An initial coin offering / initial currency offering (ICO) is a method of funding through the use of cryptocurrencies. Often times, it is a form of crowdfunding. Having said that, a private ICO not seeking public investment is also possible. In an ICO, quantities of cryptocurrencies are sold in the form of ‘token’ or coins to speculators or investors, in exchange for legal tender or other cryptocurrencies. The tokens are promoted as future functional units of currency if or when the ICO’s funding goal is met, and the successful launch of the project ultimately ensues.

In the Markets in Crypto-Assets Regulation (MiCAR / ‘the Regulation’), an ICO is termed as an ‘offer to the public’. The Regulation defines this as being:

‘a communication to persons in any form, and by any means, presenting sufficient information on the terms of the offer and the crypto-assets to be offered so as to enable prospective holders to decide whether to purchase those crypto-assets.’

The Regulation goes on to distinguish between three types of offers to the public:

1. those offers relating to crypto-assets other than asset-referenced tokens (‘ARTs’) or e-money token;
2. those pertaining to ARTs; and
3. those pertaining to e-money tokens.

Offers to the Public of Other Crypto-Assets

With respect to offers of this category of crypto-assets, the Regulation mandates that a person shall not make any offer in the EU unless said person:

• is a legal person;
• has drawn up, notified and published the crypto-asset white paper in accordance with the requirements of MiCAR;
• has drafted and published the marketing communications, if applicable,  in accordance with MiCAR; and
• complies with the requirements for offerors including the obligation to identify, prevent, manage and disclose any conflicts of interest that might arise; acting honestly, fairly and professionally and in the best interest of crypto-asset holders; and offering the right of cancellation as mandated by the Regulation.

Moreover, other requirements for an offer to the public of this category of crypto-assets to fall under the purview of MiCAR include, inter alia, when said offer concerns a utility token providing access to goods and services not yet in existence or operation. Here, the duration of said offer as described in the white paper shall not exceed 12 months from the date of publication of the crypto-asset white paper.

The crypto-asset whitepaper must be notified to the competent authority of the home Member State by the issuer / offeror, person seeking admission of the crypto-asset to trading or by operators of trading platforms for such crypto-assets. The relevant competent authority must be notified at least 20 working days before the date of publication of the crypto-asset white paper; however, it is important to note that competent authorities shall not require prior approval of the white paper before publication.

The crypto-asset white paper and any marketing communications must be published on the offeror’s website or the website of the persons seeking admission to trading (as applicable), at a reasonable time in advance of, and in any event before the starting date of, the offer to the public. These shall remain available on the website for as long as the crypto-assets are held by the public.

An important principle under MiCAR is that retail holders who purchase crypto-assets either directly from an offeror or from a crypto-asset service provider (CASP) placing crypto-assets on behalf of that offeror have a right of withdrawal of 14 calendar days without incurring any fees or costs and without being required to give reasons. The period of withdrawal begins from the date of the agreement of the purchase of the crypto-assets.

Upon exercise of withdrawal, all payments received from a retail holder including, if applicable, any charges, are to be reimbursed without undue delay and in any event no later than 14 days from the date on which the offeror or the CASP is informed of the retail holder’s decision to withdraw.

However, the right of withdrawal does not apply where the crypto-assets have been admitted to trading prior to their purchase by the retail holder.

Offers of ARTs

A person seeking to make an offer to the public relating to this category of crypto-assets shall not do so unless said person is the issuer of that ART and is either:

• a legal person, or other undertaking, established in the EU and authorised in accordance with Article 21 of MiCAR by the competent authority of its home Member State; or
• a credit institution compliant with Article 17 of the Regulation.

Having said that, obtaining the written consent of the issuer of an ART  would open the door for other persons to make an offer to the public or seek admission to trading of that ART. Moreover, other undertakings will be permitted to offer ARTs if and only if their legal form ensures a level of protection for third parties’ interests and which is equal to that afforded by legal persons. These undertakings should be subject to equivalent prudential supervision in accordance with their legal form.

These requirements shall not apply where:

• over a period of 12 months calculated at the end of each calendar year, the average outstanding value of the ART issued never exceeds €5,000,000 or the equivalent amount in another official currency and the issuer is not linked to a network of other exempt issuers; or
• the offer to the public of an ART is addressed solely to qualified investors and the ART can only be held by such qualified investors.

Offers of e-Money Tokens

With respect to e-money tokens, a person shall not make an offer to the public of an e-money token, within the EU, unless that person is the issuer of such e-money token and:

• is authorised as a credit institution or as an electronic money institution; and
• has notified a crypto-asset white paper to the competent authority and has published said white paper in accordance with MiCAR’s requirements.

Moreover, it is imperative for issuers of e-money tokens to, at least 40 working days prior to the date on which they intend to make the offer to the public, notify the competent authority of said intention.

Exemptions

MiCAR exempts various offers to the public from its requirements. These include, inter alia, the following:

1. an offer to fewer than 150 natural or legal persons per Member State where such persons are acting on their own account;
2. an offer which, over a period of 12 months, starting with the beginning of the offer, the total consideration of such an offer to the public does not exceed €1,000,000 or the equivalent amount in another official currency or in crypto-assets;
3. an offer of a crypto-asset addressed solely to qualified investors where the crypto-asset can only be held by such qualified investors. 
4. Instances where the crypto-asset is offered for free;
5. When the crypto-asset is automatically created as a reward for the maintenance of the distributed ledger or the validation of transactions;
6. When the offer concerns a utility token providing access to a good or service that exists or is in operation;
7. When the holder of the crypto-asset has the right to use it only in exchange for goods and services in a limited network of merchants with contractual arrangements with the offeror.