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How to run your ICO in Russia or “bring me your aubergines”

Опубликовано: October 20, 2017 в 4:06 pm

Категории: Без рубрики

How did lavkalavka and RMC do this? How can you avoid spending $ 70k + dollars on incorporation in Gibraltar, the Isle of Man and how to stop being afraid of SEC, MAS and FINMA (at least a little)?

One St.Petersburg restaurant, not so long ago, launched promo: “Bring us one eggplant and get any branded dish for free.” I do not have confidence in the crowds that entered the expensive restaurant with aubergine at the ready, but this, far from being a single marketing maneuver, adds confidence that it is possible to conduct an ICO in Russia. It’s not a question of patriotism, although it is more (and safer) to say: not only. Russia is a unique legal field. A century of planned economy and selective copying of the German civil code (Bürgerliches Gesetzbuch) has led to the fact that our legislation leaves one of the widest fields, in comparison with other developing and developed countries, for maneuvering. To begin with, we immediately take off all possible exclamations including well known in Russia “Find me the man, and I’ll find you the crime”, because if you do not plan to create a “killer” of Gazprom on blockchain or attract funds from the Central Bank’s crypto reserve fund, you would present no threat to the national law enforcement system or elites.
Now back to the example with aubergines. The legal entity that accepted the batch of eggplants for accounting, spent money on their purchase and the working hours of cooks using these eggplants, and then gave this dish to the visitor who in return brought the raw eggplant. It should be taken into account that:
– the dish is more expensive than the vegetable itself;
– vegetable brought by a person from the street can not be used to prepare meals for other visitors, because of phytosanitary norms, it is likely to be thrown out (although I sincerely hope that the eggplant is waiting some more humane fate).

The main thing in this story is that the prosecutor is not sieging the restaurant with accusations of creating money surrogates, Elvira Nabiullina (head of the Central Bank of Russia) does not accuse restaurateurs in attempting to introduce private money into the Russian economy, and the ombudsmen do not create associations to support and popularize the use of eggplant in trading.
How does this happen? It seems that in this example the restaurant uses an economic model similar to ICO start-ups — the service provides not for cash, but on presentation and transfer of a specific object. I note that in this case the restaurant most likely justified such an action just like lavkalavka in its time, when the prosecutor’s office first came to it: dishes are paid at the expense of the seller’s marketing budget.

This model clearly indicates that for the ICO in the Russian Federation it is not necessary to expect the release of a special federal law or recommendations of regulators. While the heroes of the joke: “We can run your ICO — And why in a whisper? — I’m on math classes” tortured Google to translate the recommendations of the SEC, Boris Akimov and Dmitry Marinichev raised millions of dollars for their projects.
The question arises as to how their ICO is conducted from the point of view of law. Boris Akimov attracted the best, in my opinion, legal consultant in the legal regulation of the ICO in Russia, Doctor of Law, Associate Professor Elina Sidorenko. I took courses on the legal regulation of blockchain technologies at MGIMO and her position, supported by successful projects, is that running an ICO in Russia is not only possible, but that it is safer than in some more developed jurisdictions. Elina Sidorenko for the development of blockchain in Russia, from the point of view of law, did not less than Waves of Alexander Ivanov, for the blockchain, in general.
So, in order to legally conduct an ICO in Russia, you must follow simple rules:

Do not sell “tokens.”
More precisely, you should describe what exactly you are doing from the point of view of Russian legislation. Lavkalavka does not sell tokens, they sell and accept the “software digital asset of the BioCoin loyalty system” or in my formulations “eggplant”. Just remember that the concept of whitepaper is absent in civil law, you can not sell your tokens on its basis. Before any stages (pre-ICO, ICO) you should have a legal mechanism for selling tokens. The absence of a contract and a traceable link between the token, the public project and the ICO wallet creates a risk to be accused of fraud.

Do not sell instruments that are similar to shares or securities.
You can not promise to pay dividends or participate in the profit / management of any company. This can not be done, not because of the Howey Test or the recommendations of the SEC, but, it is trivial, because of Articles 15.17 of the Code of Administrative Offenses of the Russian Federation and 185 of the Criminal Code of the Russian Federation (Abuses during issue of securities). It is wrong to think that the US is the only jurisdiction where uncontrolled issuance of securities is a punishable act.

AML, KYC
To comply with the requirements of national laws and implemented international AML treaties in Russia, you are obliged in any case. Customer identification (KYC) is mandatory, but it should not be feared. More and more often, founders say: “If I force my buyer to fill out forms for KYC, he will refuse to purchase tokens.” To identify the client “at the entrance” is necessary and it’s naive to think otherwise. Remember when you bought anything via online without filling out forms with your data (they are collected not only for the sake of detail of delivery). Again, you do not need to invent the KYC mechanism, you just have to choose one of the existing ones and correctly imply it into your ICO.

Closed environment
You must develop your token in such a way that its internal currency is used only internally and is not intended for anything else. Imagine calculations in games, like World of Warcraft, their gold, like any other objects are not allowed to sell for fiat (Blizzard, by the way, clearly established in its agreement that the company owns the entire in-game currency).

