According to a report published Tuesday, the Organization for Economic Cooperation and Development (OECD) finds that initial coin offerings (ICOs) may enable faster, cheaper financing for small to medium companies (SMEs) with digital ledger technology (DLT).
Citing the network effect of decentralized DLTs, the report noted how ICO’s allow SMEs to raise capital swiftly and inexpensively without necessarily any conferring ownerships.
The OECD also pointed out, however, that not all SMEs would benefit from ICOs.
“Although ICOs are being hailed as the solution to SME financing gaps,” reads the report, “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.”
Potential investors should be aware that because ICO’s currently lack a clear regulatory framework. There is often a lack of clarity regarding investor rights, company obligations and jurisdiction, make it difficult to properly assess the value of ICO projects.
Until the regulatory uncertainties have been removed, the report added, companies may not trust ICO tokens as a reliable means of fundraising. The OECD suggests that a global coordinated, global effort for legislation and oversight will be needed before the issuance of ICOs tokens can become safer and more mainstream.
Though interest in cryptocurrencies has risen amongst investors, the fact remains that ICOs financing still remains in its infancy stage, adding extra risk for investors who may not understand what exactly they would be purchasing in a token sale. This, as a result, may hurt the ability of some companies to raise capital via ICOs.
“It therefore seems inappropriate,” the report concluded, “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.”