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Evaluation Of The Initial Coin Offering (ICO) Under Turkish Law – Fin Tech – Turkey – Mondaq


Initial Coin Offering
(“ICO“) is a fundraising activity which
has been applied for funding purposes in recent years, especially
within the scope of venture projects, and which works with
blockchain technology. By means of ICOs, entrepreneurs
implement their projects in a shorter time period compared to other
funding mechanisms such as initial public offerings
(“IPO“), and in return, it is aimed that
the participants will earn income with the realization of the

Like crypto assets, ICOs have not been yet regulated in all
aspects under Turkish law. However, the lack of a control
institution or mechanism related to the process may cause
difficulties in the process of creating a road map for the
entrepreneurs and create difficulties for the participants in terms
of distinguishing between legitimate and non-legitimate


ICOs are defined as fundraising activities carried out in the
creation of a distributed network structure and through coins or
tokens issued in exchange for price currency specific to a
project1. In this context, the basis of ICOs is
investment projects based on the blockchain. The funding of these
projects takes place through the sale of tokens. The token sale
mostly takes place in exchange for more widely recognized coins,
such as Bitcoin (BTC) or Ethereum (ETH). Token
has emerged as another application example of ledger technology
other than cryptocurrencies and refers to digital crypto assets
that represent a certain value or benefit within a project
ecosystem on a blockchain.2

In the ICO process, the token determines the interest of the
participant in exchange for cryptocurrency. Tokens can be used as a
means of payment (payment tokens), can refer to securities
(security tokens), or can be used to access a product or service
(utilitytokens). On a specific project
basis3, the token’s benefits to participants are
determined by the team behind the project. However, tokens can be
categorized in various ways in different legal systems according to
the characteristics they contain. The definitions set by
considering the technical, financial, or legal qualities of the
token used in the classification may vary in different legal
systems. Therefore, it should be noted that the categorization here
is not something that can be uniformized globally. For example, it
is possible for a token called a “security token” under
Swiss Law to be a “utility token” under US law because it
has capital market instrument characteristics.

Although the ICOs vary from project to project, in practice they
often appear as the promotion of a project by publishing it on a
website and announcing the date set for the token sale. On the
website in question and mobile applications for some projects, a
technical document (whitepaper) is published, which
contains the details of the project, the road map, the mission and
vision of the team behind the project, and the introductory
information regarding the team.

The whitepaper can be compared to the prospectus we know from
the IPOs. However, since there are no written rules regarding the
regulation of the ICOs, unlike prospectuses, how the content of the
whitepaper will be created, the information that should be included
in its content, or the rules for its publication are entirely
determined by the team managing the project. In addition to the
Whitepaper, there is a secondary document called Yellow Paper, as
we have come across in Ethereum. Although this document contains
detailed information about the product or the service as in the
Whitepaper, it can be defined as the second section, which aims to
summarize the scientific details of the technology and includes all
the specific details.

The purpose of the ICO is to provide funding support in the
early stages of the project. Thus, the project is developed with
the funding provided by the participants, who can be described as
early supporters of the project. In practice, we often encounter
structures in which the lower and upper limits are foreseen
regarding the number of tokens to be sold during the ICO process.
The lower limit indicates the minimum number of tokens that must be
sold for the continuation of the project. If the lower limit is not
reached, the coins paid by the participants in exchange for the
token will be refunded. The upper limit shows the number of tokens
sold that is sufficient for the ICO process to be considered
successful. When the upper limit is reached, the ICO is completed,
even if the end date of the token sale has not yet come.

The sale of tokens in the ICOs can be divided into different
phases. In these cases, the start and end dates of the phases where
the token sale will be made, how many tokens will be offered for
sale and in which phase and the value of a token are specified in
the Whitepaper published on the relevant website. In practice, in
general, the price of the tokens offered for sale in the first
phases is more affordable than in the later phases. It is possible
to explain this situation that the project is being developed and
valued as the fund is collected.