Thus, your token can be anything: a coupon for a discount (as did biglion and dozens of similar services), a means of admission to a closed club, an internal game currency, etc. Lack of a legal field for conducting ICO means not the prohibition of sales, but the need to work out the legal contour of the project by means of available legal tools. Legislation throughout history catches up with practice and business. While deciding whether to act or not in the absence of a law, one must remember one of the main principles of civil law — everything which is not forbidden is allowed.

 

 

Escrow agreement for ICO: indications for use

Опубликовано: October 12, 2017 в 7:28 pm

Категории: Без рубрики

Introduction
According to statistics, 10% of all investments in ICO has ended up in the hands of criminals. The number of investors who lost 100% of funds invested in ICO (more than 225 million dollars) over the past year amounted to 19,000 people compared to 11,000 in 2016. Officially, the funds collected during the ICO are most often lost due to hacker attacks and phishing, however, it is increasingly suspected that often the “designers” of these attacks are the members of the ICO team themselves. For example, in July 2017, the Veritaseum project announced the breaking of its wallet and the theft of its VERI tokens for a total of 8 million dollars. In the same article from the resource coindesk.com, the founder’s failure to participate in the hacking is questioned. This example is far from the only one, however, as a practicing lawyer, I, referring to the presumption of innocence, refrain from loud statements before the publication of the first court decisions.

Nevertheless, it’s not a secret for anyone that many projects begin to collect funds for the ICO just to make hit and run. You can find articles that, albeit in a joke form, but still explain how to create SCAM ICO. For truepenny it’s a joke, but for someone it’s, quite, a guide to action.
In fact, the market already now has a request for investment protection tools that will help, if not to eliminate the risk of losing funds invested in ICO, then significantly reduce their possible size.

How Escrow works
To date, escrow, in relation to ICO, operates through the use of multisig wallets managed by attorneys-escrow agents. Investors send funds not directly to the ICO project, but to a pre-established wallet, the smart contract of which is prescribed in such a way that financing of each stage of the project (milestone) is carried out only with the consent of the third party — escrow agent (s).

The main question for the team planning to use escrow and for the investor, who is going to entrust his funds to escrow agent — who will this agent be? A simple research of icoalert.com shows that at the current time the choice of an escrow agent does not meet the very goal of involving an independent person. Teams declare as an EA (escrow agent) friends, colleagues or “experts” with incomprehensible competence and portfolio from a distant country — senior lawyer of major law firm in USA, member of commerce chamber of Togo and so on. Teams offer investors to entrust funds to the hands of “experts” with an incomprehensible reputation and competence, and in some cases even fictional characters. The extreme method is the so-called bogus escrow, in which the project states that it is attracting an escrow agent and will use a multisig wallet with three signatures and the rule “2 out of 3 signatures for approval of the transaction”, while leaving the ICO project with 2 signatures. In other words: there is an escrow agent, but the decision to write off the funds from the wallet still remains with the team. Nevertheless, there are several projects that attract as escrow agents of people with a clean reputation on profile resources such as bitcointalk.org, however, there are few such examples (just as independent experts who will not risk their reputation for a chance to hit and run, so the projects that are ready to involve them).

The lack of a business culture of using escrow and an understandable mechanism for its implementation is detrimental to the development of the ICO market, as the increasing number of SCAM projects:

  • discourages existing investors and dilutes the prospect of attracting new ones who are not used to invest in projects at the risk of losing 100% of investments due to bad faith of team members
  • gives more and more grounds for the regulator to restrict or prohibit the attraction of financing through the cryptocurrency

How Escrow should work
The response to the market’s request is the appearance of an independent service that will select escrow agents relevant to the project theme. In this case, the company involved will act as a guarantor of the lack of affiliation of escrow agents with respect to the project, which excludes the possibility of becoming a victim of bogus escrow. Also, professional service is necessary to increase the transparency and reliability of Escrow agreements. Investors, like the ICO team, must have properly answered the following questions before the fundraising begins:
What are the stages of the financing?
What conditions must be met to start each financing phase?
What conditions must be met to freeze funds?
What conditions must be met to start refund?

Despite the obviousness of these questions, not all the teams that decided to use Escrow are ready to answer them (or even ask them). For example, one ICO project as the only condition for starting the return on investment procedure states “if the project founders do not respond to messages and email for more than seven days.”

Problems with the implementation of the agreement may arise even in the absence of malicious intent on the part of team members or agents. Escrow agreement is a complex contract, the purpose, the mechanism of work and the legislative requirements for the content make it a compilation of a similar writing of the program and if the consequences of the refusal of the professional programming services for the project founders are obvious, then, unfortunately, everything is not the case with reluctance to call in a qualified lawyer.

Summing up, it should be noted that the practice of escrow agreements for ICO projects is a sign of the maturing market, the market where the founders of the project perceive ICO as a tool designed to allow the idea to be realised, to create a product and build a company, rather than chance to buy “Lamborghini”. The risk of a rupture of the ICO bubble will inevitably lead to the fact that the expressed reluctance of the project to use the phased financing will be identical to the public recognition of the creation SCAM project, which ultimately will not allow the implementation of the purest intentions.