implementation of consumer protection on token offerings through the obligation to disclosure

Ghasemihameh, Abbas; Teymourie, Hamed; Saghiri, Behrad

doi:10.48308/eclr.2023.103865

implementation of consumer protection on token offerings through the obligation to disclosure

Document Type : Original Article

Authors

abbas ghasemihameh ¹

Hamed Teymourie ²

behrad saghiri ³

¹ Perofessor of Law Shahid Beheshti University

² Shahid Beheshti University,Faculty of Law

³ Ph.D of International Commerce & Investiment Law, Shahid Beheshti University, Faculty of Law

https://doi.org/10.48308/eclr.2023.103865

Abstract

Crypto assets as new emerging entities based on Blockchain technology have caused many legal challenges. Regardless of these assets different types, numerous electronic transactions are concluded based on them. Due to the technical and specialized nature of these transactions, there is a significant imbalance between the Parties to the contract and information asymmetric. Therefore consumption law rules and the obligation to disclosure are applicable in the aforementioned transactions. Crypto assets issuers commonly publish whitepapers in order to fulfill their disclosure obligation. However, whitepapers have many disadvantages and do not seem satisfactory. Accordingly it is necessary to enact supplementary laws to remove any existing ambiguity in this regard in addition to determining whitepapers required content to fix the defects. On the other hand, information disclosure process should be continued. Otherwise abuse will be provided for the observers. It should be considered that unlike Utility Tokens, in addition to consumption law rules, financial and securities law rules are applicable. These rules contain registration and information disclosure requirements which need an appropriate comprehensive approach in regulation. Furthermore, the necessity to modify and complete laws does not negate the blockchain ecosystem actors' existing obligations.

Blockchain, Crypto Asset, Consumption Law, Disclosure Obligation, Whitepaper.

* Perofessor of Law, Faculty of Law, Shahid Beheshti University, Tehran, Iran   dr.gh.hamed@gmail.com.
** L.L.M, Faculty of Law, Shahid Beheshti University, Tehran, Iran   hamedteymourie.ht@gmail.com.
*** PhD., Faculty of Law, Shahid Beheshti University, Tehran, Iran (Corresponding Author) saghiribehrad@gmail.com.

