Initial cryptoasset offerings
What is an ITO or ICO?
An initial cryptoasset offering, commonly called an ITO (initial token offering) or ICO (initial coin offering), is a means of raising capital through the Internet, usually for the purpose of financing a technological project in the start-up stage of development.
Investors are offered digital assets, or tokens (also called “coins”), whose potential value and use are closely tied to the financed project’s success.
ICOs vary in design. The digital token may represent a share in a company or a prepayment voucher for future services. In some cases, it may offer no discernable value at all.
ICO projects are often in a very early stage of development, which adds to the risk.
Watch the video to understand the susceptibility of ICOs to volatility and fraud
Token creation (cryptoassets)
Tokens are created using readily available technology and can be easily marketed on certain trading platforms without any third-party intervention or authorization.
For example, many ICOs are launched on Ethereum, a decentralized blockchainA secure, distributed database that stores transactions between users, from the date of its creation, in a chronologically ordered sequence of blocks that are linked together. that is open to everyone and whose use is unregulated.
ICOs can also be launched directly on decentralized platforms such as Uniswap. They are not regulated by the Autorité des marchés financiers and other securities regulators in Canada.
All it takes is a quick search of the Internet to find sites that explain how to create tokens and make them available in a just few minutes for trading on a blockchain. However, projects financed through token creation are much more difficult to complete and not always successful.
Watch out for fraud
Promoters sometimes lure investors with promises of huge returns on investment projects that use tokens. Influencers can get paid and make false claims to boost the value of tokens.
Vigorous efforts are being made by the AMF to detect fraudulent projects at an early stage. However, the massive size of the Internet and the active use of social networks, including instant messaging apps that allow the creation of private chat groups, mean it is often impossible for regulators to intervene on a preventive basis by any other means than an investor warning.
Be vigilant
There are many cryptoasset scams around. Learn to identify them so you don’t get defrauded.
For more information, see the section on the cryptoasset fraud.
End of the warningThe risks
Risk of regulatory non-compliance
Many ICOs are based abroad and their promoters are not concerned about Québec and Canadian regulations governing investor solicitation.
Price volatility
Like cryptoasset in general, the value of a token may be extremely volatile.
Potential for fraud
Due to their very nature, ICOs are fertile ground for fraud. Some issuers might not have the intention to use the funds raised in the way set out in the project white paper.
Early stage projects
ICO projects are usually in the very early stage of development and their business models are experimental. The risk of losing all your invested capital is high.
Limited use
Some tokens may only be used on a specific platform or for specific products or services. If the project fails, rendering them useless, you may not be able to exchange them or cash them out.
Vulnerable platforms
Despite the lines of defence provided by new technologies, transaction platforms are not immune to software bugs and hackers.
Are ICOs regulated by the AMF?
ICOs may be securities and therefore subject to the requirement to file a prospectus or obtain a prospectus exemption. Even if the promoters comply with regulatory requirements, the investment may carry many risks.
Should I report a fraudulent ICO to the AMF?
If you believe that an ICO is a scam, report it to the AMF by contacting our Information Centre.
End of the Information