Author: Mr Tan
Editor: Colin Wu
On September 4, 2017, the People's Bank of China and seven other ministries and commissions jointly issued the "Announcement on Preventing Risks of Token Issuance and Financing" (1) , which banned "initial token issuance (IC0) for financing activities". At the same time, it also banned "token financing trading platforms", which caused the cryptocurrency market to plunge.
Background of the announcement
The central bank and other departments issued this announcement against the background of the extremely crazy ICO, the emergence of the ERC20 standard greatly reduced the cost of issuing a new token, and at that time, as long as a white paper was released and a story was written, a large amount of funds could be raised.
The market was so speculative that some projects didn't even bother to provide a whitepaper. The most exaggerated of these is Li Xiaolai's pressone project, which didn't even bother to write a white paper, according to [Surfing News](2), Li Xiaolai directly said, "The white paper is something that not many people can read or understand, or even just a few people can read."
Even so, the PressOne project has crowdfunded $185 million in 5 days. The frenzy of the market was evident. In hindsight, most of the tokens issued by the IC0 project at the time could not escape the fate of going to zero. At that time, the seven ministries and commissions issued the announcement precisely for the protection of ordinary investors.
The impact of the announcement
The primary impact of the announcement was the plunge in coin prices. The reason for the plunge is mainly due to two aspects. The first aspect is that the announcement prohibits token financing trading platforms, that is, exchanges are prohibited from "engaging in the exchange business between legal tender, tokens and 'virtual currencies'", which directly affects the channel of coin. The bull market in 2017 was largely brought about by ICO, one of the main functions of cryptocurrencies is to invest in ICO projects that have the potential to yield high returns. When this function of cryptocurrencies was explicitly banned, their actual value was greatly diminished.
Under the circumstances, the major exchanges chose to "go out of China" and stopped the direct exchange of fiat currencies to cryptocurrencies, offering OTC services instead. Although the main employees of the major exchanges are still in China, the main body of operation has been transferred abroad. The then newly established exchange Binance took this opportunity to rise rapidly.
However, due to the rapid response of the major exchanges and the enthusiasm of investors, the cryptocurrency circle still saw a record high at that time at the end of that year.
The decentralized development of the cryptocurrency
The announcement has to a certain extent cracked down on the chaos of issuing air coins, but it has also to a certain extent promoted the phenomenon of "going abroad" and decentralization of such financing behavior, which is roughly divided into the following stages.
IFO (Initial fork offering): Due to the fork of Bitcoin network's BCH (then called BCC) on August 1, 2017, it directly inspired people who wanted to issue coins in the name of fork. This was represented by projects such as Li Xiaolai's SBTC, Liao Xiang's Bitcoin Gold and Yang Linke's Bitcoin Diamond. Unlike BCH, these projects all allocated a large number of tokens to the team side at the time of the fork, and thus can be seen as ICO in the name of the fork.
IEO (Initial Exchange Offering): For ICO projects, after the coins are issued, they must eventually go to an exchange to be able to cash out. After the major exchanges have completed their outbound, a new way of issuing coins, IEO, has been developed, which means that new coins are issued directly by the major exchanges, and the end of the issue also completes the coin offering directly. Binance Lauchpad, Huobi Prime and Okex Jumpstart are all IEO boards.
IDO (Initial Defi Offering): After the Defi boom, there is finally a way to issue coins directly on the Defi platform, called IDO, which has achieved a decentralized effect to a large extent and has brought further difficulties to regulation.
Overall, the announcement on September 4, 2017, made the domestic ICO chaos effectively governed, but it is difficult to effectively govern projects that issue coins abroad. And regulation is always evolving with the progress of technology. In the United States, where jurisdiction and enforcement are more extensive, SEC Chairman Gary Gensler has recently stated publicly that the Defi platform also cannot escape regulation.