The North American Securities Administrators Association ("NASAA") warned investors of the risks associated with initial coin offerings ("ICOs").
In an Investor Advisory, NASAA provides background information about ICOs and blockchain technology, describes the differences between "utility tokens" and "equity tokens" (but noted that both may be securities), and warns investors to consider the risks of ICOs prior to making investments. The risks highlighted by NASAA include:
- fraud, including fake-token Ponzi schemes and spoofing;
- limited investor protection and unclear terms in cases where the "token" or "coin" is not considered a security;
- lack of important disclosures that are available for registered securities offerings;
- high rates of failure (e.g., 46 percent of ICOs failed in 2017);
- no guarantee that ICOs can be sold on a secondary market or alternative trading system; and
- significant price volatility.
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