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The big winners in initial coin offerings are lawyers, Ripple CEO says

  • Ripple CEO Brad Garlinghouse said he has indicated to some entrepreneurs looking to issue tokens that they should "save some of those proceeds."
  • That was because they could potentially be sued if their tokens lost money, Garlinghouse said.
  • Initial coin offerings are used as a means by some companies to raise funds.
Ripple CEO Brad Garlinghouse
Tony Avelar | Bloomberg | Getty Images
Ripple CEO Brad Garlinghouse

The CEO of one of the largest cryptocurrency-linked companies in the world, said this week that the "winners" in the booming practice of initial coin offerings will come from the legal community.

Initial coin offerings, often referred to as ICOs, are used as a means by some companies to raise funds. Investors exchange digital currency, such as bitcoin, for a token issued by the firm. Unlike an initial public offering, the token implies no stake in the company.

Speaking with CNBC on the sidelines of the Money 20/20 conference in Singapore, Ripple CEO Brad Garlinghouse said he had previously indicated to some entrepreneurs looking to issue digital tokens of their own that they should "save some of those proceeds" because they could potentially be sued if their token lost money. In fact, such incidents are already happening, he added.

"Entrepreneurs need to be [going in with their] eyes wide open ... The winners are going to be the lawyers, because they're going to help you issue the token and then they're going to help you defend it," he said.

"Better sometimes to focus on solving real problems for real customers, and not worry about running infrastructure for a token issue, getting listed on exchanges and all the steps that come with that," Garlinghouse added.

While the ICO market is a fairly substantial one — companies raised $3.8 billion through ICOs last year, according to CoinSchedule — the space is also unregulated in many countries. Investors and companies in the space are not nearly as protected by the regulatory frameworks that are in place in traditional financial markets.

Around 46 percent of ICOs launched last year had failed as of February, according to a study by Bitcoin.com.

The chief executive of Ripple, the company behind the third-largest cryptocurrency by market cap, also weighed in on a recent move by the U.S. Securities and Exchange Commission that requires platforms offering "trading of digital assets that are securities" to register with the regulator.

"There's a lot of goodness going on, you can leverage blockchain and how you leverage digital assets to solve real problems ... I think most of the ICOs you're seeing are not real token use cases. They're really securities, so I think the SEC should regulate that," Garlinghouse said.

He added that "some of the less appropriate activities" in the space were bad for the entire industry.

Ripple's XRP token traded at about $0.69 during Asia afternoon trade on Friday. The company is developing a network to make cross-border payments quicker.

— CNBC's Arjun Kharpal contributed to this report.