[Kwon Seong-min Column] Does an IPO Become an ICO When It Goes On-Chain?

A company offers its shares to the public. Investors subscribe and receive the allocated shares in their digital wallets. The ownership record remains on the blockchain. So, is this an Initial Public Offering (IPO) or an Initial Coin Offering (ICO)?

The answer is clear. If a company is legally offering shares for the first time, it is essentially an IPO, even if it uses blockchain technology. Just because paper stock certificates have changed to electronic securities does not alter the essence of the shares; similarly, the form of tokens does not determine the rights acquired by investors.

A more important question arises: What can be done with the shares once they are on-chain? The significance of an on-chain IPO lies more in what happens after issuance than in the subscription screen.

For example, let’s say a company offers 1 million new shares at $10 each. After verifying the identity and investment qualifications, an investor subscribes for $1,000 and receives 100 tokens in a structure where one token represents one share. Once the offering is fully subscribed, the company receives $10 million in new funds. The rights of investors, such as voting rights and dividends, are determined by the type of shares, the articles of incorporation, and the offering conditions.

If this is simply called an ICO because tokens were issued, the core of the transaction is missed. ICO is a term that encompasses the sale of tokens with various rights structures, some of which may correspond to securities. The economic substance is more important than the name. The U.S. Securities and Exchange Commission (SEC) also explained in a statement this January that the form of issuance or whether it is recorded on-chain does not change the applicability of federal securities laws.

One thing must be clearly distinguished here: converting existing shares into tokens is different from a company issuing new shares to raise investment funds.

Even if a third party holds already traded shares and issues linked tokens, no new funds enter the company. Whether a token holder becomes a direct shareholder, has indirect rights, or holds products linked to the stock price depends on the structure. Just because a well-known company’s name is attached does not guarantee the same rights as its shares.

This is why the current examples in the tokenization market should not be interpreted as an immediate realization of on-chain IPOs. However, this market shows how newly issued shares can be utilized in the future.

On February of this year, On-Chain Finance announced that it could utilize tokenized ETF products SPYon and QQQon as collateral in the Morpho lending market on Ethereum. Solana-based Kamino also offers the ability to deposit xStocks and borrow USDC. This is an example of linking assets held or traded to other financial services.

Imagine this structure extending to newly issued shares. An investor who participates in the offering receives share tokens and, after meeting the necessary distribution and collateral requirements, deposits them in the lending market. This broadens the pathways to secure funds without selling shares. The process connecting corporate financing to the utilization of investors' assets can become more closely linked.

Of course, stock-backed loans have existed for a long time. Blockchain did not invent lending. The notable change is how much the costs and procedures connecting ownership transfer, settlement, and collateral establishment can be reduced.

In traditional finance, records must be verified by institutions, assets transferred, and transactions reconciled. If ownership records, transfer conditions, and collateral status can be linked on-chain, there is potential to reduce some of these processes. When this is realized, tokenization will become an improvement of financial infrastructure beyond a new sales format.

However, just because connections become easier does not mean risks decrease. If collateralized lending becomes more convenient, it can also become easier to increase debt based on the same asset. If tokens are traded while the underlying stock market is closed, the price and liquidity differences may widen. Kamino also specifies these market time differences, price information, liquidity, and forced liquidation risks.

Just because IPO shares are issued as tokens does not mean they can immediately become collateral or be freely traded worldwide. Transfer restrictions, investor qualifications, trading rules, and collateral requirements in the lending market must be met. The competitiveness of on-chain finance arises from the speed of connections and the rights and responsibilities that support those connections.

Korea's challenges also become concrete here. The policy goal should not end at allowing the issuance of token securities. If only issuance is permitted without connecting distribution, settlement, and collateral utilization, the utility felt by companies and investors will be limited.

Companies need better funding pathways than existing methods. Investors need reliable trading, rights exercise, and asset utilization options. For this, the legal effectiveness of ownership records, a legitimate distribution market, settlement methods for payments and securities, and the establishment and enforcement of collateral rights must be intertwined. It must also be clear who handles dividends and voting rights, and how rights can be recovered if a wallet is lost.

It cannot be assumed that all IPOs will soon move on-chain. Companies and investors will weigh costs and benefits over the novelty of technology. The transition gains strength when funding improves, transactions become convenient, and rights are clearly guaranteed.

Even if an IPO goes on-chain, it remains an IPO. However, if the way those shares are traded, settled, and used as collateral changes, the competitive conditions of the capital market will change.

What Korea needs to prepare for is beyond allowing token issuance; it is the reason for companies and investors to choose that market.