Is it too late to save Initial Coin Offerings?
The dust has settled on 2017 – the year ICOs came of age – and the ICO market is contracting at a frightening pace. Is the ICO about to be read its last rites?
“There are 3 kinds of lies: lies, damned lies and then statistics.” According to former British prime minister, Benjamin Disraeli, statistics were merely a collection of figures created by knaves to set a trap for fools. It should be noted, however, Lord Beaconsfield, as he was also known, lost a fortune on the stock market before his 21st birthday, so maybe statistics could have helped him if he had changed his attitude.
Statistics for the ICO market in recent months make for grim reading – many wish they were damned lies. But the fact remains, ICOs are no longer the ‘belle de jour’ of fundraising. The buzz has died down, the hype has stopped and the dust has settled. The scene that we’re left with is tough to look at.
50% of ICOs in Q2 2018 couldn’t raise over $100,000. Only 7% of all ICOs in this timeframe made it onto exchanges. 55% of all ICOs failed to raise their soft cap. But why such malaise? Why have ICOs suddenly fallen out of fashion?
Well, there are some factors that have clearly affected the figures. The number of ICOs attempting to raise at the ‘idea’ stage was up nearly 11% on the previous quarter. These ICOs can be compared to those drunken “We should open a bar/ write a sitcom/ start a band” type of conversations everyone has in their late teens and early 20s with their clique at the time, which usually go absolutely nowhere.
So you want to raise $50m for a blockchain that will disrupt the financial services industry and irradiate banks? Great. You haven’t got an MVP or a solidity developer on your team? No previous experience? This isn’t going to happen.
The average return from tokens in Q2 2018 was -55.38%, down from +49.32% in Q1. So why would anyone look to invest in a contracting market? Furthermore, as the prices of Bitcoin and Ethereum have tumbled, investors who would usually use their gains from these coins have seen the value of their holdings disappear, so it’s a case of ‘sit tight’ as opposed to speculate whilst the market continues its 2018 bear run.
Further statistics show that over 85% of ICOs that raised money in 2017 have either failed or fallen silent, thus making the potential returns from speculating on the use of ICO tokens in future more risky than some perhaps thought previously.
But let’s think back to those halcyon days of yore, when merely issuing a whitepaper and telling everyone to join you on slack was enough for a project to raise a couple of million. What’s changed?
The market has evolved. No longer in the grip of mass hysteria, no longer propped up by the dizzying profits of early investors in Bitcoin and Ethereum, no longer new and shiny and seen as the road to instant riches.
The great bear market of 2018 has been a sobering reality check for the ICO market. No longer are investors taking a punt on fresh faced computer science grad with dreams of disrupting an established industry. The easy money has gone and if you’re not putting the requisite research into your product, developing an MVP, targeting you market correctly, developing a business plan on top of a road map, showing how your project will become a business and presenting this information to new money outside of the blockchain economy, your project probably won’t hit its soft cap any longer.
Look at it from a personal perspective:
- Project A is based on an already operating business with 500,000 users. They are pivoting their revenue model to accept only tokens for payment through their app. Customers can convert dollars to tokens at point of purchase thus making the demand/sales funnel easily adopted and each token spent will be burned on receipt by the business, thus shrinking supply against an ever present demand for an existing product.
- Project B is a whitepaper that explains over 70 pages how their new dApp will ‘bank the world’s unbanked’ and ‘destroy corruption from centralised forces (government) in the world’s poorest nations’. There is no plan for driving adoption of necessary technology for the ‘unbanked’ or how people surviving on $1.25 a day can afford a transaction fee of approximately $1 every time they use their payment solution for their new cryptocurrency.
Which would you choose to back?
In conclusion to whether or not it is too late to save ICOs, the answer is an astounding ‘no’. Is it too late to raise millions without any thought or planning as to how your ICO is going to become a success? Probably. The market isn’t dead, it’s maturing and beginning to see where value lies instead of granting value to the pipe dreams of inexperienced idealists who walk away from failed projects with a few million in their back pocket.
Block Venture Project now help ICOs with their business plans, whitepaper development, investor decks and tokenomics to help your ICO actually work. We also provide project management consultancy services to push your project on from a concept to a real life, viable business. If you need help developing your project into something investors actually want get in touch.
