The next step of investing evolution — Why ICOs are here to stay

The funding collected via ICOs globally surpassed the amount invested by VCs into blockchain startups many times over in 2017 and depending on the sources adds up to anything between ~4 and +6bn USD (see for example this research paper by E&Y http://www.ey.com/Publication/vwLUAssets/ey-research-initial-coin-offerings-icos/$File/ey-research-initial-coin-offerings-icos.pdf).)

Even though crypto prices came down from their all-time high evaluations in late ’17 and early ’18, the established ICO portal coinschedule.com reports new records for ICO funding in 2018 already, beating 2017 after being just three months in the year (https://www.coinschedule.com/stats.html?year=2018).

Nevertheless, that the ICO space has been an insanely fast-growing market over the last two years is almost not worth mentioning anymore. After talking only about the “infamous BitCoin”, ICOs have almost reached the stage when the local hairdresser from the back of beyond (no offense meant against an honorable profession) discovers them as a small talk topic and is willing to offer some investment advice.

Along with the growing attention, the fear of a bubble is rising, driven by many factors. Reports about high rates of failure within ICOs (e.g. ~50% that did not reach their funding goals in 2017 https://news.bitcoin.com/46-last-years-icos-failed-already/) or high numbers of “scams” or “fraudulent projects” within the ICO space (https://www.investopedia.com/news/80-icos-are-scams-report/) play their part, as well as incomprehensible evaluations for projects that are very far from having a working product, may be mentioned here.

The public perception is an international call to action for regulatory authorities in their effort to protect consumers and investors. Tighter regulation has been implemented in many jurisdictions, including some of the most prominent crypto markets such as China (https://www.coindesk.com/chinas-ico-ban-understandable-reasonable-probably-temporary/) , South Korea or the USA. Many other authorities have issued rules or frameworks to limit the anarchy in the market or announced an upcoming regulation. These developments are widely seen as a driver of the cooldown of crypto prices that happened in the first quarter of 2018.

So, are we currently witnessing the end of a bubble due to tougher regulatory conditions?

I do not believe so and there are plenty of reasons why. One aspect worth mentioning is of course that prices of many crypto currencies have recovered substantially since a temporary low early this year… but this might still be part of the ongoing hype cycle.

The much more important aspect is that the topic of ICO’s starts to get discussed in a more mature context, way beyond the short-term speculation with tokens that may or may not have any intrinsic/ economic value. In the startup scene, it has already been discussed if ICOs will replace traditional venture capitalists (https://news.crunchbase.com/news/vcs-vs-icos-future-startup-fundraising/)… and even though they most likely do not believe in this hypothesis, many VCs started getting active in this field.
Beyond startup financing, more and more small and medium companies are getting interested in the topic. As we have heard from different banks, as well as corporate finance advisors, clients show an increasing interest in ICOs and are asking for the evaluation of alternative financing methods besides debt and equity, even though there may still be a long way to go.

What will be the driver of future ICOs and which hurdles are still to overcome?

The biggest hurdle to overcome is the lack of trust, which will be strongly required to develop from a “fraudulent market with fantasy prices” into a vibrant part of the modern economy. The key here will be an international regulatory framework that decreases the opportunities for fraudulent ICOs and enables more clarity for issuers as well as for investors. Regulators for many countries already started laying out tighter rulesets for ICOs and also those who previously banned ICOs generally are rumored to be working on controlled approaches to legalize them again (https://www.koreatimes.co.kr/www/biz/2018/03/367_245242.html).

Also, the inefficiencies of today’s ICO market need to be overcome. Funding via ICOs is supposed to be a lean and relatively cheap alternative to traditional funding methods. This hypothesis is in jeopardy if ICO projects spend a double-digit part of the sales proceeds already for the ICO marketing (this can sometimes reach ridiculous levels) and the entire infrastructure to run the ICO must be built from scratch. If an ICO projects attracts +10,000 investors running KYC (“Know Your Customer”) checks can be extremely time and capital consuming… if there are no appropriate processes in place. Also, many ICOs we see in the market are far from meeting international regulation, e.g. when it comes to auditable proof of identity and source of funding.

Which role is HELIX Orange playing?

We believe that ICOs and the technology behind them has the potential to significantly change the future of funding projects and companies. Having identified the hurdles mentioned above, we offer a solution to overcome them and by that to contribute to the maturity of this new market.
In short we offer to

ICO projects:
- Scalable KYC processes and AML checks that comply with the majority of all relevant countries
- Access to a pool of proven ICO investors with trusted identities stored on a blockchain
- Access to a strong partner network that covers all needs around running an ICO

… and to investors:
- Access to pre-screened ICOs and a reputable KYC process to participate
- Self-determined management of personal data
- Access to preferential conditions by being part of an exclusive investment club

About the author

This article is written by Felix Scheffka. Felix is, inter alia, responsible for the analytical setup of the token model as well as the underlying business plan of HELIX Orange.

Disclaimer

There might be a conflict of interest, as the author of this article is also a team member of HELIX Orange. Moreover, the author might be invested into the project himself. This article is not meant and shall not be used as an investment advice, but shall only reflect the personal opinion of the author. Everybody who is interested in investing in one of the aforementioned projects or any other projects should undertake his or her own effort in investigating the respective project. Investments in Initial Coin Offerings are very risky and there is a high chance of losing part of or the entire investment.

The contents of this article are merely the opinions of the author, and not investment, legal or tax advice. This publication has the sole purpose of addressing specific topics. The publication makes no claim to completeness.

Do you want to know more about HELIX Orange? Please read the whitepaper at ico.helix-orange.com and join the HELIX Orange Telegram community https://t.me/helixorange for insights.