The Organization for Economic Cooperation and Development (OECD) thinks initial coin offerings (ICOs) may become a useful financing tool for small and medium-sized businesses (SMEs) – but the space is not yet mature or regulated enough for the “mainstream.”
The report, published Tuesday by the international economic organization, provides a broad overview of ICOs and different token distribution methods, including airdrops, and examines how tokens built on top of distributed ledgers (DLT) may be used to raise funding for these smaller companies.
The report notes that it does not explore token taxonomy or regulatory efforts, given that such efforts are ongoing. Further, the authors say the report “is based on the theoretical discourse of token offering and is not intended as a practical ICO guide.”
While ICOs may be helpful in raising funds, the general immaturity of the space means it may be difficult to properly assess the value of tokens for companies, it goes on. This in turn could impact how much funding firms would be able to raise.
The report adds:
“Although ICOs are being hailed as the solution to SME financing gaps, ICOs are, by nature, not the right solution for every project and a differentiation should be made between blockchain-enabled projects or products/services, and business or products/services not built on DLTs, as the former has a higher potential of benefiting from an ICO.”
Further, the OECD argues that ongoing regulatory uncertainties mean companies may not want to trust the use of tokens in fundraising.
Even beyond a lack of clarity on how regulators in different jurisdiction might treat cryptocurrencies and tokens, the fact that ICOs represent “early stage” financing means that there is an added risk to investors, particularly those who may not understand what exactly they would be purchasing in a token sale.
As a result, the report says, any potential for ICOs to act as “a mainstream financing option” is limited,
“It therefore seems inappropriate to consider ICOs as a potential ‘mainstream’ financing mechanism for SMEs whose projects are not enabled by DLTs and which would not benefit from network effects,” it notes.
OECD image via Shutterstock
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