Keywords

Blockchain

Crypto Asset

Consumer Protection

Disclosure Obligation

Whitepaper

References

Books
1. Blandin, Apolline, Ann Sofie Cloots, Hatim Hussain, Michel Rauchs, Rasheed Saleuddin, Jason G Allen, Bryan Zheng Zhang, and Katherine Cloud. "Global Cryptoasset Regulatory Landscape Study." University of Cambridge Faculty of Law Research Paper, no. 23 (2019).
2. Ogus, A, T Riis, and R Nieben. "Regulation-Legal Form and Economic Theory." In Law and Economics: Mathodology and Application: DJØF Publishing, 1998.
3. Soltani, Mohammad, Capital Market Law, Tehran: Samt, 2017. (in Persian)
Articles
1. Adhami, Saman, and Giancarlo Giudici. "Initial Coin Offerings: Tokens as Innovative Financial Assets." Blockchain economics and financial market innovation: Financial innovations in the digital age , 2019, PP 61-81.
2. An, Jiafu, Wenxuan Hou, and Xianda Liu. "Initial Coin Offerings: Investor Protection and Disclosure." Technical report, Working paper , 2018.
3. Aslan, Aylin, Ahmet Şensoy, and Levent Akdeniz. "Determinants of Ico Success and Post-Ico Performance." Borsa Istanbul Review 23, no. 1, 2023, PP 217-39.
4. Basaran, Halil Rahman. "Businesspersons, Governments, and International Law." Louisiana Law Review 79, no. 3, 2019, P 7.
5. Boreiko, Dmitri, and Dimche Risteski. "Serial and Large Investors in Initial Coin Offerings." Small Business Economics 57, 2021, PP 1053-71.
6. Brake, Elliot. "For Love or for Profit?-Crafting a Suitable Securities Framework for Initial Coin Offerings." L. Rev. 72, 2020, P 155.
7. Briggs, Kenyon. "Taming the Wild West: How the Sec Can Legitimize Initial Coin Offerings (Icos), Protect Consumers from Bad Actors, and Encourage Blockchain Development." Entrepreneurship & Tax L. Rev. 2, 2018, P 424.
8. Chudinovskikh M., Sevryugin V. "Cryptocurrency Regulation in the Brics Countries and the Eurasian Economic Union." BRICS Law Journal 6, no. 1, 2019, PP 63-81.
9. Crosser, Nate. "Initial Coin Offerings as Investment Contracts: Are Blockchain Utility Tokens Securities." Kan. L. Rev. 67, 2018, P 379.
10. Danatzis, Stefano, and Catherine D'Hondt. "" Analyse De Deux Méthodes De Financement: Initial Public Offering (Ipo) Vs Initial Coin Offering (Ico)."
11. Darabpour, M “Substantive Review of Consumer Rights in English Law and the Need to Amend Protective Deficiencies in Iranian Law.” Legal Research Journal, Fall and Winter 2008, no. 48, pp. 9-63. (in Persian)
12. Dell'Erba, Marco. "Initial Coin Offerings: The Response of Regulatory Authorities." NYUJL & Bus. 14, 2017, P 1107.
13. Dell'Erba, Marco. "Stablecoins in Cryptoeconomics from Initial Coin Offerings to Central Bank Digital Currencies." NYUJ Legis. & Pub. Pol'y 22, 2019, P 1.
14. Fitts, William L. "Initial Coin Offerings: Getting Rid of the Venture Capitalist." Transactions: Tenn. J. Bus. L. 20, 2018, P 927.
15. Fong, Alexander. "Blocking the Chain: Regulating the Initial Coin Offering." De Lege Ferenda 1, 2018, P 62.
16. Gurrea-Martínez, Aurelio, and Nydia Remolina. "The Law and Finance of Initial Coin Offerings." SMU centre for AI and data governance research paper 2019, no. 06, 2019.
17. Haddadi, Sh & Mozaffari, M, “A Legal Introduction to Crypto Tokens ICO Through Blockchain Technology.” Quarterly Journal of Economic and Commercial Legal Studies, Winter 2023, no. 1, pp. 125-156. (in Persian)
18. Howell, Sabrina T, Marina Niessner, and David Yermack. "Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales." The Review of Financial Studies 33, no. 9, 2020, PP 3925-74.
19. "The Introduction to the Australian Asic’s Information Sheet (Info 225) on Initial Coin Offerings and Crypto-Assets."
20. Iurina, Alina. "Initial Coin Offering in Gibraltar-Case Study: Calidumcoin." , 2017, P 37.