ICOs are often an investment method for technology projects or
platforms. On the platform in question, tokens function like money
in payment services. In essence, during the ICO process, the
possibility of future growth and widespread use of the platform in
question is evaluated. Thus, the participants can buy tokens early
and when the project is fully developed, use their tokens or earn
income by selling them at a higher value. For participants to
support an ICO project, it is sufficient for them to own the coin
used in the project. Since there is no regulation on these issues
in Turkish legislation, the procedures required for the
participants to buy shares from public joint-stock companies, such
as opening a securities account in a bank, are not foreseen in the
ICOs. This can be considered an advantage for the investors in the
ICOs in terms of ease of operation.

To understand the place of ICOs in the Turkish legal system, it
is essential to determine the legal nature of the tokens. However,
the variety of uses of the tokens makes it difficult to make this
determination. Whether the tokens can be considered as capital
market instruments is an issue that should be discussed under the
Capital Markets Legislation. According to the legislation, capital
market instruments consist of “other capital market
instruments determined by the Board to be within this scope,
including securities and derivative instruments and investment
contracts”. The Capital Markets Board
(“CMB“) first informed the brokerage
firms that “Considering that there is no regulation or
definition regarding cryptocurrencies in Turkey and that virtual
currencies are not among the elements that can form a basis for
derivative instruments within the scope of the CMB, at this stage,
spot or derivative transactions based on virtual currencies for
customers should not be made.”4 However, this
explanation is only related to Bitcoin, and it is also likely that
the tokens sometimes have properties such as securities due to the
variety of uses. Likewise, the statement in the said notification
that Bitcoin cannot be subject to derivative transactions may not
prevent tokens from being considered as derivative instruments when
evaluated in terms of transaction purpose and characteristics. It
is intensely mentioned in the doctrine that US law is the guide to
defining the Investment Contracts, which are considered Capital
Market Instruments under the legislation. The U.S. Securities and
Exchange Commission (“SEC“) decides
whether an asset is a security or not using four criteria from the
U.S. Supreme Court’s decision in the SEC v. W. J. Howey Co.
case. These criteria are determined as (i) the existence of an
investment, (ii) the formation of a joint enterprise of that
partnership, (iii) the promise of profit by the issuer, and (iv)
the existence of a profit to be obtained as a result of the efforts
of the third parties.5 This practice, called the Howey
Test, determines if the token is a security, and the ICO in
question will fall under the supervision of the SEC.

As a result, an evaluation should certainly be made considering
the characteristics of the token to be issued within the scope of
an ICO. Because, by the decision of the CMB dated September 27,
2018, and numbered 47/1102, it is emphasized that whether these
practices fall within the jurisdiction of the Capital Markets Board
should be evaluated on a case-by-case basis.

While there is uncertainty even in terms of the legal nature of
the token, it is very difficult to make an assessment within the
scope of the CMB legislation in terms of ICOs. Since ICOs are not
yet subject to detailed legal regulations compared to IPOs, ICO
projects are easier to set up and launch.6 Although it
is possible to compare ICOs to IPOs, IPOs can only be carried out
by joint-stock companies and if a joint-stock company wants to go
public, it must obtain the permission of the Ministry of Commerce
following the permission to be given under the detailed legislation
of the CMB.

