The State of Ethereum Treasuries
Introduction
The launch of the Ethereum platform with smart contract support has led to the appearance of new methods of financing projects. One of these methods — the Initial Coin Offering (ICO) — became widely known in 2017–18. An ICO is an analogue to the Initial Public Offering (IPO) from the traditional financial market, when a company sells shares (stocks) to raise capital. Offering company shares in this manner has to be approved by financial regulators. Given their requirements and the new opportunities that have appeared thanks to the blockchain, most projects seeking investments sell the opportunity to use their product. This opportunity is usually provided in the form of a token — an asset that has a certain value relative to the product itself. This value could be the opportunity to have a reduced commission for the services of the product or an exchange for the native currency of the product after its official launch. Therefore, ICOs as a method of raising funds based on the draw of possible earnings can be reclassified as crowdfunding.
To raise funds for an ICO, usually Ether — the native coin of the Ethereum platform — is used. However, ICOs are not limited to this asset and often Bitcoin and fiat money, such as the dollar, euro and Swiss franc, are also collected. The collected money is sent to treasuries, where it is locked until a certain date or made immediately available for withdrawal. Not surprisingly, given the relative ease of fundraising and the pseudonymous properties of the blockchain, scammers have used ICOs to raise money for projects that they never start. However, there is some good news on that front in that the openness of the blockchain has allowed us to access the data of some treasuries and establish which projects still have a safety cushion in the form of Ether on their accounts.
Methodology
First, a little about fundraising methods, which can be divided into at least three types:
Fundraising via smart contract
In this case, a contract is written that accepts Ether transfers and subsequently gives the sender the number of tokens agreed upon. The contract in this case can also keep track of such things as:
- end date of the ICO;
- minimum amount of funds that must be collected to exclude the possibility of a refund (soft cap);
- maximum amount of funds to be raised (hard cap);
- restriction on the amount of Ether from one participant;
- token price;
- additional conditions encouraging early participation in the ICO.
At the end of the ICO or immediately after a purchase occurs, the Ether is usually sent to the treasury wallet.
Fundraising at one address
In such situations, ICO conditions need to be managed directly by the project or by third parties who helped with fundraising. The resulting transactions are usually sent to the treasury address after the end of crowdfunding.
Fundraising on individual wallets for each participant
This is the most difficult case from the point of view of analysis, because it is almost impossible to link addresses together. The treasury in this case is the entire set of addresses participating in the ICO.
In addition, ICOs often take place in different stages: presale and crowdsale. The difference is that the presale usually takes place among a limited number of individuals. Each presale participant sends more funds than the crowdsale participant, but in return receives more tokens per Ether unit. This stage often exclusively involves crypto funds, large investors and business angels. Presales are rarely carried out using smart contracts; EOA accounts are more often used. The data collected contains information, including funds from the presale, if they can be found.
Treasuries can withdraw part of their funds or completely change their addresses, which was also taken into account in our analysis. Graphs of interactions between addresses after transferring funds from the original treasury were constructed and the probability of the new address belonging to the treasury was estimated.
Ultimately, information was collected on 117 projects that conducted ICOs from sectors such as decentralized finance, games and future blockchains. Of course, this is far from all projects in the space, but the main emphasis was placed on the most sensational projects, to which well-known treasuries were added. They were also supplemented by projects that could be identified by various patterns in transactions or, for example, by analyzing the addresses often involved in ICOs.
As mentioned above, some of the projects raised funds without using Ether, so the final amounts may not coincide with the numbers usually given in dollars from companies analyzing ICOs. Quite often, the companies themselves, as well as projects providing information and statistics on ICOs, round the number of funds received, which is why the numbers tend to be distorted upwards. In this study, all the numbers were taken directly from the blockchain, so the information will reflect the real state of affairs as much as possible.
Analysis
The data covers the period from 2014 to 2018, however, only 2 projects are from the first two years. The first project is Ethereum itself, which raised money in 2014. The Ethereum Foundation, although they did not collect Ether for their ICO in the typical sense, still stores about 587k of premined Ether in their treasury. The second project is Augur, which conducted one of the first ICOs in 2015. Augur is also among the top 10 most profitable ICOs on Ethereum.
Chart 1 shows the top 10 projects that conducted ICOs from 2014 to 2018 ranked according to the amount of funds raised.
In this group, the prevalence of ICOs carried out up until 2016 is noticeable. A large amount of the collected Ether is associated with its low price in its initial years of existence. Ethereum, The DAO and EOS total 74% of the total number of Ether collected in ICOs for the period under review. Other projects are somewhat lost in the background of the first three, but, nevertheless, are leaders among other ICOs. DigixDAO stands out from the rest, because the funds raised were not to have been spent by the founders of the project, but rather by members of DigixDAO. Currently, the project is in a phase of dissolution as decided by the DAO governance, and therefore funding for projects within the DigixDAO ecosystem has been discontinued. The funds remaining from financing were transferred to a refund contract in order to return the Ether to the holders of the DGD token.
