What Do Regulators and Investors Want To See In Your White Papers?

What Do Regulators and Investors Want To See In Your White Papers?

In September 2017, the Office of Financial Conduct Authority of the UK (FCA) issued a warning about the risks associated with the ICO. In particular, they directly pointed out to the weak level of White Papers, and did describe it like the risk of the “imperfect documentation”.

In September 2017, the Office of Financial Conduct Authority of the UK (FCA) issued a warning about the risks associated with the ICO. In particular, they directly pointed out to the weak level of White Papers, and did describe it like the risk of the “imperfect documentation”.

Instead of a prospectus for securities and an investment project, companies that are going to the ICO usually provide only White Paper, a document that basically does not contain comprehensive information about the project, and often it is misleading, while for a full understanding of the characteristics and risks of tokens it is necessary to have the view on complex technical and economic issues, taking into account the legal content. So it was said by regulator, and not only British.

Whitepaper is the central document of the ICO. It should clearly and briefly convey to potential investors the essence of the concept, its technical aspects, and the perspectives for investing in it. This document should receive special attention, since most investors decide to invest in the project based on its analysis.

According to institutional investors opinion, based on comments and remarks in the press regarding the manifestation of interest in the ICO, the following conclusions on evaluation priorities can be summarized briefly what is a qualitative document that must meet the following criteria:


  •  understandable from the first lines
  •  is presented in an accessible style for business, taking into account the development parameters
  •  innovation is revealed


  •  the current situation is described
  •  describes the impact of the project on markets


  •  adequate to project possibilities
  •  adequate to the scale of markets
  •  do not contain unreasonable assumptions


  •  general description of business processes
  •  the token functions are detailed
  •  the need for a token in the project is obvious


  •  for the project audience
  •  for investors
  •  for the project sector of economy


  •  structured document
  •  completed quality product
  •  revealing and selling the idea

In turn, regulators often pay attention to the criteria for evaluating ICO projects through their white papers. Particularly FINMA is interesting for its recommendations regarding the writing of such documents and the filling in of relevant project information in applications for authorization of the project under Swiss jurisdiction. 

The general tone of the recommendations has two priorities in principle: economic logic and security.

The system of information disclosure embodied in the laws of many countries on securities is largely based on the fact that the founders of crypto projects are providing information about their company, management and securities (if their token is a security and not only), but also about the expected use of the investments raised.

This information is filed out with the SEC, FINMA, any other similar regulator in a particular jurisdiction. Accordingly, under the example of FINMA, you can understand the main criteria for evaluating the WP and the project itself and those moments that need to be covered:

Founder / promoter location

Very often in the ICO it is impossible to identify the origin of the issuing organization or promoter. This creates a serious information asymmetry on the part of the investor. Without this information, it becomes impossible to know or determine what rules and legal protection can be provided to investors.

Therefore, in the information documents ICO should describe in detail where the issuer is located. Without verifiable geographical addresses, ICO-documents do not have any evidentiary meaning and will not be accepted for consideration

Problem and proposed technological solution

For investors, there is no more important information than the issuer’s financial statements. However, there is no such reporting for startups going to the ICO. ICOs tend to serve a slightly different purpose in comparing to traditional primary offers (IPOs). ICO is raising funds to solve technological problems.

In exchange for funding, promoters / founders offer tokens with various functions (currency, utility or security). Therefore, it is important in WP to describe in detail the technological problem that the crypto project is resolving, and what exactly its token gives — what functional it has. It’s just one thing to describe the problem and the solution, it is necessary that these words be subjected to a third-party audit.

It’s worth paying tribute to those projects that publicly post their codes on GitHub if they are available in the project — an important point. It would be nice to post publicly the financial statements of the crypto project after the ICO.

Being able to analyze balances, cash flows and income statements, investors could assess the company’s performance, make sound assumptions about its future effectiveness and profitability and assess the value of the company’s securities.

Token description

Tokens can have many different qualitative and economic functions. If the coins meet certain rules, such as the ERC20 standard, the disclosure should clarify what this means for the average owner. It is also necessary to justify the choice of this or another standard of the token.

The token descriptions should indicate the intended use of coins issued at placement, their number quantity, whether the founders have reserve coins, and how / when they can liquidate them. Justification for the above actions and choices.

Also, the regulator needs to notify when the token will be generated, when the platform, what ICO terms, how the token transfer to users/investors, give a clear functional and economic description of the token. What rights will guarantee and provide the project’s token for investors, how they will be documented, how and where the token can be purchased or sold after the ICO.

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