CAD and the MAS have noted the emergence of initial coin (or token) offerings (ICOs), and other investment schemes involving digital tokens, in Singapore. If that happens, the value of the tokens is likely to go up and the investor would be able to make profits from his investment.
"Members of the public are advised to exercise due diligence to understand the risks associated with ICOs and investment schemes involving digital tokens", the statement reads.
In a nutshell, MAS recommends consumers to make sure they fully understand the benefits and risks of the product or service before committing and assess whether the features of the product or service offered meets their needs. Since most of the operators of such ICOs are online and in a foreign country, it is very hard to track such operators, find their profiles and recover invested funds in case something goes wrong.
In the advisory, the MAS and CAD have explained that digital tokens are issued as part of ICOs where the public are given tokens for investing in specific projects for which a white paper is issued.
"Consumers would be adversely affected if law enforcement agencies investigate any alleged illicit activities related to the token investment scheme", the officials said.
In the end of its long expose, MAS advises that investors check whether the schemes are regulated by it or if they are on the Investor Alert List. Such digital tokens have been marketed as investment opportunities. In the worst case scenario where no secondary market develops, a consumer may not be able to liquidate his token holdings at all.
The valuation of digital tokens are usually not transparent, and highly speculative. For example, these digital tokens may represent ownership or a security interest over the token seller's assets or property, or a debt owed by the seller. Such tokens would be merely speculative investments and their traded price can fluctuate greatly within a short period of time. There is a high risk that a consumer could lose his entire investment amount.
ICOs and other investment schemes involving digital tokens may be structured in many ways with different business propositions.
Some of the risks include the promises of high returns which could come in the form of high referral commissions, that is, promising consumers benefits for referring additional participants.
Last week, finews.asia highlighted the case of Tezos, an USA provider which last month used a Swiss foundation to grab a almost $20 million cash cut for its founders, after raising $232 million in the largest ever ICO to date.