To understand how the trends and volumes of ICOs have changed over time, we will consider each year separately, starting in 2016 (Chart 2).
Obviously, in 2016, Ether was not popular quite yet, and the number of projects that collected investments in it was small. The most successful of the projects founded was The DAO, which collected nearly 12,000,000 ETH. The DAO accounted for 80% of the total Ether collected in 2016. However, in the same year, during an attack on The DAO smart contract, a large amount of money was stolen. As a result, the project was closed and Ethereum forked. 115,000 ETH remained on the WithdrawDAO smart contract, which is listed as the current balance. An interesting fact is that 75% of the projects that conducted ICOs in 2016 each collected less than 640,000 ETH individually.
The largest number of projects found date from 2017, which is not surprising since at the time, the market was growing rapidly. Starting in the spring of that year, Ethereum began to gain popularity, which led to an increase in the total number of ICOs conducted. Charts 3.1 and 3.2 illustrate that, on average, the amount of currency collected on an ICO was distributed a little more evenly with a high mark of almost 400,000 ETH.
The Bancor Protocol collected the largest amount of Ether, although it covered only 6% of all proceeds for 2017. Also, 58 of 68 projects (75% of the total) did not exceed the 100,000 ETH mark, which is 6 times less than in 2016. The drop in funds is due to an increase in the price of Ether by more than 10 times over the course of the year.
Regarding the treasuries to which the Ether was flowing in 2017, one can not help but mention how popular Parity wallets were as a means for storing funds. However, in 2017, early undetected vulnerabilities in these wallets were exploited twice. The first vulnerability in July 2017 led to the theft of 82,189 ETH from Aeternity, 44,055 ETH from Arcade City and 26,793 ETH from Edgeless. The second vulnerability led to the freezing of Ether at 587 addresses, including Polkadot, Iconomi and Musiconomi. Because of this, Polkadot still hasn’t touched any of its treasury, since it was frozen before use.
In 2018, attempts to regulate ICOs at the state level began, which is reflected by slow changes to the data. Chart 4 shows information for 2018, where EOS is the clear leader. It is worth noting that the large amount collected by EOS — including what was gathered by its ICO during the year — was started at the end of June 2017. For a more detailed discussion of the remaining companies, we turn to chart 5.
Starting at the beginning of 2018, the price of Ether began to gradually fall, however, the largest amount of Ether was collected by projects like Bloom and Fusion, which were carried out in the first 2 months of the year. Also, there are projects that ended up hardly using the collected investments, which, however, was not a result of bugs or frozen funds.
In addition to the dynamics of fundraising for ICOs, it would be interesting to look at how much Ether remains in the treasuries today. For this, frozen treasuries, as well as the balances of The DAO, DigixDAO and Ethereum, will be excluded from consideration. Chart 6 shows the positive balances of projects, most of which use the funds they collected from time to time.
However, there are companies that for more than a year have not used the Ether from their ICOs. For example, the HOQU project is still holding intact about 20% of funds it gathered in February 2019. Also, projects like Centra, Polybius, Sparkster, Savedroid and Real Estate, which conducted their ICOs in 2017 and 2018, still have not used 5% of the funds raised.
It is worth mentioning again that this is the lower limit of the amount of available funds, because projects definitely have access to at least these addresses. Projects can also store some of their Ether on other wallets or exchanges. In any case, projects with a non-zero current balance of treasuries have a safety cushion that we can check.
The underlying data is fundamental to any research, so we provide data to the community, including the current addresses of treasuries: GRAB IT HERE
In addition, the projects in this research may request changes to the data to improve accuracy, but only when providing on-chain evidence. Requests for adding missing projects to the review are also welcome.
To sum up
The ICO became a fairly popular way to attract investment in 2017 and 2018. In total, according to the data collected, this mechanism was able to collect more than 41 million Ether, a sum which is still powering the development of many projects. Of course, there were several cases when bugs in the system led to the theft and freezing of funds, which subsequently have been impossible to use. However, thanks to ICOs, many significant projects like Augur, Status, 0x and others were able to establish a basis for their continued existence.
It’s important to know the state of treasury balances in order to understand the possibilities of future development that projects have, as well as the future pressure on the price of Ether. Regarding the former, it must be understood that these are only reserves, and operating costs are most likely being covered by Ether that projects have already sold. The latter is more interesting, as most of the projects sold their Ether in 2018, which led to a fall in prices from $1,000 to $100 over the course of the year. At the peak of Ether’s price growth the Ethereum Foundation itself sold 70k Ether. Subsequently, if, for example, Golem decides to sell all of its holdings, then it stands to reason that it will send the price of Ether plummeting downward. It would be nice to create a resource that can track treasury data, as Diar did before.
One possible continuation of this research could be an analysis of the balances of projects that are holding their tokens. In this case, it would also be necessary to take into account various time-locks in order to correctly predict the supply and possible price changes. This can open a path to higher transparency, at least for large projects that affect the entire ecosystem, like Maker.
