How do ICOs choose where they incorporate?
ICO Location Analysis
ICO and cryptocurrency regulation is a complex, daunting, yet important subject. Many crypto companies and ICOs have chosen to incorporate their business outside of their home country in an effort to mitigate imminent regulatory risks. Certain locations around the world are seen as more crypto-friendly due to general business and tax purposes, but also crypto-specific regulation. In fact, smaller and less regulated countries, are encouraging ICOs and crypto companies to incorporate in their country, in an effort to bolster GDP and spur innovation and growth.
Let’s explore the ICO market to help us better understand where companies are flocking to, which can then help us understand how regulation is affecting crypto business development at a global scale.
While icoalert.com is a comprehensive database of ICOs, we were only able to find locations for approximately 30% of ICOs in our system. With over 4,000 ICOs, we were able to analyze the incorporation locations and office headquarters location of approximately 1,000 ICOs that occurred in 2018. Fortunately, the higher quality ICOs tend to be more transparent about their team and locations, skewing this data set towards high quality projects.
ICO Incorporation Locations
Singapore leads the pack as the hottest location to run an ICO. While 16% of ICOs incorporate in Singapore, only 13% choose the city as their headquarters. It seems that ICO teams with ties to Asia view Singapore as a crypto-haven, especially due to the ICO ban in China and harsh regulation in Hong Kong. The Monetary Authority of Singapore (MAS) has a favorable view of fintech, and is conscientious of stifling innovation. The MAS has developed a regulatory sandbox environment which allows fintech companies to test their new technology.
Quote by the MAS
“In circumstances where it is less clear whether a new financial product or service complies with legal and regulatory requirements, some financial institutions (FIs) or start-ups may err on the side of caution and choose not to implement it. This outcome is undesirable as promising innovations may be stifled and this may result in missed opportunities.”
Officially, the MAS has stated that “it does not regulate cryptocurrency,” which is a promising neutral stance, given that the MAS acts as Singapore’s central bank and regulator.
Office Headquarters Location
Data shows that in 2018 if you launched an ICO based out of Europe, chances are you settled on Estonia or Switzerland for your incorporation location.
Estonia has helped pave the way in government adoption of blockchain, with plans to launch its own cryptocurrency in the future. Estonia’s cryptocurrency, estcoin, will function as the country’s e-Residency program, helping to solve tough blockchain issues, such as identity and price volatility.
Switzerland created the Crypto Valley Association in 2013 (modeled after Silicon Valley) in order to foster innovation in the space. Switzerland has been a proponent of crypto from the beginning, home to the Ethereum Foundation and Bancor, located in Zug.
It is important to consider how the crypto-friendly havens may impact the longer term growth of the ecosystem. Malta is gaining traction quickly for its clear regulatory stance; with almost 5% of ICOs in 2018 choosing to incorporate there. Furthermore, the largest cryptocurrency exchange in the world, Binance, has moved its HQ to Malta from Hong Kong due to heavy regulations. Not far behind are island territories in the Caribbean and Europe; Gibraltar, Cayman Islands, and the British Virgin Islands to name a few. The Cayman Islands is home to block.one, the company behind EOS, raising over $4 billion, making it the largest ICO in history.
Competition is healthy in this sense, with many smaller nations competing for tax revenue in the growing digital economy. If strict regulation is enacted in the developed world, we may see an increasing number of ICOs incorporate in these island nations.
United States/United Kingdom
While most ICOs are clearly operating teams out of the U.S. (24%), many companies have decided to incorporate offshore. The U.K. follows a similar trend, with a significant percentage of ICOs choosing to incorporate elsewhere. This may be largely due to regulatory uncertainty; specifically, the perceived relative strictness of securities regulation in the U.S. by the SEC. The SEC has indicated that it believes there is a need for regulation in the ICO space, in order to protect investors in this volatile new market. Security tokens have clearer rules to follow (think Reg. D and Reg. CF), while the most uncertainty lies with utility tokens. The safest route is to consider your utility token a security in the eyes of the SEC when it comes to your fundraising methods.
The governments around the world have taken very diverse stances in regards to ICOs and new cryptographic technology. In Europe, Estonia and Switzerland have emerged as thought leaders in the space. While in Asia, Singapore is the clear favorite for ICOs when it comes to incorporation locations. Many expect harsh regulation to materialize in some parts of the world, which is why companies are choosing to incorporate in crypto-friendly island nations around the world.
While some governments choose to embrace change and are working to produce thoughtful regulation, others are choosing to ban ICOs and keep the status quo. There is no doubt that people in positions of power are fearful of this change, given that blockchain can eliminate the need for intermediaries, and ICOs can democratize access to capital.