Initial Coin Offering, known as "ICO", is a relatively new phenomenon in the crowdfunding industry being the main subject of discussion in the Blockchain and financial communities.

During the last year, ICOs have exploded and became an increasingly popular method of fundraising for start - ups and other companies with the intention to fund innovative projects based on the Blockchain technology.

Although, specific regulatory framework does not yet exist for ICOs, this does not mean that the market for ICOs is not regulated through other various laws in place.

Regulators are applying existing securities and financial market legislation to ICOs and issue guidelines as to the risks involved and the applicability of such laws on ICOs. 

The Cyprus Jurisdiction

Companies Limited by Shares

The Cyprus Securities and Exchange Commission, (CySec) for the time being, follows the guidelines and warnings of the European Securities and Markets Authority (ESMA) and issues circulars to the public as to the dealings in virtual currencies.

There is no regulatory framework as to ICOs and thus no express prohibition of following such a step. The Cyprus regulator, CySec, remains silent on the matter without taking an official position so far.

In view of the absence of any sort of specific rules on the ICO regime, the road is open for such a step using a Cyprus Company exploiting all the Cyprus benefits of the surrounding financial and tax environment.


The current legislation does not impose any restrictions on the investment policy of Alternative Investment Funds (AIFs) with Limited Number of Investors, (AIFLNP).

In view of this legislative gap, the regulator, CySec, accepts applications for the establishment of AIFLNPs which will also be trading in cryptocurrencies or investing in ICOs. Various conditions must be met though.

In view of the above, it seems that a Fund dealing in cryptocurrencies could also be established in Cyprus through the Regulator process in addition to the ICOs through a limited liability company outside the control of the Regulator.


An ICO is the way by which companies, usually start-ups, raise funds from the public within a limited period of time by issuing digital Coins or Tokens (hereinafter referred to as Tokens) that are related to a specific innovative project. The Tokens are issued by means of Blockchain Technology and may be tradable on specific platforms.

The issuer company initiating the ICO, transfers to the investors Tokens being the subject of the issue, usually in exchange of cryptocurrencies, such as Bitcoin or Ether or Fiat currencies, such as US dollar or Euro.

The issuer can use the proceeds of the ICO to finance its business operations and future growth related to the project for which the ICO was set up. In the event that Tokens are exchanged for other cryptocurrencies, the issuing company can exchange them for fiat currencies like, US dollar or Euro, as required.


The Tokens, subject to the particular issue, are in effect "contracts" granting certain rights to the investors. Subject to the issue, Tokens may represent rights to a specific or recurring service to be developed or a right to participate to a share in a project or a portion of the expected returns in the project. 

In simple words, the Tokens issued, are usually connected with the project that will be developed by the issuer and for which financing is requested.

Although this is not exclusive, Tokens may have the form of Payment Tokens, which are similar to cryptocurrencies and do not have any connection with any project. They are accepted as means of payment.

Tokens may also have the form of Utility Tokens which give access to an application or service.

They may also have the form of an Asset Token representing an asset of the issuing company or of the project or right to dividends or to interest payments. These are analogous to equities, bonds or derivatives.

Payment Tokens will hardly be identified as securities but Utility Tokens and Asset Tokens under certain circumstances might be qualified as securities and the laws on Investment Services and Public Offer might be applicable with drastic negative effect on the ICO process.

Distinction from IPO

Contrary to a traditional Initial Public Offering ("IPO"), Tokens typically do not represent an ownership interest or dividend right in an entity. ICO investors seek to directly benefit from the issuing company's future business and particular project, while investors in IPOs tend to pursue a long-term interest in the value-creation of the IPO entity as a whole. to continue reading this article please click here