Considering the nature of the material value collected within
the scope of the ICO, the realization of the ICO without following
a special procedure such as an IPO should be evaluated in terms of
CMB legislation. Crowdfunding within the CMB legislation is the
“collection of money from the public through crowdfunding
platforms to provide the funding needed by a project or venture
company within the principles determined by the Board without being
subject to the provisions of this Law on investor
compensation”. However, as stated in the preamble of Article
107 of Law No. 7061 on the Amendment of Certain Tax Laws and
Certain Other Laws, the provision of financing by collecting other
tangible values that will not be considered money to ensure the
development of crowdfunding has been excluded from the scope of the
CMB legislation. It is possible to conclude that the financing of
ICOs by collecting crypto money instead of money from the public
cannot be considered crowdfunding. However, although it is possible
to comment that the statements in the announcement made under the
abovementioned decision of the Decision-Making Body of the CMB
dated September 27, 2018, and numbered 47/1102, may be
characterized as crowdfunding according to the nature of the asset
value collected from the public within the scope of some ICOs, the
information or details contained in the relevant announcement are
not sufficient to make this characterization. As a result, it does
not seem possible to make a definitive assessment until the
legislator makes regulations in terms of ICOs and tokens or until
the CMB’s decisions contain more detailed evaluations in this
regard and these issues are clarified.

The lack of legal regulations on ICOs brings along some
disadvantages for entrepreneurs. Although legal regulations impose
obligations, they also draw a road map in the procedural sense.
While creating the Whitepaper and planning the stages of the ICO,
the uncertainty of the steps to be taken legally and the lack of
any road map create difficulties for entrepreneurs. The legal
regulations regarding the IPOs though have been set forth in detail
in many regulations and communiqués following the Capital
Markets Law. In addition, the guides and information booklets
prepared by the CMB are important road maps for entrepreneurs.

It is very difficult for the participants to distinguish between
legitimate activities and fraudulent activities since all the
documents related to ICO projects are prepared by entrepreneurs. In
the abovementioned Bulletin No. 2018/42 dated September 27, 2018,
the Capital Markets Board warns the investors that the money
collected for the ICOs may not be used for the specified purposes
and that there may be incomplete and misleading information in the
documents provided by the sellers. In addition; it is stated that
many of the ICOs are outside the jurisdiction and duty of the
regulatory bodies and are not subject to any regulation and

One of the most important advantages of the ICOs for
entrepreneurs is that ICOs can provide a high amount of liquidity
and reach hundreds of participants in a short period because they
are built on a decentralized structure with a unique characteristic
feature of blockchain technology.7 Because it is
possible to access and transact the coin network based on the ICO
from anywhere in the world. However, we should point out that there
are regulations and restrictions on ICOs in some countries. For
example, in China8 and South Korea, ICOs are completely
banned. In this context, entrepreneurs are required to take action
according to the legislation of the countries to be transacted,
otherwise, it is possible to face sanctions.


According to Article 24 of the Law on International Private Law
and Procedural Law, the law chosen by the parties is applied to the
dispute, as an ICO transaction may be considered to contain an
element of foreignness. If the parties do not choose the applicable
law, the law most intensely related to the contract will be applied
to the contractual relationship. In this sense, the law of the
habitual residence of the debtor of the characteristic performance,
that is, the party promising the project with the ICO will be
applied. A habitual residence is generally defined in the doctrine
as the place where one’s real-life relationships continue,
where the person resides and where they want and will to

When we evaluate the Whitepaper that is created as a result of
an ICO, it is possible to say that there is a contractual
relationship between the ICO project entrepreneur and the
participant. According to Article 1 of the Turkish Law of
Obligations (“TLO“), the two main
elements of the establishment of a contract are mutual and
appropriate declarations of intention. In Article 8 of the TLO, the
public proposal is stated as follows: “Displaying goods by
showing the price or sending tariffs, price lists or the like shall
be considered as a proposal unless otherwise clearly and easily
understood.” In terms of ICOs, it should be evaluated whether
the proposal includes the essential elements of the contract. In
most ICO projects, the details of the token price and sale are
stated in the Whitepaper. In this context, it is possible to say
that the legal nature of the Whitepaper is a suggestion. On the
other hand, the participant’s purchase of tokens will also be
acceptable, and the moment the token is purchased can also be
considered as the moment of establishment of the contract. In light
of this situation, in case of any dispute, the general provisions
of the TLO regarding contractual debt relations will be

Assuming that the contract is established in the manner
mentioned above, within the scope of ICOs, it can be considered
that a contract for the exchange of goods as defined in Article 282
of the TLO has been concluded between the entrepreneurs and
participants. However, this situation requires that the contract be
regulated in compliance with the mandatory regulations within the
TLO. Therefore, the contract shall be binding between the parties
unless there is a matter that eliminates the validity or claim
ability of the contract or the contractual debts.

