

Dividends from the fiat money can be converted into cryptocurrency and paid to the symbolic contract, which can then distribute the money proportionately to the KYC token holders (the crypto firms producing profits directly in cryptocurrency have an added advantage here, since dividends would be paid directly to KYC & # 39; ed) token holders.

Options and voting rights may be exercised by signing the same smart contracts after identification of the signatory parties by means of certificates relating to a self-sovereign digital identity construction.

The periods of confinement can very easily be applied.

All other actions such as issuing and exercising options, issuing new shares or redemptions can be easily executed, and clauses can be modeled seamlessly using the intelligent contract code

In fact, the separation of the company and the security token even allows the use of cryptocurrencies to finance traditional business models that are not at all related to the crypto.

But also, another way to feed the ICOs would be to use Token tokenized currency, either through tokenization processes on smart contracts, or by creating ethers on a private version of the Token. ethereum (as the JPMorgan Quorum).

These constructions would not be dependent on conventional cryptocurrencies, but would allow most of the benefits of current ICOs in terms of equity liquidity, democratization of investment opportunities and automation of securities trading.

All of this should represent a significant improvement over traditional venture capital and IPOs.

The question is: what will happen in the first place, the regulatory acceptance of cryptocurrencies as a source of capital for companies or the creation of legitimate ones? and financed by funds?

Clean Laundry Image via Shutterstock

Leader in blockchain news, CoinDesk strives to provide an open platform for dialogue and discussion on all blockchain topics by encouraging contributing articles. As such, the opinions expressed in this article are those of the author and do not necessarily reflect the opinion of CoinDesk.

For more details on how to submit an article of opinion or analysis, check out our Editorial Guide or email news@coindesk.com.

Disclaimer: This article should not be considered as investment advice and is not intended to do so. Please conduct your own thorough research before investing in a cryptocurrency.