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Disguised ICO? China’s Regulatory Authority Warn About the Risk of IMO (Initial Machine Offering)

On Jan.12, National Internet Finance Association of China (NIFA) announced a risk warning on its website that IMOs (Initial Miner Offerings), represented by the token WankeCoin issued by Xunlei (NASDAQ: XNET), are ICOs in disguise and have been a potential risk that warrants vigilance.

NIFA claims it a disguised ICO

The warning is in compliance with the Notice on ICO issued by seven ministries last September known as China’s ICO ban, in which ICO activities are suspected of involving in illegal activities as illegal fundraising, illegal issuance of securities and illegal sale of notes and bonds. It warns that all institutions and individuals should immediately stop engaging in ICO activities. With the gradual progress of ICOs’ phasing out nationwide, the newly-emerged Initial Miner Offerings (IMO), represented by Lianke (formerly WankeCoin) issued by Xunlei, have been a risk that warrants vigilance.

Since last October, a series of virtual digital asset as Lianke, LLT (literally traffic coin) and BFC of Baofeng have emerged in the IMO form. Taking Lianke for an example, Xunlei uses it to replace legal tender for payment to users’  computing contribution, which is actually a financing activity and a disguised ICO. And Xunlei lured a large number of people who do not have the ability to identify this into the IMO activity through frequent promotion conferences and releasing transaction guides.

NIFA here calls on consumers and investors to recognize the nature of such activities and make rational investments instead of blindly following the trend of speculation and hype. Domestic cryptocurrency exchanges and related projects deployed with foreign servers shall be reported immediately once found, and activities suspected of violating criminal laws can be reported to the police.

And members of NIFA should strengthen their own self-discipline, resist illegal financial activities, and do not participate in any activities involving ICO or speculation of “virtual currency”.

Xunlei’s quick response

The annoucement results in Xunlei’s shares rapid diving over 27%.

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In reaction to the criticism from NIFA, Chen Lei, CEO of Xunlei, made response today,

  1. NIFA is for the good of users

We understand that NIFA is for the good of users. Any emergence bears great controversy in its infancy. We’d like to make joint effort with NIFA to protect our users and crack down speculation and hype activities.

  1. Never released any trading guide

Xunlei has never released any trading guide nor encouraged speculation and hype. We indeed conducted an offline investment fair for WankeCloud, and it was the only one with invited guests.

  1. Will join in NIFA and be a member subject to its supervision

Experts’ comments: Is there any policy risk?

Regarding policy risk of Lianke and whether it is a ICO in disguise,

Yang Dong, Director of Institute for Fintech and Internet Security at Renmin University of China, commented,

“As there’s no contract between users and Xunlei that legal tender shall be paid for users’ contribution of unoccupied resources, it in effect reach no consensus that whether it is paid with CNY or tokens as Lianke. While on the other hand, even though issuing Lianke is not an ICO activity, its public-facing nature may pose high market risks and financial risks, which deserves the attention of regulators, industries and investors.”

A researcher of Institute for Intellectual Property of China University Of Political Science And Law.

“If tokens like Lianke are used in the physical world out of the platform of Xunlei, it may be called off.”

An IT critic,

“If you don’t understand ICO, but can easily take part in it, it will turn out a gamble.”

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