Tokenization of real assets. Safe haven in the crypto-currency market?
An ever-increasing global interest in crypto-currencies and mining in 2016, followed by the shift of attention to the ICO in 2017, served as a catalyst for the emergence of an endless number of projects that wish to obtain funding based on the “new” crowdfunding model. Today we will tell how two modern technologies (blockchain and crowdfunding) have merged and how it works out.
Major sectors of the economy for the ICO projects
The ICO mechanism itself is universal and makes it possible to raise funds for almost any project (from charity to real economy projects). However, now, the most successful ICOs are obtained from the projects that can use blockchain technology in their business processes. Conditionally, such projects can be divided into three main groups:
IT sector projects. Here, as striking examples, we can mention the following projects:
Storj (the end date of the ICO: May 25, 2017, about $ 29 million have been raised) is a decentralized storage system that allows storing data in an encrypted form, an additional level of security is achieved through decentralized storage of information.
MobileGO (the end date of the ICO: May 24, 2017, about $ 53 million have been raised) is a project developing a crypto-currency for gamers. The main functionality: the simplification of proposition bets between gamers, the ease of holding virtual tournaments and functions of the trading platform.
Real sector projects. Usually associated with the production of material goods and raw materials. The following is worth mentioning:
ZrCoin (the end date of the ICO: June 9, 2017, about $ 7 million have been raised) — production of a unique refractory material — synthetic zirconium dioxide.
PrimalBase (the end date of the ICO: June 28, 2017, about $ 8 million have been raised) — investing in real estate, or, if to be more precise, in a collective office space. PrimalBase offers to sell or lease the project’s office space built for the funds received from the sale of tokens.
Financial sector projects. Largely is a symbiosis of two spheres — finance and IT:
Polybius (the end date of the ICO: July 5, 2017, about $ 30 million have been raised) is a project to create a universal modern bank that will use modern banking technologies to offer customers products based on the principles. One of the features of the project is a digital identification system called DigiPass.
Tokencard (the end date of the ICO: May 2, 2017, about $ 13 million have been raised) is an American project, which deals with the issue of debit cards to pay for goods and services with the ethers (Ethereum crypto-currency) based on the Visa payment system.
Factors affecting changes in the token price after the ICO
Let’s analyse the behaviour of the cost of the abovementioned tokens on crypto-exchanges after the ICO and determine the factors potentially affecting the fate of one or another token. As the main characteristic determining the success of investing in a particular project, we should mention the potential profitability from possession of the token at different times.
Capitalization on crypto-exchanges in the first days of listing
As we can see from the diagram, even projects from the same groups show different indicators of profitability for investors at the time of the primary listing at crypto-exchanges.
Unlike traditional methods of fundraising, the following factors usually influence the price of tokens immediately after placement:
- the number of tokens allocated for the bounty. The more of them are there, the more likely the price will fall in the first days. This is due to the exit from the project of enthusiasts who received these tokens as payment for the work;
- the amount of discount with which the pre-ICO participants receive tokens. The lower is the discount, the lower is the probability that the pre-ICO participants will sell massively their tokens in the first days after they enter the exchange;
- the number of large investors that were part of the project at the ICO stage. Large investors, as a rule, invest money for a long period of time and they are not interested in the output before the implementation of the project and entrance of the product to the market;
- presence of the limits on the sale of their tokens by the founders and the team. The most successful ICOs limited the sale of tokens for 6–12 months.
The ICO of the reviewed projects was completed within the period from May till July, 2017. At the same time, four projects out of six showed the largest capitalization levels by mid-August 2017, after completion of Bitcoin division.
The prices for tokens of the reviewed projects at certain periods brought 2, 3 or more times increase in initial investment for investors (it is quite possible that this explains the popularity of ICO today, since in traditional instruments the profitability of such a scale within such a short period of time is an exceptional rarity). The main reason for this growth:
- the “hype” around the history itself associated with the blockchain and crypto-currencies;
- an explosive growth of basic crypto-currencies in certain periods;
- the implementation of the so-called “pumps”, when the organizers of the ICO themselves manipulate the market of their tokens, since they believe that the fair price levels for their project are higher and they want to set direction for the market development (although more often deceptive purposes are pursued);
- the interest of global crypto-investors in a particular story having good prospects from their point of view.
