ICO Evolution

First of all we would like to share some recent changes happened to Token Metrics. In addition to our twitter and medium accounts we added telegram group and welcome all the Russian speaking community members to join us there. We also added new indicator in our spreadsheet — VC funds in fundamental metrics dimension (maximum 2 points). Moreover we changed the way we search for solid upcoming ICOs and added new layer — VC funds participation. Below you can read on how we believe ICO space changed and why we think VC funds are important for lowering the risks when participating in ICOs. At the very end of an article we also share which projects we are currently looking at most closely and why.

ICO landscape changed sharply recently. Number of successful ICOs declining while returns after listing on the exchanges cooling down significantly. In January-February 2018 only several projects opened after ICOs with more than x3 returns (Nucleus Vision, Elastos, Bluzelle, Trinity and the brightest gem of this year — Zilliqa). While many ICOs that attracted lots of attention are trading now lower, much lower than the ICO price (Crypterium is trading at 0.3x of ICO price in USD, PundiX is at 0.69 in USD, Dadi at 0.72, DataWallet at 0.46, Dether at 0.46, Remme at 0.69). Even some major projects that attracted tons of hype during the ICO stage couldn’t brake x3 or even x2 threshold: ArcBlock that had more than 100 000 registered participants currently trades at 2.49x in USD, WePower is at 1.59x, Zeepin is only 1.03x while TheKey is trading at 0.73x.

Poor returns mean that when considering participating in ICO you must be extremely selective and expect x2–3 in the short-term (after exchange listing). Bigger returns are possible in the longer-term however we see two fundamental problems here: so called utility tokens of the major part of all crypto projects are not used at all. Therefore, those tokens do not fulfill their main objective. Price of a token is determined not by the amount of demand showed by customers of a project. Instead, the price of utility tokens is driven by speculation on exchanges. The risks that the team won’t deliver the final product due to technical limitations or that there won’t be any demand for the product are extremely high what makes “hodling” of altcoins very risky. We need strong indicators of legitimacy of a team, their capabilities and their idea. And we believe that it is impossible to evaluate such things as team’s capabilities, future market demand, how realizable the idea is from the technical standpoint by looking at LinkedIN profiles, project web-site and whitepaper. There is much more work needed to ensure that the team is capable to execute and achieve milestones, that there is a demand for what the company is building and that it is possible to deliver the promises. Professional VC funds have much more information than you can find in the internet. They meet the team, check their previous experience from the first sources, check the legal aspects of the entity behind the ICO, ask market professionals on whether there is a need for what the project is building, consult with technical experts on how real the team’s promises are and do much more before they invest money in. And after VC fund invested money it will look closely after the team and the execution. Moreover, VC funds specializing in crypto could share with investees valuable advice and business bonds.

All these doesn’t mean that you should blindly follow VC funds. Our point is that VC funds participation is a strong positive sign for an ICO however you still must do your own research before participating. Before we evaluate the project and before we determine our interest level there are four things we look at:

1) Whether any crypto VC fund is participating or not, if yes, then who this VC fund gave money to before and how those projects are currently trading;

2) Is there a need for decentralization, token and blockchain for the idea proposed by the team;

3) Who are the people behind the idea, what did they do before;

4) Is there token sale. If yes, then what is hard cap (and how it relates to the proposed idea), what percentage of total tokens distributed on ICO stage, what was the pre-sale/private sale bonus.

Based on this information we give a project interest level and then assess on the spreadsheet the most interesting ones when they release token sale structure.

There are some obvious hurdles when trying to assess VC fund participation and previous results. First of all, crypto VC funds usually invest privately and don’t disclose much information about their deals. You never know the whole list of projects they invested in, you never know whether they invested in token or shares of a company behind the ICO. It is extremely hard to research information on agreements crypto funds make with projects. Moreover projects backed by top crypto VC funds usually don’t do crowdsales or even pre-sales. This trend will evolve as SEC look more closely at ICOs and we believe more and more projects will invite only accredited investors to participate in ICOs. We also think that more and more security tokens will be issued as market moves from uncontrolled utility tokens sale to shares tokenization and the Polymath may lead this transformation as now IPO is extremely costly for the issuing company process which involves lots of middlemen. Tokenization of shares could greatly increase efficiency however much greater government control will be imposed on security token generation events and consequent circulation.

Currently we look at following VC funds when search for interesting projects: Polychain (raised money from major US VC funds — Andreessen Horowitz and Sequoia capital), Pantera Capital, Signum Capital, #Hashed, HyperChain Capital, Torque Capital, Blockchain Capital, LinkVC, Victory Square, Draper Associates. Please, give us a clue which major crypto fund we are missing.

The most interesting projects that we see by looking into crypto VC funds activity:

1) Dfinity which is backed by Polychain and Andreessen Horowitz and is a new decentralized cloud computing platform (hasn’t revealed token sale structure yet);

2) NuCypher is also backed by Polychain and Andreessen Horowitz and is already gaining traction in crypto space. Such major projects as Origin protocol already partnering with NuCypher;

3) Orchid Protocol is building extremely needed infrastructure for surveillance free internet and is backed by Polychain, Sequoia and Andresseen Horowitz;

4) Sentinel Protocol which is the first dapp being built upon ICON blockchain and is backed by Signum Capital, #Hashed and Hyperchain capital;

5) Origin protocol and Cypherium both building needed solutions that we believe should gain traction in crypto space and both are backed by Pantera capital