Xavier Buck (co-founder & chairman of EuroDNS): Luxembourg and the emerging ICO opportunity
Xavier Buck, digital entrepreneur and co-founder & chairman of EuroDNS, says that initial coin offerings will likely become a standard fundraising method in the coming years for start-ups and other firms trying to attract fresh capital.
What differentiates initial coin offerings from virtual currencies?
Initial coin offerings are a means for firms to issue tokens, but these should not be confused with crypto-currencies. Tokens leverage smart contracts, which are a layer of a coin technology such as Ethereum. They can represent a service, such as access to a software product, in which case they are known as utility tokens, or equity in the issuing firm, which is a security token. It’s important to note that tokens have nothing to do with the volatility in the value of bitcoins and other virtual currencies. ICOs are currently still in their early stages, but they will likely become a standard fundraising method in the coming years for start-ups and other firms. ICOs also represent a tool for democratising the investment process and for providing liquidity to business angels and other investors, who in the past would have had to wait for an exit event to recover their investment in a firm.
“The main challenge is that governments must create the necessary legislative framework for ICOs and provide clarity to serious market players."
How is your own group active in developing ICOs?
I have explored the ICO route on my own initiative, co-founding three projects to learn, understand and position myself as a player in this new world. There are three important aspects of ICOs, starting with the issuer role. I was involved in the creation of ip.six, a start-up that successfully finalized an ICO by issuing utility tokens for an equivalent of more than 8000 Ethereum. This allowed me to understand the marketing as well as the community creation and management involved in ICOs. We raised the money needed – in Switzerland, where the legislation is more developed – and the start-up is now up and running. Second, when conducting ICOs one needs to ensure adequate know-your-customer due diligence and anti-money laundering controls to ensure that the funders are ‘clean’ – compliance is vital in order to open bank accounts and to receive funding, which would otherwise be blocked. For this we have set up an entity in Estonia – the only country that allows the management of cryptocurrencies on behalf of clients – licensed as a brokerage for the management of investor’s accounts, with KYC and AML obligations, and also authorised as a crypto-wallet provider. The third aspect is the trading dimension. Once a firm has issued tokens, they want them to be listed on stock exchanges so that financial market players can easily buy and sell them. That’s why we created scx.ch, the first regulated Swiss trading platform for blockchain products and crypto-currencies. Our overall goal is a product subject to a maximum of compliance and regulated to the highest degree. We will broaden our scope of operations once other countries establish legislation governing ICOs, because our focus is serious offerings, just as investors are seeking regulated and stable ICOs.
What challenges and opportunities do you identify for ICOs?
The main challenge is that governments must create the necessary legislative framework for ICOs and provide clarity to serious market players – one that allows firms to issue security tokens quickly, rather than utility tokens. A country that provides an easy and secure means to issue security tokens will open the gates to funding from investors, and it could enable private individuals to invest, albeit in a regulated fashion. Luxembourg remain cautious with regard to ICOs, which is understandable given the lack of maturity in the market and the risk from untrustworthy participants. In addition, the Grand-Duchy must protect the branding of its financial industry, so it needs credibility and to maintain the highest standards. Up to now, Luxembourg institutions have been monitoring developments in other countries, but the authorities should not miss the opportunity by moving too late. The fintech world is well organised here, and the CSSF, the ministry of finance and the various fintech and IT platforms are keeping up with ICO development.