ICO’s are dead — ask anyone!
Disclaimer — this article is NOT debating ICO’s vs STO’s this is an article to debate the longevity of this still an innovative method of raising funds.
The Picture Drawn on a Napkin
The days of raising millions with a Whitepaper are over! In 2016–17, mif you had any idea for a company, you could write a whitepaper, call it decentralized and off you went!
Or, at the height of the hype, you could even forget about writing a whitepaper — when Long Island Iced Tea Corp changed its name to ‘Long Blockchain Corp’ shares soared by as much as 500% in pre-market trading.
The ICO boom from 2016–2017 saw teams presenting a “next generation blockchain” and, suddenly, $20 million had been raised in a matter of hours. Many have not delivered what was promised in their roadmaps, are delayed or worst of all turned out to be exit scams!
Exit Scams and Dead Coins
Sadly, due to the sheer hype around the market in 2016–17, the term ICO is now unfortunately synonymous with scams. Around 1000 cryptocurrencies have been considered deceased. Much of this was due to Bitcoin’s drop in value and was considered by many to be part of a cryptocurrency bubble.
One look at Dead Coins and one sees a graveyard of abandoned projects and broken dreams. Testament of the cost of these oh so risky investments! In this article, Statis calculated that 80% of all ICOs turn out to be scams, though that term has yielded some debate.
However, it is important to remember that a failed ICO is different from a fraudulent ICO. While 90% of ICO startups to fail, this may happen for many legitimate reasons, however this leaves a bitter taste in investors’ mouths. The more traditional venture-backed startups see a 75% failure rate hence the VC ‘spray-and-pray’ strategy. So why has the token model received so much flak?
Use Cases or Lack Thereof?
The sad truth is that many of the tokens have no real purpose other than for trading, with only a few tokens that are a must when using a platform.
That said, the least successful ICOs in 2018 were cryptocurrencies. The message from investors is surely that we have more than enough ways to send funds to one another. Meanwhile, service and utility tokens, not designed for monetary exchange but rather assets backed by new services as well as their fundraising potential have generated some real hype and found significant funding.
ICO’s Growing up?
From 2018, the most bearish of markets, we are now seeing some sensible trends. The ICO was the birth of a new business model as blockchain entered the business space: the token business model. The markets are now seeing a correction in the funding methods of those projects, but the model will remain. The rise of the STO is an indication of how markets adopt what they know; though a new asset class, it falls under the purview of financial regulatory bodies. Ensuring the token business model, there is still a case for an ICO, but projects have to get smart when raising money from the public and make sure they are capable of building what they promise.
Any project, ICO or STO, ready to enter the market should be reviewed against product, purpose, and protocol. The key in many opinions is the importance of a product, or at very least a stable MVP. If you don’t have something that is already built and working, you will struggle to raise funds in the current market. The purpose of these projects is also incredibly important. What customer pain is your product relieving? Why is blockchain needed in your product and is it an innovative and legitimate use of this the technology?
Then of course, we have the protocol — companies revolutionizing their industry on top of existing blockchains is good, but the real revolution will come with highly customized solutions. This calls for more and more companies creating their own blockchain protocol. It also demands higher-level development talent and a full commitment by the company to truly change the game!
Whilst many have been burnt by this unforgiving year, we leave 2018 older, wiser and on the verge of something great. Who knows if 2019 will be the year many hope for, but one thing is for sure, we are in a better place than we were a year ago!
The freeca.sh ICO will take place in 2019 following a successful build and onboarding on 100k players. Keep up with our progress here.