We would also like to point out that, if an ICO project is
created to deceive the participants and the entrepreneurs benefit
at the expense of the participants, the crime of aggravated fraud
through information systems can be mentioned under Article 158 of
the Turkish Criminal Code.

In particular, in the absence of regulation or supervision of
the domestic authorities in the crypto money market, it can be
considered that there will be information asymmetry between the
entrepreneurs and investors of the transaction. With the idea that
one of the main elements of the crime is caste, what should be
considered when making an assessment is to determine the
credibility and accuracy of the information provided by the
Whitepaper. One of the most difficult issues to detect fraud is the
identification of the suspect. However, in practice, the fact that
the ICO project is not an organization in which the entrepreneur is
registered makes this determination quite difficult.


Since the ICOs are blockchain-based, the project can be reached
from anywhere in the world. As a result, large masses of
participants can be reached, and high amounts of liquidity can be
obtained in a short period of time. However, the legislation of the
countries where the transactions are made regarding the ICOs should
be evaluated separately or the regulations or sanctions in the
legislation of the country in question should be examined.

Under Turkish law, there is no special procedure that can be
applied to the ICOs, nor there is a legal obstacle to the ICO
transaction. However, for each ICO transaction, it is necessary to
evaluate the material value to be collected in the transaction and
the characteristics of the token to be issued within the scope of
the ICO. In this sense, ICO entrepreneurs need to do legal
modelling as well as commercial modelling.


1. Blockchain Turkey, Blockchain Technology and
Terminology Study, pg.24. For Internet access: https://bctr.org/dokumanlar/Blokzinciri_Teknoloji_Terminoloji.pdf
Date of Access: 23.02.2022

2. Blockchain Turkey, Blockchain Technology and
Terminology Study, pg.19. For Internet access: https://bctr.org/dokumanlar/Blokzinciri_Teknoloji_Terminoloji.pdf
Date of Access: 23.02.2022

3. ARAALAN, Cemal, “Crypto Asset Initial Offer (ICO)
and Evaluation of the Issue in terms of Turkish Law and Some
Country Practices”, Journal of Banking and Finance Law, Volume
No.:10, Number No.:40, 2021, s.886-888

4. Capital Markets Board’s Letter dated 1.12.2017 and
numbered 32992422-299-E.13447 https://www.tspb.org.tr/wp-content/uploads/2017/12/Genel-Mektup-785-Sanal-Paralara-Dayal%C4%B1-%C4%B0%C5%9Flemler-hk..pdf
(Date of Access: 8.06.2022)

5. https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets
(Date of Access 3.06.2022)

6. ARAALAN, Cemal, “Crypto Asset Initial Offerings
(ICO) and Evaluation of the Issue in terms of Turkish Law and Some
Country Practices”, Journal of Banking and Finance Law, Volume
No.:10, Issue No.:40, 2021, p.892

7. Tevetoglu (n2) 189

8. Minneapolis, W. K., Professor at University of Saint
Thomas School of Law, Director of the Private Investment Funds
Institute, (2018). Initial Coin Offerings: The Top 25 Jurisdictions
and their Comparative Regulatory Responses (as of May 2018).
Stanford Journal of Blockchain Law & Policy. https://stanford-jblp.pubpub.org/pub/ico-comparative-reg

9. Number, a.g.e., p. 118, Gelgel-Günseli,
Öztekin, Custody in State Law, Child Abductions, Problems
Related to Adoption, Istanbul Commerce University Journal of Social
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Workplace Binding Points, Natural Publications, September 2004, p.
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.


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