Initial Coin Offerings totally transformed the face of fundraising and became extremely popular with 2017 been referred to as the year of ICOs. It was easy for people to jump into the bandwagon of fundraising as ICOs created a means of generating funds via tokenization of assets. However, despite the popularity gained by ICOs as a means of funding, it has also generated a lot of skepticism due to the number of con men utilizing it as a means of generating funds. It may seem that ICOs are now a thing of the past or is there still a future for it?
What Are ICOs?
Basically, ICOs is a crowdfunding method used by startups to boycott the hurdles of venture capitalist regulated funding. Similar to Initial Public Offering in the traditional investment world, ICOs are a type of fund raiser. A start-up looking for investment will launch an ICO pegged to a blockchain and to do this, they’d have to create a token. This token will be given to the investors in exchange for their investment. Hoping that the tokens will generate some value of some sort that will yield profit for them in the future, investors buy into the token. The start-up then uses the funds generated from the ICO to carry out the goals stated on its white paper or road map.
In the past, a lot of investors have profited greatly from ICOs and this led investors to pour into the industry expecting to make a profit. However, due to the highly volatile nature of cryptocurrency, a lot of investors were not warned of the unregulated market and most people lost their funds. Also, due to the unregulated nature of ICOs and the promise of quick returns, a lot of con men leveraged on it as an avenue to prey on uninformed investors. However, various regulatory bodies have since issued penalties for non-compliant ICOs; however, the United States Securities and Exchange Commission (SEC) has taken a keen interest in clamping down on ICOs selling unregulated securities.
A Little Bit of History
While 2017 has commonly been referred to as the year of ICOs, the first ICO was conducted in 2013, when the first blockchain application, Mastercoin (now Omnilayer) was built on the Bitcoin Blockchain. The first ICO was created then and $500k was raised for Mastercoin. Between July and August 2014, Ethereum also utilized the crowdfunding model called ICO and by the end of 2016, over $300 million had been raised by startups and companies utilizing ICO. However, Initial Coin Offerings experienced a massive boom in 2017 with some of the largest capitals being raised that year. For instance, Tezos raised $236 Million.
ICOs have had a positive influence on crowdfunding in the cryptosphere, however, a lot of issues started to arise and a lot of malicious people decided to turn to ICOs. Towards the end of 2017, crypto investing rate started to drop, transactions were slow and fees became expensive. While in December 2017, the total cap raised was close to $2 billion with over 200 ICOs, the story was different in 2018. In September 2018, over 300 ICOs managed to raise $200 million. Investors were becoming wary; lots of shady white papers were filled with fake promises leaving investors with useless tokens at the end of the day.
ICO Scam Alerts
Some of the biggest ICO scams ever involved Centra Tech, OneCoin, PinCoin & iFan, The Smominru Miner and BitConnect. Some of these scams involved celebrities such as Floyd Mayweather and even DJ Khaled with Centra Tech, of course, the project’s claim of enabling its users to convert their crypto to cash and is backed by Visa and MasterCard were false. The three founders were charged over their scam ICO which went up to thirty-two million dollars for capital. While the fund received from ICO in Q1-Q2 of 2018 is 6.4 % times higher than the one of the previous year, ICOs seems to have lost their appeal. The lack of direct coin utility after fundraising, amateur whitepaper, unsound business model, and lack of security soon drove investors away from Initial Coin Offerings.
Moving Forward From ICOs?
However, we still need to answer the question of how relevant ICOs are today. If we look back to 2018 we will notice that ICOs raised $11,690,981,663 in investments which was 10 times higher than the sum of investments raised in then Q1 and Q2 of 2017. From these figures, we can say there is still a feature for ICOs however in 2019, they aren’t as popular as they used to be. Investors are seeking new perspective from the ICO market which includes lower hard caps, lower valuation and stricter measures on lockup schedule. Basically, they are asking for more security.
More investors are moving forward to Security Tokens (STO) which is considered the next big thing in crowdfunding. A list of companies and developers are already initiating an STO and trying to raise investments by the platform. Basically, STOs are crypto tokens that have passed the Howey Test (a security test) that subjects such tokens to federal securities and regulations. However, while I do not believe that STOs are going to create a miracle for the crypto crowdfunding space, there is a lot of buzz about it in the crypto sphere from experts to regulators down to investors. While the era of ICO is not dead, it may seem to have slowed down a great deal. However, investors seeking investment in the Initial Coin Offerings space will have to look in closely with a magnifying glass.
Do you think that ICOs are still relevant in 2019, or is there still a hope it will bounce back fully. We will like to know what you think, kindly share your opinion with us in the comment section below.