ICO downfall: why do we need a new crowdfunding model?

QUUBE Exchange
Sep 11 · 6 min read

We have witnessed different models of crowdfunding on the blockchain market. The time has to make the ultimate choice for a better future.

What does the ICO stand for? Besides giving the direct explanation, we can speak from the point of history — it’s a highly lucrative crowdfunding model and a top-notch manipulation global instrument at the same time which has shifted to the dark side a long time before nearly coming to oblivion. The headlines screaming about huge numbers of money gained by almost every blockchain-based startup has nowhere to be seen during the last year. The hollow promises of the golden age are over, and the world now sees that the more than 80% of market projects being regarded as a scam of all sorts, Ponzi schemes & pyramids aimed only to lure money out of investors pockets on a worldwide scale. We also witness the garage-based start-ups failure to create a new Apple or Microsoft brand. How did an innovative and promising venture come to this and what perspectives has the ravaged market nowadays?

The heaven for digital pirates

Short history check first. The specialists in DLT field are rare to be found and during the dawn of ICO campaigns, and many people who saw the opportunity to get huge money fast engaged in the newly born crowdfunding direction for blockchain-based projects, claiming themselves to be “professionals”. Nowadays, most of those who had been involved into ICOs PR, marketing campaigns and claimed themselves as “advisors”, often delete any signs from LinkedIn saying of their involvement into what had previously been regarded as the “disruption” and “revolution” of all sorts- in any industry the blockchain could be attached to no matter of how this tech really could enhance it.

The peak of cryptocurrencies market capitalization was attained on January 7, 2018, reaching $831 billion. The reason lies in the growth of the most popular cryptocurrency rate. Bitcoin price had increased by more than 1000% for 12 months (during December the price had risen by 22% setting a new record on $19 700). However, in January hacker attacks, the interest of US CFTS (Commodity Futures Trading Commission) towards Bitfinex exchange, the pressure of regulatory authorities increasing and other news caused serious price crash of most cryptocurrencies. Today’s market capitalization of all cryptocurrencies is $270 billion (August 2019) that is 4 times less than peak indexes.

Since 2016, the new “gold fever” had taken over the tech geeks’ minds and then escalated quickly, rising along with the cryptocurrencies rates. The digital assets had grown in price drastically since their first implementation in 2009, and it became obvious afterward that large money could be made here. And made they had been alright. The top-grossing ICOs (better not to reveal the names anymore) gathered from 20 to 100 million during not even days or weeks but minutes! We can remember a lot of stories from this point on — for example, the Brave browser ICO (being not a scam by the way) from Mozilla creator managed to gather staggering $36 million within just 30 seconds).

Nothing is eternal

A historical fact — the volume of funds attracted worldwide through the ICO for the first quarter of 2018 was $ 3.3 billion. For comparison, in 2017, with the help of ICOs, $ 6.1 billion was raised. The amount raised by ICOs peaked in February 2018, amounting to 2.6 billion U.S. dollars. Stakes went really high.

After a high and promising start, the story went sour quite fast. A lot of people have done millions in this industry by providing marketing and PR for the projects, but the investors’ expectations have been overestimated. Already a huge army of blockchain projects had seen more and more new “soldiers” every day, and of course, a lot of new coins on Coinmarketcap appeared.

When the hammer of the U.S. securities and exchange commission (SEC) began to strike, there had been thousands of them already — of course, most had lost their value in weeks since their ICOs ended. Some of the crowdfunding campaigns had seen an opportunity to fight scam and started to create so-called safe marketplaces to launch other ICOs, but most of them ended the same.

Downfall comes early

While more than 4,000 ICO projects combined managed to raise a staggering total amount of around $12 billion during the whole time of this model use — a majority of these startups failed within four months after token sales ended. The research, conducted by a small team at Boston College in Massachusetts last year, found that a mere 44.2 percent of token projects are active into the fifth month or beyond, using their social footprint via Twitter as a live indicator.

However, even the introduction of such models as DAICO, ICCO, and even Security Token Offering models in late 2018 didn’t make much difference. Startups continued to gather money successfully even until the latest time — but on an entirely different scale. For example, the peak gains seen in 2018 had been drastically down.

Later, in the first quarter of 2019, ICO projects totally gained $118 million — 58 times less than last year! Moreover, The Wall Street Journal reports, citing data from the analytical resource TokenData, that of the 2500 projects, the development of which had been tracked from 2017, only 45% were able to attract funding. However, only 15% of successful token-ICO are traded at the price of production or above.

The future prospects

So, has the crowdfunding ship sunk already? Not yet. During the end of 2018 and in early 2019, STO and IEO had appeared on the horizon of the industry route serving as life-saving beacons. These models became a new destination for those suffering from ICO burden — most companies had chosen to use it for funding their ventures. The key advantages here is the presence of real trust. Exchanges use IEO mostly to maintain a good reputation by scrutinizing token issuers.

Thus, the IEO may exclude fraudulent projects because of the involvement of funds through the stock exchange platforms. The era of crypto mania and astronomic gains for the projects as well as hyper-fundraising seems to be over as IEO offers quite a different approach to crowdfunding for the projects. Meanwhile, STO is also a promising model, which has been implemented even earlier in 2018. The successful examples which state about model popularity are already there.

QUUBE Exchange project will utilize it’s equity crowdfunding launchpad service to provide the best experience in this field. The platform launchpad is designed for STOs, bringing in the world’s highest level of trust in the equity crowdfunding market. Every IEO can expect fair institutional engagement from 2000 linked investment funds within QUUBE IEO Alliance. Accepting only regulated tokens provides an opportunity for accredited and institutional investors to participate in an IEO. Moreover, QUUBE is working with the largest banks to set up a fiat/crypto gateway and a fiat payment clearing option.

King is dead. Welcome the new king!

We live in a time when projects may not provide sky-high incomes for their investors but to give a path for real projects and that means much more for the suffering industry.

In addition, issuing a security token is a complex process that carries financial and legal risks. And this is a perfect example of the double-edged sword essence of this market — by cutting out fraudsters from the equation, freedom is also being taken out of the equation, raising the bar for the investors. Implementing and using specific platforms designed to deal with this issue seems the only logical step out of this.

Stay tuned to learn more about STO within the next issues!

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