Are ICO’s getting greedy? The changing trend in token ownership.

Having spent almost 18 months now trawling through ICO whitepapers to find the next hidden gem in the crypto market, the team here at Picolo Research and Astronaut Capital have noticed an interesting trend that has emerged.

In our past life of analyzing small-cap IPO’s, one of the first things we would look at with any prospective investment is the amount of stock/tokens that are issued to the public as a percentage of the total supply.

Keeping in mind how much the ICO market has evolved in the last 12 months, we decided to do some quick research to see how this figure has changed.

On average, ICO’s are now keeping 22% more tokens than the same time last year.

Changes in token ownership over 12 months.

In fact, the data shows that there has been a complete reversal in the amount of tokens that are issued to the crowd in the space of 12 months.

The data

We took a random sample of ICO’s that held a crowd sale between May- July 2017 and the same time for 2018.

Looking at the raw data, it is apparent that token sales in 2018 are slicing off a larger piece of the pie, leaving prospective investors with significantly less of the overall total supply of tokens available for trade.

Is this a bad thing?

Not exactly. There are legitimate reasons for an ICO to hold a larger portion of tokens in their back pocket.

Some of these include:

• incentivising the ecosystem for participation through their own tokens (marketing, partnership, etc)
• availability of tokens for pre-mining and to boost the attractiveness for miners to switch focus to a new protocol
• incentives to onboard developers to build out DAAPS and innovate through their token

However, there are also some ‘not so great’ reasons for ICO teams to increase their slice of the pie:

• they want a bigger reserve incase things turn sour (a warchest/rainy day fund)
• they want to do a large ‘untargeted’ airdrop to try to increase demand and trading volume
• they want to give a large portion to an exchange (Binance) for the listing of their token

How does it affect investors?

One of the most significant aspects for prospective investors to consider with this new trend is the effect it has on the market capitalization of the token.

Example:

In 2017, if XYZ raised $50 million and gave 65% of the total supply of tokens to the crowd, the end market capitalization would be $77 million.

However,

In 2018, if XYZ raised $50 million and gave 40% of the total supply of tokens to the crowd, the end market capitalization would be $125 million.

This is called ‘the fully diluted marketcap’.

This difference of $48 million in valuation by slightly ‘tweaking’ allocation of token ownership is considerable. For long term investors that aren’t just in it for ‘flipping’, keep in mind the impact that this can have on the token, particularly in a listed environment.

What about the burn?

Another trend that we have a strong ‘hunch’ on, but are still collecting data, is the willingness of ICO’s to ‘burn’ unsold tokens.

In 2017, it was commonplace, and sometimes expected, that ICO’s will effectively ‘cancel’ any unsold tokens during a crowd sale, therefore acting as ‘reverse-dilution’ and reducing the marketcap for the benefit of all involved.

In 2018, we are noticing a change of this trend. More and more token offerings are opting to place ‘unsold’ tokens in a ‘foundation’ for future use, therefore, keeping total supply of the currency the same and giving less (%) ownership to the crowd.

Conclusion

This is a simple and quick observation of a trend that we have noticed being on the front-line every day. There are outliers if we were to target a broader sample of data (Tezos raising uncapped etc), that would change the figures dramatically.

Nonetheless, changes in ownership isn’t necessarily detrimental for investors provided that the company can confidently tell you what the extra allocation is for and how it is going to benefit the venture in the long run.

As always, DYOR.

Matthew Dibb is the CEO of Picolo Ventures. Picolo Ventures owns and operates Picolo Research, Crush Crypto and Astronaut Capital.