In this case, it is worth paying attention to the project associated with the real sector of the economy called PrimalBase. It is the only project, the capitalization of which did not exceed the amount of investments received during the ICO (-6%), while the profitability levels of other projects raise by +500%.
Capitalization after prohibition of the ICO in China
Prohibition of the ICO in China by itself had no negative impact on the prices of tokens of those ICOs that were implemented by the teams outside of China, since, in fact, the prohibition does not mean that the number of ICOs will be less, the money that was raised by Chinese companies will be returned to the owners, and this money will most likely again return to crypto-market only in those tokens that already exist. Nevertheless, in fact, we had a fall in all crypto-assets. Probably the main reason is that now the dynamic of crypto-active assets is largely determined by the belief of market participants in the viability of the crypto-currency and the ICO mechanism. And when particular states try to limit, regulate, prohibit these supranational instruments, the belief turns on the regime of turbulence. The diagram below shows the capitalization of projects after the prohibition of the ICO in China:
As we can see from the diagram above, only half of the reviewed projects, which showed a colossal positive trend a few weeks ago, managed to maintain a positive level of profitability. Each of them reacted in its own way in view of its unique nature and direction of its future activity. And even that ones that remained in the positive zone, have lost a lot in its value.
It is worth paying attention that projects from the real sector of the economy showed the lowest level of volatility. PrimalBase showed up again, it lost only 20% of the ICO value during the “Chinese” shocks. ZrCoin showed itself worse, largely due to the fact that the company did not enter the production stage, as well as the fact that immediately after the ICO there was an information attack (in the crypto-community, there were misguided references that investors would never get their money back, and that ZrCoin is a “scam”).
Investing in the ICO projects. Is it possible at least to keep it safe?
Summing up the results of the conducted research it is possible to give following estimation of dependence of profitability of released tokens on the following factors:
1. capitalization of the project in the beginning of listing at crypto-exchanges (regardless of the sector of the economy of the project itself) often depends on the following factors:
- the number of tokens directed for paying bounty and allocated to marketing events and associated with the PR-campaign of the project itself;
- the ratio of large and small investors during the ICO. In case of predominance of small investors, such projects are more volatile;
- the availability of alpha /beta versions of products that are ready to be launched in the near future after the ICO, increases the chances of positive dynamics in the listing and the continued existence of the project;
- the projects from the real sector of the economy and related industries (such as Polybius) may show a negative trend in view of their inertness to enter the market with finished products or services in the first period after the ICO.
2. The IT sector projects and projects in the related sectors, such as those of the financial industry may show maximum profitability in the short-run.
3. absolutely all of the IT sector projects and projects in the related sectors of the economy are subjected to the volatility due to “external shocks” (as in the example discussed above — prohibition of the ICO in China). At the same time, the projects that are most resistant to the stress tests are those from the real sector. In the reviewed examples, the best project from the point of view of stability was the Primalbase project.
The tokenization form of the real estate objects proposed by the Primalbase project shows its viability in relation to saving the invested funds.
Of course, such tools must be improved so as to achieve the quality of deposit products, in view of a great number of diverse aspects, including lack of a legislative framework. However, now we may say that project tokens secured by real assets, such as Primalbase real estate objects, are capable of becoming the most low-volatile crypto-instruments that can significantly increase the diversification of the investor’s portfolio on the one hand, and on the other hand, it will provide the possibility to participate in an emerging market.
The market feels such circumstances, and quickly reacts with the appearance of new projects in this field:
- Those ones conducted during the ICO:
Real (the end date of the ICO: September 30, 17, about $ 10 million were raised as at September 20, 2017) — the project provides with an IT platform offering a solution for crowd investments in real estate.
ATLANT (the end date of the ICO: September 30, 17, about $ 2 million were raised as at September 20, 2017) — the solution on the tokenization of real estate and IT platform providing for the possibility of leasing without intermediaries.
- Projects anticipating the pre-ICO/ICO:
SHARE ESTATE (the start date of the pre-ICO: October 2, 17, the end date: November 4, 2017) is a Russian project offering a solution for tokenization of real estate. By acquiring the specified token, the investor gets access to the IT solution — a platform that offers potential investors to participate independently in the selection of one or another property for investment, monitor its development, monitor and obtain a part of the profits after the sale.
The following resources have been used in the process of analysis: