The Thai Fintech Association is urging participants in the local capital market to set good standards for initial coin offering (ICO) and prevent fraudulent scams that would hurt sentiment for this alternative funding source.
An ICO is a channel for startups to raise funds in the early stages. It has good potential based on the success of crowdfunding, blockchain technology and cryptocurrencies, the latter of which is gaining in popularity, said association chairman Korn Chatikavanij.
"Bitcoin, a type of cryptocurrency, has clear rules and a limited amount," said Mr Korn, a former finance minister.
An ICO is an unregulated means of crowdfunding that uses cryptocurrency as a source of capital. The main difference between an ICO and an initial public offering (IPO) -- the traditional fund-raising choice for many decades -- is that an ICO uses digital currency as capital, while an IPO uses real currency.
Mr Korn said that even if people shy away from cryptocurrencies because of price fluctuation, digital currencies may ultimately become more trustworthy than the US dollar.
He said the dollar is controlled by the US government and especially the Federal Reserve, which makes decisions to inject money into the financial system based on the benefits to certain people as opposed to a collective benefit.
For those reasons, an ICO is a promising tool for raising capital, said Mr Korn, who has vast experience as an investment banker.
Because ICOs are unregulated, however, they pose a higher risk for investors.
An ICO also lacks an accounting audit or a financial adviser, and a developed funding ecosystem that protects investors does not exist.
"This is the weak point, and it provides an opportunity for someone to cheat investors," Mr Korn said. "It is unfavourable if such bad practices lead this funding choice to be terminated like in China, where the government has suspended ICO funding. This has caused startups and entrepreneurs to lose a capital funding tool."
To prevent opportunity loss resulting from unregulated funding, market regulators should set standards for best practices in ICOs, he said.
For example, a good ICO should be screened by an acceptable incubator that is established in the local startup community.
The white paper should also have details such as a business plan and the technology the company uses.
After the ICO ends, the incubator should monitor whether a startup spends capital according to its commitment in the white paper. Such capital should be contingent on completion of project milestones.