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Companies and projects have increasingly relied on the sale of digital assets, or tokens, as a means of fundraising. These tokens generally do not grant the holders an ownership interest in the issuing company or project, but may provide governance rights, access rights or other utility. This has been conducted through public sales known as initial coin offerings (ICOs), proliferation through token generation events (TGEs) or private sales, among other mechanisms. While showing characteristics of traditional methods of fundraising, there are a range of unanswered questions related to the legal classifications of such products. As ICOs and TGEs will usually be distributed online and internationally, there is usually no single legal framework applying to such transaction, and the legal framework of each market in which the tokens may be offered or sold needs to be considered.
Introduction
Attitude of the country towards ICOs/token sales
In autumn of 2021, the public was hit by a massive campaign of the XIXOIO project, offering a comprehensive solution for raising capital for companies that cannot or do not want to go the Venture Capital/Private Equity, IPO route, or ICO. The campaign was accepted with controversies, including massive criticism for targeting retail investors and offering them risky investments while not including e.g. a right to redeem the token back for money. The public is, however included and making investments in this project.
The drawback for ICO/token sales projects is the absence of specific regulations, which make some parts of the projects easier, but some actually more complex and challenging.
Legal affairs
Presence of any explicit regulation on ICOs and the issuance of token/coins
As of February 2022, there is no explicit regulation on ICOs. As stated in the CNB’s opinion from 2018, called “Under which circumstances are initial coin offerings (ICOs) subject to the Act on Management Companies and Investment Funds?”, investments funds issuing ICOs, including AIF, should be regulated by Czech Act on Management Companies and Investment Funds - but this Act does not mention ICO and virtual assets itself.
Therefore, ICOs themselves are not directly regulated. But the banking supervision laws, as well as anti-money laundering provisions, may apply. The relevant legal provisions depend on how the ICO is structured and the token's legal nature. For example, the token can be deemed a financial instrument, a security, a capital investment, or neither of those things with the result that different regulatory provisions must be heeded.
Presence of any explicit restrictions on ICOs or the issuance, distribution and/or transfer of token/coins
There are no explicit restrictions on ICOs. Nevertheless, many supervisory and regulatory questions arise when setting up an ICO. Since the applicable regulation, as well as financial and investor protection rules, depending on the specific design of the coins or tokens issued in the context of an ICO, a company should adapt its business model or the functioning of the coins or tokens to the respective relevant laws.
Also, there is a CNB opinion from 2018, answering questions under which circumstances ICOs are subject to the Act on Management Companies and Investment Funds. The opinion says that without relevant authorisation from the CNB to manage a collective investment fund (or compliance with other conditions applying to foreign equivalents thereof), no collection of funds from the public for the purposes of collective investment is permitted, including through the issuance of tokens or ICOs. Moreover, a manager who collects funds for the purposes of joint investment for the benefit of investors other than the public via the issuance of tokens or ICOs is also obliged to register un