As we are nearing the end of 2017, looking back, I am sure we can all agree on it being a monumental year for Crypto currencies, Blockchain technology and Initial Coin Offerings. There is a huge amount of growing interest on all 3 topics. In this article, tokentarget takes a look at the rise of ICOs and reflects on the possible landscape of ICOs in 2018.
- Bitcoin this week, hit another all-time high passing $8000.
- Ether has appreciated more than 2,800% since it began in 2015.
- Blockchain technology is disrupting every industry and ICOs have raked in over 3.6 Billion Dollars.
So, we know that cryptocurrencies fared well but what about ICOs? (Initial Coin Offerings) How do we expect them to evolve in future years?
ICOs raise funding by creating and selling new crypto tokens, commonly based on Ethereum – to investors. It’s a little like crowdfunding except that when we are talking about ICOs we mostly link them to projects in the cryptocurrency sphere while crowdfunding can be any project that is looking for a source of capital , often from small investors. Additionally, unlike crowdfunding, ICOs are built on BlockChain technology and therefore offer a higher level of transparency for investors.
The rapid rise in ICOs has inevitably led to comparisons with securities, with much speculation over whether financial regulators will look to regulate the space but we will discuss that later on.
Hundreds of ICOs have been launched this year and there are many more coming in the next few days, weeks and months. There are of course some which stand out from the crowd for their impressive funding levels and innovative marketing strategies:
The top 10 ICOs of 2017 are as follows:
- Filecoin – $257,000,000
- Tezos – $232,319,985
- EOS Stage 1 – $185,000,000
- Paragon – $183,157,275
- Bancor – $153,000,000
- Kin Kik – $97,041,936
- Status – $90,000,000
- TenX – $64,000,000
- MobileGO – $53,069,235
- KyberNetwork – $48,000,000
Although somewhat controversial, raising capital through Initial Coin Offerings provides magnificent opportunities for daring investors. Therefore, we have seen people from all walks of life and different corners of the globe aiming to launch their idea and eager investors clambering to get involved.
So why do some ICOs fail?
It was recently reported that over 75% of ICOs fail to reach their soft cap and with the number of ICOs launching increasing every week, that number will certainly grow. So, then why do so many ICOs fail? The reason is that most developers/entrepreneurs do not pay any attention to the three core points that make an ICO:
- Cryptoeconomics– In order for the token to be valuable in the long run, there must be sufficient demand for it. What is often seen in ICOs is unsustainable token inflation and a flawed cryptoeconomics model.
- Utility – Utility means the total satisfaction that is received by the consumption of the goods or services and this is completely integral to the ICO. Ask yourself this: If you take away your token does your business fall apart?
- Security- More than 30,000 people have fallen prey to ethereum-related cyber crime, losing an average of $7,500 each, with ICOs amassing over $3 billion in proceeds in 2017. If you haven’t paid attention to your security then hackers can take away everything you worked for.
About the regulations
ICOs can sometimes fail as they neglect to inform and reassure consumers about the security of their investment. Regulators worldwide have turned their attention to ICOs and regulators in countries such as India, Hong Kong and Russia are warning that digital currencies are no safe investment. The SEC has also posted a bulletin, warning investors to be careful in deciding whether to invest in ICOs.
On September 4, the People’s Bank of China (PBoC) issued a sharp statement labelling token sales “illegal and disruptive to economic and financial stability”.
In the headlines we have “Tezos” under the spotlight which has been hit with its second class-action lawsuit in less than a month.
We have those behind “Confido” vanishing after raising $375K from investors and Pump and Dump schemes all over promoted by scammers through various social media channels.
This really is the tip of the Iceberg.
I am aware that there are a number of marketing companies that have a strict vetting process and will only work with ICOs that tick certain boxes. But there are many more vultures making the most of the feeding frenzy who will promote any project regardless of its intentions. This is huge problem and one that will be very hard to tackle. When it comes to the safety of investor funds, my view is that regulation will be the beginning of a healthy ICO market. Regulation ensures that marketing companies and ICOs behave ethically, do not employ underhanded marketing tactics and adhere to fair advertising methods. At present, regulation rules for ICOs are somewhat inconsistent. In Switzerland for example, business is regulated by FINMA, but cryptocurrency companies do not require any specific approval or license. Similarly, cryptocurrencies are assets in Singapore rather than funding or payment instruments according to the regulator, the Monetary Authority of Singapore (MAS). In the UK and USA there’s a lot of blockchain activity but there’s not much clarity around the crypto economy. There, the FCA is taking a wait-and-see approach before issuing rules.
Although we can expect a rocky few months ahead as stories are likely to surface regarding fraudulent behavior from certain ICOs, we can certainly expect the new year to be bigger and more prosperous as blockchain technology matures presenting further opportunities to us all. As an ICO marketing agency with a rich background in financial services regulation, tokentarget are ready to adapt and adhere to the challenges that lie ahead.