21. Jean Callé E & Qasemi Hamed, A “Introduction to Consumer Rights with a Translator’s Preface.” International Legal Journal, Fall and Winter 1998, no. 23, pp. 239-258. (in Persian)
22. Jean Callé E & Ghadak, A “Definition of Consumer.” Legal Research Journal, Spring and Summer 2000, nos. 29 and 30, pp. 309-330. (in Persian)
23. Joneidi, L “A Comparative Study of the Duty to Inform with Emphasis on Common Law Systems.” Journal of the Faculty of Law and Political Science, University of Tehran, Summer 2002, no. 56, pp. 11-48. (in Persian)
24. Kaal, Wulf A. "Initial Coin Offerings: The Top 25 Jurisdictions and Their Comparative Regulatory Responses (as of May 2018)." J. Blockchain L. & Pol’y 1, 2018.
25. Mandel, Gregory N. "Legal Evolution in Response to Technological Change." Oxford Handbook of Law, Regulation and Technology , 2017.
26. Marian, Omri. "Blockchain Havens and the Need for Their Internationally-Coordinated Regulation." NCJL & Tech. 20, 2018.
27. Mathis, Bruno. "Which European Regulation for Security Tokens?[Quelle Réglementation Européenne Pour Les Security Tokens?]." 2020.
28. Meadows, Michael R. "The Evolution of Crowdfunding: Reconciling Regulation Crowdfunding with Initial Coin Offerings." Consumer L. Rev. 30, 2017.
29. Mokhtarian, Edmund, and Alexander Lindgren. "Rise of the Crypto Hedge Fund: Operational Issues and Best Practices for an Emergent Investment Industry." JL Bus. & Fin. 23, 2018.
30. Moran, Joseph D. "The Impact of Regulatory Measures Imposed on Initial Coin Offerings in the United States Market Economy." UJL & Tech 26, 2017.
31. Mozaffari, M & Naser, M, “The mechanism of concluding the Smart contracts and it’s role in consolidating the property rights”, Legal Research Journal, Fall 2021, no. 95, pp 253-275. (in Persian)
32. Noble, E. "Crypto-Assets-Overcoming Impediments to Scaling: A View from the Eu." 2021.
33. O'Connor, Michael J. "Overreaching Its Mandate? Considering the Sec's Authority to 48. Regulate Cryptocurrency Exchanges." Drexel L. Rev. 11, 2018.
34. Ogus, A, T Riis, and R Nieben. "Regulation-Legal Form and Economic Theory." In Law and Economics: Mathodology and Application: DJØF Publishing, 1998.
35. Preston, Jay. "Initial Coin Offerings: Innovation, Democratization and the Sec." Duke L. & Tech. Rev. 16, 2017.
36. Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets, and Amending Directive (Eu) 2019/1937. 24/09/2020.
37. Qasemi Hamed, A, Salimi, F and Aghababaei, F “Harm to Consumers in a Competitive Market.” Legal Research Journal, Spring 2012, no. 57, pp. 97-124. (in Persian)
38. Qasemi Hamed, A & Beheshti, A “Consumer Rights in the Pre-Contractual Stage: A Comparative Study in English Law”, Journal of Private and Criminal Law Research, Summer 2020, no. 44, pp. 11-36. (in Persian)
39. Qasemi Hamed, A & Barari Chenari, Y, “A Review of the Concept of Consumer in the Stock Exchange.” Legal Research Journal, Spring 2021, no. 93, pp. 119-142. (in Persian)
40. Qasemi Hamed, A, “Non-professional, the obligie of obligation to inform in contract in french law.” Comparative Law Studies Journal, Spring and Summer 2014, vol. 5, no. 1, pp. 229-244. (in Persian)
41. Qasemi Hamed,A, “Specialist’s Obligation to Provide Information to Consumers in French Law.” Legal Research Journal, Spring and Summer 2009, no. 49, pp. 187-210. (in Persian)
42. Qasemi Hamed, A, “A Brief Review of the Theory of the Obligation to Provide Information in Contracts from the Perspective of French Law.” Legal World Newspaper, April 18, 2017. (in Persian)
43. Qasemi Hamed, A & and Barari Chenari, Y, “Survey The concept of consumer in the stock exchange.” Legal Research Journal, Spring 2021, no. 93, pp. 119-142. (in Persian)
