ICO Legal Advice: Initial Coin Offerings

An ICO (Initial Coin Offering) is a fundraising mechanism in which crypto-assets or tokens are issued and sold to the public on a blockchain network in exchange for established cryptocurrencies (Bitcoin, Ether) or fiat money.

Investors acquire tokens that may represent access to a service or platform (utility tokens), economic rights in a project (security tokens) or tokenized real assets (asset-referenced tokens), depending on their design and regulatory classification.

ICOs have evolved from the speculative boom of 2017–2018 into a regulated form of alternative financing for blockchain projects in the European Union under the MiCA framework.

Regulation (EU) 2023/1114 on markets in crypto-assets (MiCA), fully applicable since December 2024, sets out the first harmonized regulatory framework for public offers of crypto-assets in the European Union.

MiCA distinguishes three categories of crypto-assets, each with its own regime: utility tokens (access to goods or services), asset-referenced tokens (backed by assets) and e-money tokens (referencing a fiat currency). For each category, it sets requirements on the white paper, notification to the regulator, marketing communications and issuer liability.

ICOs that fall outside the scope of MiCA (for example, security tokens) remain subject to securities law, which makes it essential to classify the token correctly before launching the offer.

Classifying the token is the first legal step in any ICO. An incorrect classification can mean that much stricter rules apply or, in the worst case, that the offer is unlawful.

Main types of tokens in an ICO:

• Utility token: access to a platform or service; subject to MiCA if offered to the public in the EU.
• Security token: represents equity rights, dividends or debt instruments; subject to MiFID II and, in Spain, the TRLMV.
• Asset-referenced token (ART): backed by real assets, currencies or baskets of assets; requires CNMV authorization under MiCA.
• E-money token (EMT): referencing a single fiat currency; treated as electronic money and subject to the EMD2 Directive.
• NFTs with economic utility: depending on their features, they may fall inside or outside the scope of MiCA.

The legal analysis of the token’s nature is the starting point for any legally sound ICO.

The white paper is the ICO’s offering document and, under MiCA, it must contain clear, fair and not misleading information for investors. Its content is set out in the Annexes to the Regulation, depending on the token category.

Mandatory content of a MiCA white paper:

• Identification of the issuer and the project, with verifiable contact details.
• Description of the crypto-asset: technology, rights it confers and restrictions on use.
• Risks inherent to the ICO and the token, including technology, liquidity and regulatory risks.
• Use of the funds raised, broken down by spending category.
• Information on the team behind the project and its relevant track record.
• Statement by the issuer taking responsibility for the accuracy of the white paper.

An incomplete or misleading white paper creates civil liability for the issuer toward investors and can lead the regulator to suspend the ICO.

ICOs are among the instruments most exposed to money laundering risk, according to the risk assessment reports of the European Union and the FATF. The possibility of taking part pseudonymously with cryptocurrencies makes them a high-risk vector.

Token issuers that raise funds from investors must implement a robust KYC (Know Your Customer) process: identifying and verifying the investor’s identity, identifying the beneficial owner, screening against international sanctions lists (OFAC, EU, UN) and analyzing the source of the funds contributed.

The absence of KYC/AML controls in an ICO can result in the funds raised being blocked by banks or exchanges, regulatory penalties and, in extreme cases, criminal investigations against the team behind the project.

The taxation of an ICO in Spain depends on the nature of the token issued, the issuer’s structure and the tax residence of the investors. There is little settled administrative guidance in this area, which makes prior advice essential.

For the issuer, the funds raised in the ICO may be treated differently for tax purposes: if the token gives access to a future service, the amount could be considered an advance on income; if it represents a share in profits, it could be treated like an issue of securities. VAT on the issuance of tokens is also analyzed case by case.

For investors resident in Spain, a later sale of tokens generates capital gains or losses subject to personal income tax (IRPF, savings income), with reporting obligations that include Form 721 if the crypto-assets are held in custody abroad.

The cost of legal advice for an ICO depends on the complexity of the project, the type of token, the jurisdiction of issuance and the scope of the services required: from token classification to drafting the white paper, implementing KYC/AML or registering with the regulator.

In mid-sized projects, legal advice is a small fraction of the ICO’s total budget, yet it is the investment with the greatest impact on regulatory viability and investor confidence. A launch without a proper legal structure can result in the offer being suspended, funds being returned and irreparable reputational damage.

We offer a free initial analysis to determine your ICO’s specific legal needs and propose a scope of services tailored to the project’s stage of development.