A stable and regulated environment has benefits for Fintech startups like Lendo, which is why it intends to apply to be licensed under Gibraltar’s new DLT regulatory framework and seek listing on the Gibraltar Blockchain Exchange (GBX), a subsidiary of its Stock Exchange.
The GBX offers businesses like Lendo and other ICOs an environment where investors can have confidence. As we know, by comparison with the strict rules around IPOs, the ICO process doesn’t have the same protection mechanisms. The GBX has a goal of standardising the ICO process that will reverse this scenario.
A sponsor’s guarantee
Token sale issuers will need a sponsor in order to conduct a token sale and access listing on the GBX. The sponsor will conduct due diligence on the token sale company and the research covers “legal, commercial, technological, and financial crime risks aspects of the token sale.” In many ways this is the same as the due diligence carried out by an investment banks before an IPO can take place. The GBX rules also ask that the sponsor maintains a relationship with the token issuer for two years after the end of the ICO, to monitor the company and provide advice.
Standardised features of the ICO process
The GBX also stipulates that the following key elements of the ICO process are followed:
Standard disclosures to be made in the whitepaper
Standard terms and conditions for token sale
Engagement and due diligence procedures to be conducted by sponsors
Roles and responsibilities of sponsor and issuers
This should ensure that every ICO provides the same level of information, which in turn provides investors with a level playing field to base decisions on.
Staking the sponsor
The ICO sponsor has to receive 20 percent of its consultancy fees in the issuer’s tokens and hold on to them for a minimum of six months. The sponsor also has to make an escrow deposit in RKT, which is the GBX’s token, to the value of 0.5% of the sponsored ICO’s token sale, for 24 months. This ensures that sponsors have ‘skin in the game’ and don’t disappear once the ICO finishes.
Token issuer stake
The issuer also has to make a commitment to GBX by receiving 10 percent of its token sale through GBX in RKT. It also has to place a deposit in RKT in an escrow account for 24 months, amounting to 5% of the token sale. This is also to ensure compliance with GBX rules as the tokens in escrow are only paid back over a three-month period after the end of the token sale.
Overall, this solution and process creates a stable token sale ecosystem and will encourage those investors who are wary of the blockchain and ICOs in particular to participate in supporting innovative Fintech solutions for the conventional financial world.