44. Qasemi Hamed, A & and Taleb Ahmadi, H “Pre-Contractual Information Disclosure.” Legal Studies Journal, Spring and Summer 2011, vol. 3, no. 1, pp. 157-191. (in Persian)
45. Qasemi Hamed, A, & Moeini Far, Y, “Consumer Right of Withdrawal in Distant Contracts in context of the Iranian, German and European Union Laws.” Private Law Research Journal, Fall and Winter 2014, no. 4, pp 5-38. (in Persian)
46. Rohr, Jonathan, and Aaron Wright. "Blockchain-Based Token Sales, Initial Coin Offerings, and the Democratization of Public Capital Markets." Hastings LJ 70, 2018.
47. Saghiri, B & Vahid, H, “The necessity of international regulation of blockchain and crypto assets.” Quarterly Journal of Legal Research, Special Issue on Law and Technology, 2023, pp. 245-271. (in Persian)
48. Schaub, Martien. "How to Make the Best of Mandatory Information Requirements in Consumer Law." European Review of Private Law 25, no 1 , 2017.
49. Shulman, Jacob Gregory. "Icos, Cryptos, Blockchain, Oh My!: A Primer on Icos." Rutgers Computer & Tech. LJ 46, 2020.
50. Stacher, David. "Regulation of Initial Coin Offering (Ico)." Chair of Economic Theory Universität Basel.[online] Available at: https://wwz. unibas. ch/fileadmin/user_upload/wwz/00_Professuren/Berentsen_Wirtschaftstheorie/Lecture_Material/Master_s_Thesis/Completed_Master_s_Theses/Master_Thesis_David_Stacher. pdf[read 03.06. 2019]
51. Steverding, Fiona, and Alexander Zureck. "Initial Coin Offerings in Europe–the Current Legal Framework and Its Consequences for Investors and Issuers." Available at SSRN 3536691 , 2020.
52. Szwajdler, Paweł. "Considerations on the Construction of Future Financial Regulations in the Field of Initial Coin Offering." European Business Organization Law Review 23, no. 3, 2022, P 671-709.
53. Tapscott, Don, and Alex Tapscott. Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World. Penguin, 2016.
54. Thewissen, James, Prabal Shrestha, Wouter Torsin, and Anna M Pastwa. "Unpacking the Black Box of Ico White Papers: A Topic Modeling Approach." Journal of Corporate Finance 75, 2022, P 102225.
55. Tiwari, Milind, Adrian Gepp, and Kuldeep Kumar. "The Future of Raising Finance-a New Opportunity to Commit Fraud: A Review of Initial Coin Offering (Icos) Scams." Crime, Law and Social Change 73, 2020, PP 417-41.
56. Tjio, Hans, and Ying Hu. "Collective Investment: Land, Crypto and Coin Schemes: Regulatory ‘Property’." European Business Organization Law Review 21, 2020, PP 171-98.
57. Trotz, Ethan D. "Tangled up in Blue: Adapting Securities Laws to Initial Coin Offerings." Ill. UL Rev. 39, 2018.
58. Walker, GA. "Initial Coin Offerings–Technology and the Rule of Law." Rule of Law and Anti-Corruption Center Journal 2019, no. 2, 2019.
59. Wilson, Claire. "Cryptocurrencies: The Future of Finance?". Contemporary Issues in International Political Economy , 2019, PP 359-94.
60. Yano, Makoto, Chris Dai, Kenichi Masuda, and Yoshio Kishimoto. "Blockchain Business and Its Regulation." Blockchain and Crypt Currency , 2020.
61. Zarei, M H & Shams, E “An Introduction to Concepts and Theories of Economic Regulation.” Legal Research Journal, Summer 2013, no. 62, pp. 163-234. (in Persian)
62. Zarei, M & Shams, E “The Concept of Self-Regulation in Political Economy Theories.” Legal Research Journal, Winter 2013, no. 15, pp. 263-308. (in Persian)
63. Zetzsche, DA, RP Buckley, DW Arner, and L Föhr. "The Ico Gold Rush: It’sa Scam, It’sa Bubble, It’sa Super Challenge for Regulators, University of Luxembourg Law Working Paper, 11, 2017." 2018.
64. Zetzsche, Dirk A, Filippo Annunziata, Douglas W Arner, and Ross P Buckley. "The Markets in Crypto-Assets Regulation (Mica) and the Eu Digital Finance Strategy." EBI Working Paper Series 77, 2020.
Laws
1. Monetary and Financial Code (in French)
2. Maltese Virtual Financial Assets Act.