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Thailand must embrace the ICO

Jan 26. 2018
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By The Nation

We won’t have a viable digital economy unless the government accommodates digital currencies and initial coin offerings

Initial coin offering” (ICO), a new term emerging in the age of the digital society, is expected to play a significant role in transforming Thailand and its businesses, especially small and medium-sized enterprises (SMEs).

Most people have heard of bitcoin and other digital currencies, as well as blockchain, the technology that underlies these digital units, but ICO is a term that’s still unfamiliar to many people. ICOs, however, represent a new avenue of fund mobilisation in the digital economy. Some experts have compared ICOs to crowdfunding, an increasingly popular way to raise money from the public online, and say they’re suitable for helping SMEs bring in extra income to launch or to grow their business.

The trick lies in how an ICO is structured to best suit the given business model. The concept is new and Thailand’s Securities and Exchange Commission (SEC) has yet to issue regulations governing ICOs.

Stock investors are familiar with initial public offerings (IPOs), but ICOs are quite different. A listed Thai firm recently announced plans to issue digital tokens in an ICO, aiming to raise several hundred million baht to finance a digital lending platform. The platform is understood to serve as an underlying business of the ICO in a way similar to real estate investment trusts (REIT), which have been regulated by the SEC. However, as mentioned, there are no specific SEC rules for ICOs at this stage. 

In this context, digital tokens are issued to investors to represent their share of potential earnings from the digital lending platform, which is essentially a fintech – a financial technology platform – that offers banking and related financial services.

Most of the lending activities will be done online via mobile phones and other gadgets. Profits from the platform will then be distributed to holders of the digital tokens, while the firm retains ownership of the platform.

For Thai SMEs and tech start-ups, ICOs also present a new opportunity for fund mobilisation, in addition to traditional bank loans and venture-capital funds. Since most entrepreneurs find it difficult to get financing in the early stages of SMEs and start-ups, they have to struggle to rise to more advanced stages where venture funds become available, bringing money in return for partial ownership.

For SMEs and start-ups with bright prospects, ownership is likely to be heavily diluted at the expense of the founders and original owners. By turning to ICOs, business founders and original partners will be able to retain their ownership while raising funds to expand operations. ICOs can be structured in a way that benefits SMEs and start-ups the most, while they’re still attractive enough for investors to put their money into those with potential for high growth.

Hence, the government needs to incorporate ICOs as a new means of financing the country’s SMEs and tech start-ups, which are a key foundation stone in the Thailand 4.0 initiative aimed at bolstering the country’s international competitiveness.

For the SEC, appropriate rules and regulations on ICOs, which work like a form of unit trusts, should be announced sooner rather than later to facilitate entrepreneurs looking for more innovative methods of fund mobilisation.

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