The digital currency Bitcoin has broken one price record after another in recent weeks; most recently, one Bitcoin was briefly worth more than $20,000. Bitcoin is by no means the only financial instrument based on blockchain technology. So-called Initial Coin Offerings (ICOs), also known as Token Sales or Token Generating Events (TGEs), are becoming increasingly popular for financing technology startups. For this reason, the digital association Bitkom has published a statement on Token Generating Events (TGEs), calling for Germany to be established as a safe haven for blockchain-based forms of financing.
“For both young companies seeking financing and venture capitalists investing funds, Germany should position itself as the future-proof location for venture capital financing on a TGE basis,”
says Marco Liesenjohann, Speaker Blockchain at Bitkom.
Special economic zone for blockchain-based financing
According to the association, an important first step is to establish a special economic zone for blockchain-based financing. This would allow the new and innovative instruments to be tested and experience gained.
The idea behind TGE is that investors and startups connect via blockchain technology, which enables a tamper-proof exchange of information. A bank as a central intermediary is no longer necessary. At the same time, the blockchain architecture allows the tokens issued by the startup in exchange for payment to be linked to specific events, such as a specific date or company value, which automatically trigger a payout upon occurrence.
“Legal transactions can be mapped technologically in this way, and the rights and obligations of the contracting parties are anchored in so-called smart contracts in a way that is traceable at any time,”
says Liesenjohann. Startups whose product or service is based on blockchain have primarily chosen this financing route. Since 2012, around $2.4 billion has been raised worldwide in this way – more than the approximately $2 billion that flowed into these startups through traditional venture capital financing.
“Tokens give digital content a uniqueness”
Bitkom advocates not stifling the new TGE tool in the bud with excessive regulation. This means that the costs for this form of financing must remain significantly lower than, for example, a traditional IPO. At the same time, however, adequate consumer protection must be ensured, for example through simplified prospectus requirements that further develop the white paper format previously used for TGEs.
"TGEs should be presented in a way that is understandable to digitally savvy investors. It is important that the greatest possible transparency is achieved, especially when using this new form of participation,"
Liesenjohann demands. Furthermore, it would be only logical to further develop the model and understand tokens as a digital form of certificate. Tokens are forgery-proof, transferable, and represent the digital Variante of securitization of rights. Liesenjohann:
"Tokens give digital content a uniqueness that is naturally inherent in things in the physical world. Their importance for the further development of the Internet cannot be overestimated."
