Study: ‘Compliance Trilemma’ Limits Potential of ICOs

Initial coin offerings (ICOs) are facing a regulatory “compliance trilemma,” according to a recent study funded the government of Canada and the University of British Columbia (UBC).

To prepare the report, the research team investigated the ICO space over the course of six months, focusing primarily on North America, but also delving into some other countries and jurisdictions. The team conducted 45 qualitative interviews with individuals in the ICO space, including representatives of the finance, law, and science sectors of the field.

Per the study, ICO issuers face a “trilemma,” wherein they can only address two of three objectives at a time, those being “having a compliant offering,” “reaching a distributed pool of investors,” in a manner that is “cost-effective.” The researchers define compliance as following regulations in the home jurisdiction of both the issuer and investor.

While a broadly distributed pool of investors is said to be the principal benefit of an ICO as a funding mechanism, the cost of complying with financial regulators becomes “much greater” if the investor pool becomes more distributed.

“If issuers forgo these costs, the risk of being non-compliant rises significantly. The result is a trilemma, whereby issuers currently must forgo one of these goals to realize the other two, or to compromise on all three,” the study explains.

The trilemma further reveals four basic approaches available to ICO issues, which are “the Maverick ICO,” “the Private ICO,” “the Hybrid ICO,” and no ICO at all. The first option refers to ignoring compliance for maximizing ICO reach and cost effectiveness, which reportedly runs a huge risk of regulatory enforcement.

The second approach focuses on targeting only accredited and institutional investors by sacrificing distribution, which may not affect cost-effectiveness but raise challenges in secondary market trading control.

Regarding the Hybrid ICO, the report reads that it “compromise[s] on all three dimensions by issuing in select markets, resulting in bounded cost effectiveness, compliance and investor scope,” resulting in a combination of risks.

The researchers found that companies wishing to undergo an ICO sought relief from the trilemma through relevant regulatory authorities. Participants in the study reportedly called for amendments to regulation, including clarifications of existing regulation and development of “fundamentally new” regulatory definitions and frameworks. The study concludes:

“…To date, the ICO has been hampered by a trilemma that has substantially limited its potential… Many actors with legitimate ventures that could benefit from ICOs are likely holding back, due to combination of confusion over how exactly they might comply with financial regulations within and across jurisdictions, and the prohibitive costs of doing so manually.”

Catalan Government Considers Blockchain for Public E-Voting System

The head of the Catalan government‘s citizen participation council states that the authority is considering blockchain for the community’s voting system, Spanish daily newspaper La Vanguardia reports Monday, Nov. 19.

Earlier in October, the Generalitat of Catalonia approved a preliminary bill to establish an e-voting system for residents abroad in major elections and other voting processes in the autonomous community.

Recently, Ismael Peña-López, director of Citizen Participation of the Government of Catalonia, revealed that the government hopes to introduce an external e-voting system by the year 2020, as well as to extend electronic voting to all voters.

According to Peña-López, who is a professor of Law and Political Science at the Open University of Catalonia (UOC), the use of blockchain in the state e-voting system is still being considered, although the Generalitat has still not decided on the matter:

“An interesting option is to use blockchain. […] The Generalitat has not made a clear commitment to the blockchain and is still exploring what options there are before deciding.”

The director noted that, regardless of what technology the government decides to use in the voting system, it must instill trust. La Vanguardia quotes Peña-López, “It’s an issue of awareness. The Government is more respectful than a trade. I would like to think that we are able to convince people that [it] is reliable.”

Earlier in July, the Government of Catalonia revealed a plan for blockchain tech deployment within its public administration processes in order to improve “digital services to the public.”

The Catalan community has been striving to gain independence from the Spanish government since 1922. On Oct. 27, 2017, the Catalan Parliament declared independence from Spain, following a controversial referendum.

In October 2018, Spanish news agency El Confidencial reported that former Catalan president Carles Puigdemont requested donations in crypto from the public. Puigdemont reportedly requested crypto donations in order to hide financial support to politicians of the Catalan Government.

According to major daily Spanish newspaper El Mundo, the government of Carles Puigdemont used Bitcoin (BTC) in order to fund initiatives promoting independence.

West Virginia Secretary of State Reports Successful Blockchain Voting in 2018 Midterm Elections

The Secretary of State of the U.S. state of West Virginia Mac Warner reported a successful first instance of remote blockchain voting in an official announcement Nov. 15.

Warner stated that in the 2018 midterm elections, 144 military personnel stationed overseas from 24 counties were able to cast their ballots on a mobile, blockchain-based platform called Voatz, adding:

“This is a first-in-the-nation project that allowed uniformed services members and overseas citizens to use a mobile application to cast a ballot secured by blockchain technology.”

Voting for the general elections on the platform started in September, when absentee balloting opened in West Virginia.

The first trial of the new platform took place during the state’s primary elections in April. Blockchain-based ballots were then restricted to a select group of voters such as deployed military members and other citizens eligible to vote absentee under the Uniformed and Overseas Citizens Absentee Voting Act (UOCAVA) and their spouses and dependents.

The Voatz system was initially developed to address the issue of low voter participation among members of the military. According to Symantec — the firm behind the Voatz system — only 368,516, or 18 percent of the 2 million service members and their families serving overseas received ballots in 2016. After counting rejections and tardy ballots, only 11 percent of said votes were counted.

While Warner noted the project’s success, his deputy chief of staff Michael Queen told the Washington Post that they have no plans for expanding the program beyond military personnel serving overseas:

“Secretary Warner has never and will never advocate that this is a solution for mainstream voting.”

According to data from the United States Elections Project, West Virginia ranks 44th of 50 states in voter participation at 42.6 percent.

Some experts have expressed concern over the safety of mobile voting. Joseph Lorenzo Hall, the Chief Technologist at the Center for Democracy and Technology, claimed:

“Mobile voting is a horrific idea. It’s Internet voting on people’s horribly secured devices, over our horrible networks, to servers that are very difficult to secure without a physical paper record of the vote.”

Conversely, Bradley Tusk of Tusk Montgomery Philanthropies has encouraged mobile voting, stating that it can turn out more voters, and as a result, “democracy would work a lot better.” Tusk Montgomery Philanthropies helped fund the Voatz app’s development.