ICO: Greed — A discussion on where it has gone wrong

Dr Jiulin Teng
Aug 11 · 4 min read

In this short series, I give a postmortem for the ICO / cryptocurrency market. It is not a postmortem for IdeaFeX for a simple reason, and it follows in spirit the points I have made in the Make Blockchain Work series: these analyses highlight the fact that the future of crypto assets must be backed by real-world assets.


However much deviated from its economics raison-d’être in whichever direction, initial coin offering (ICO) as a funding format had an innovative, if not fool-proof, economic case: It could provide quicker returns for the investor on less stringent conditions and at, ceteris paribus, lower risk. In return, the project could access a larger audience potentially convertible to paying users before a product is available.

I have covered its innovativeness in detail in an earlier article. In this short review, I like to discuss where it has gone wrong.


On the surface, there are numerous clues:

1. Done right, an ICO token should offer value in use (utility) of the service or product that the project will provide. These use cases should be clearly laid out, preferably linking the total utility value of the tokens to the development of the user community / user cases plausibly. This is what I had put in our (cancelled) Token White Paper. However, most ICOs today provide little to no clue what value their tokens provide. For example, a prominent project essentially says that they will figure out what use its token will have in due time.

2. With clear value in use, potential buyers should be able to strategize based on his/her own interest in the values provided by the tokens and the prospect of receiving these values. In reality, the public has grown to treat ICO as a prelude to a quasi “liquidity event” — the listing of said token on a “cryptocurrency” exchange. As a result, the only thing that matters is that the exit price is higher than the entry price, and F the next guy.

3. I wrote in the opening paragraph “quicker returns for the investor on less stringent conditions”, but I preceded this with “could” — it most certainly has not. A great deal of the responsibility lies on the absence of clearly-defined value. Equally important but frequently overlooked, however, is that “less stringent conditions” may well be harder to meet given the circumstances: In theory, as soon as the service / product becomes available, the “investor” or rather buyer could already use it. Insofar as s/he values the service / product, s/he is getting value. In reality, few services / products have become available for various reasons.

4. Buying a product is supposedly less risky than purchasing securities issued by a firm, because even an unprofitable firm could deliver its services / products and pay its debts, like many of the world’s unprofitable firms have. However, the conditions must be equal for this comparison to be valid: as it turns out, many ICO projects are pure frauds.

5. Even suppose the projects deliver, it seems obvious at this point that the token buyers have little interest in their values. The only factor that drives them is the appreciation of the tokens in monetary terms, ironically resulted from their use by others.


From these clues, I would highlight two fundamental issues: exchange and governance.

The first is simple. It is the source of most sins. The exchange of poorly-defined or intentionally-undefined value is an open invitation for speculation. The lack, and sometimes absence, of regulatory enforcement also opens the door for criminals to launder money and to manipulate the prices of these tokens. At this point, hype is the only thing that matters (usually not because the buyers fall victim to hypes but because they expect others to).

The second is straightforward. Criminals can operate fraudulent projects and manipulate the exchange in a sequence-free environment, and buyers prefer less governance so that the projects could manipulate the exchange.

In sum, ICO is sick because it has degenerated from an innovative funding format (that could be a win-win solution) to something that resembles a casino run by mafia. It is greed that is to blame. In wanting to make a quick buck, the market has killed the golden goose.

As a last note, attempts to move to the “IEO” format further exalts greed, removing project funding almost entirely from the equation (in most IEOs, the project would pay dearly for the service first, and all proceeds from the IEO would go to market-making; the project could only “make money” by selling on the secondary market — which almost inevitably results in crashes due to heavily distorted supply-demand ratio).


IdeaFeX is the marketplace for tokenized real-world goods and assets. We are launching in August 2019 a first public trial. For more details about us, we encourage you to follow us on Medium and read our White Paper.

This series is an extension to the original ICO series that I have written months ago.

Asset Tokenization

On the tokenization of real-world assets

Dr Jiulin Teng

Written by

Founder of IdeaFeX, marketplace for tokenized real-world assets

Asset Tokenization

On the tokenization of real-world assets

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