ICO 101 — The Initial Coin Offering Hype Cycle
How ICOs boomed in 2017 — Faced a reality check in 2018, & — Reinvigorated towards a new & improved framework in 2019
Quick 2021 update by the author: please find the latest article on IDOs (Initial Dex Offerings) and how ICOs evolved into them right here:
0. Introduction
Dear Reader,
This article is part of a full-fledged series on Initial Coin Offerings (ICOs), Initial Exchange Offerings (IEOs), Decentralized Autonomous ICOs (DAICOS), and Security Token Offerings (STOs).
You can find the overarching PART I here:
And PART II here:
Happy reading!
1. The Initial Coin Offering Boom. ICOs anno 2017.
After those first ICOs in 2013 and 2014, including the Ethereum token sale (and as explained in detail in my previous post), it took some time before the real momentum kicked in. But by 2017, Initial Coin Offerings were on fire. Suddenly it went so hard that the whole crypto market turned completely parabolic. At some point, basically anyone with a big love for a quick buck could present a digital so-called #whitepaper rambling about — in many cases — a completely fictitious business, and crypto investors — rather: speculators — would still be throwing amounts of money to them beyond imagination.
Just take a look at the bubble chart below. It works interactively and you can see how the bubbles are bursting into the screen as of say early 2017:
2. The money raised. Top projects in 2017 & 2018.
So how much money have ICOs actually raised so far? According to Bloomberg, it depends on who you ask. They put it like this:
“Blockchain may be billed as an immutable public ledger, but in the controversial world of crypto it spawned, establishing truth can be tricky when disclosure standards are still being improvised daily. In the case of ICOs, it remains hard to ascertain the amount of funds an issuer claims it’s raised when no one has to submit any regulated filings or even reveal their identities.” (Justina Lee, Bloomberg)
An example of how far the actual reportedly raised funds can diverge is the crypto exchange project Ruby-X. CoinSchedule says it raised US$1.2 billion; ICORating, US$200 million; Autonomous Research says it’s chosen to exclude it, since its online footprint was unreliable. Ruby-X, which hasn’t disclosed where it’s based, didn’t reply to e-mails seeking comment.
Obviously, given the volatile nature of cryptocurrencies, it also really depends on the date you fix to be that official ICO closing date. Or was it ICO launch date? Or pre-launch? Or? Moreover, as the “exchange rate” between the specific cryptocurrencies can be pegged simultaneously to the typical Bitcoins or Ethers to invest in the project, something similar is required in case fiat money can be invested as well. And then indeed the question arises on when that exchange rate actually gets fixed. And preferably also to fiat, as that is what they are trying to report here above. It would be great to get some sort of a standardised way of actually measuring it. But then again, the ICO-ers probably care a little less about such an “accounting” “detail”.
Anyhow, for those still looking for an interesting resource to look up actual ICO related aggregated data, CoinSchedule might be an interesting site. Here below you can find a couple of screenshots of the overall amount raised as well as the top ten ICOs in size (and other information) in a given time period. In 2017, the bulkiest of the pack included US$100M — US$250M Hdac, Filecoin, Tezos, Sirin Labs, Bancor, Polkadot, Qash, and Status. All names that should sound familiar to the average crypto avid these days.
In 2018, the top projects each raised a multiple of the 2017 US$250M mark. #EOS alone raised over US$4B and Telegram raised just under US$2M. That brings us back to the whole “what-is-the-real-amount-raised-now-actually?” issue. For instance, Bloomberg reports for the Petro ICO of US$735M below:
“In March, President Nicolas Maduro said the Petro project had garnered US$5 billion in offers; in April, he said the sale raised US$3.3 billion; the token’s website says US$735 million, the figure cited by CoinSchedule and ICORating.” (Justina Lee, Bloomberg)
Bloomberg also reports an additional layer of complexity:
“To complicate things further, the nature of ICOs is also evolving. A growing portion of tokens are offered privately to selected investors, rather than crowdfunded via the internet as the innovation was initially known for.” (Justina Lee, Bloomberg)
3. ICOs gone rogue. Scams. Shitcoins. JesusCoin.
So far we haven’t gone into much detail about the actual shady character of ICOs. But an article about ICOs without mentioning the word scam or shitcoin for that matter, would be unheard of! So let’s dive right in. An interesting website to get you started on this wonderful world is https://deadcoins.com/.
Deadcoins.com provides a nice overview of no less than 680 “deceased” coins, 12 “hacks” i.e. ICOs that work with malware clients (fun huh?!), 182 scams, and 60 parody coins (such as JesusCoin, Bitcorn, ButtCoin, SexCoin, Asstoken, CryptoMeth, ObamaCoin, TrollCoin, ScamCoin, etc.)
An incredibly thorough research document of Bloomberg, published in July 2018, reports that around 78% of ICOs were identified scams prior to trading. Needless to say that I am not inventing the associated scammy character out of the blue!
The report further highlights that 70% of ICO funding (by US$ volume) to that date went to higher quality projects, although over 80% of projects (by # share) were identified as scams (uuff! At least most of the funding went to quality!). For the die-hards, you can find the exact meaning of the terminology used in the graphic below on page 23 of the report.
4. The advent of better alternatives: DAICOs, IEOs, STOs and ETOs.
I’ve jotted down an entire article on the next contenders to take over the fundraising capacity of ICOs. The article is pretty huge and can be found here. Each of these alternatives comes with its own advantages and shortcomings. Also, depending on what you kind of fundraising or token offering you aim to do, typically one of these methods is or will be more favoured and/or recommended.
5. The Slope Of Enlightenment
After an intense crypto bear market and massive trough following the ICO craze, some first stabilization signals in the market have materialized over the course of 2019, together with the advent of new fundraising alternatives. One thing seems to become more certain every day: the trend of tokenization is real. Better and more sense-making funding methods and blockchain platforms will arise and increasingly more asset categories will have a blockchain based token version. Time to enter a plateau of productivity?
Note: Quick 2021 update by the author: please find the latest article on IDOs (Initial Dex Offerings) and how ICOs evolved into them right here:
Outro:
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About Ruben and NGRAVE:
Ruben Merre is a repeat tech entrepreneur, polyglot, life-long learner and founder and CEO of NGRAVE, the digital asset security company behind “ZERO”, the most secure cryptocurrency wallet in the world. Since 2018, Ruben and his team have partnered up with the top tier in nanotechnology, cryptography and hardware security, as well as thought leaders such as Jean-Jacques Quisquater, famous cryptography professor and second reference of the bitcoin paper. The result: a true end-to-end solution for managing digital assets, at maximum security (EAL7, highest security certification in the world), and an intuitive user interaction.
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