Can This New Approach Win Blockchain Contributors’​ Trust Back?

If you’re reading this, you’re certainly aware of the Initial Coin Offerings (ICO) craze that happened in 2017. This revolutionary fundraising method was meant to allow blockchain developers to change the world for good but became a get rich fast scheme and unfortunately today many refer to ICOs as a SCAM.

If we want to look into the future and find out whether ICOs are still a good investment opportunity, first we need to analyze the past. We must think about what went wrong, why people were able to make huge returns with minimum or even no research and was there any chance for such market to remain sustainable.

How Everything Started?

At the beginning there were only genuine projects with skillful and dedicated teams of developers and visionaries working day and night to build their exceptional product. Of course, those projects were exposed to very small communities of tech savvy investors and things were going as intended.

Then more projects started popping up and in order to raise capital the developers had to put their babies in front of a bigger audience. The few websites and forums like Bitcointalk where everything was happening were no longer big enough in terms of users and potential investors.

What Went Wrong?

Naturally the next step was getting online marketers involved and it didn’t take too long until major part of the web entrepreneurs joined the ICO scene. Most of these people are like grass hoppers, they jump from one opportunity to another and only care about short term results. Obviously, such participants in the market didn’t bring much value, they harmed it.

With most early ICO investors killing in it in terms of ROI (Return on Investment) due to low entry and high profit, everyone else around them got into FOMO mode (Fear of Missing Out). This is when all the online hustlers started to create fancy websites and whitepapers, market those all over the web and raise millions without developing a product. This was the reason Google and Facebook banned the ICO ads.

While ICOs are a fundraising option for concepts, rather than finished products and as such there is a big chance of failure, “developers” with no clue of tokenomics, marketers creating products for ICOs and scammers did a “great job” increasing that chance to about 95%. No wonder why most people don’t want to hear about ICO’s anymore.

Who Is Responsible?

But we can’t blame only those who got the money as they didn’t force anybody to buy their shitcoins. What about all those investors trying to get rich quick without putting any effort to educate themselves about crypto and blockchain or research the opportunity they came across, aren’t they responsible for their actions?

The reality is that most people are always driven by GREED and FOMO and when it comes to new opportunities where money are involved the Greater Fool Theory always works. All those “Great ICOs” made insane amount of money off their investors rather than use the money for development to generate returns.

Obviously, such market was not sustainable, but what about the future? Are ICOs dead?

I believe they’re not. ICOs are truly revolutionary and will continue to evolve. They will become an amazing vehicle for developers, entrepreneurs and investors who are looking to innovate and make the world a better place. However, some changes are required from both participants in the market.

1. Developers should focus on projects that bring value to the world, have solid economical skeleton, create tokens that have a real use case, be transparent and accountable.

2. Investors should educate themselves, do their due diligence, evaluate the projects, measure the risk, have patience and never make decisions based on emotions.

Normally when you visit an ICO website you see how many tokens they offer, at what price, the current stage and bonus, the concept with a little or no development done, documentation, team members and somewhere between 5 and 100 million dollars they want to raise.

There is nothing wrong with that, but the way most ICO campaigns are managed is certainly not right. They put a random price on the token, during the ICO only reinvest funds in marketing to sell as much as possible, list the token on exchanges right after the campaign ends and then start building the product (if they have one at all).

The only thing that serves as investors protection is the refund when soft cap isn’t reached. Do you know what most teams do if they see things aren’t going as planned? They buy the remaining tokens with their own money to “reach” the soft cap and keep the rest of the funds raised.

Another major problem is tokens going on exchange before being utilized. We have all seen those hyped up ICOs marketed all over the web to successfully complete the fundraising campaign and all their investors waiting for the token to go on exchange, so they can sell and travel to the Moon in Lambos.

Most of the time investors are very disappointed to see the token everyone was talking about during the ICO get listed, pumped and then dumped. Why? Because the only thing that leads to price appreciation is demand and going on exchange before the token is being used and there is demand for it doesn’t serves investors interest.

A Better Perspective?

It is obvious that this model will no longer work as investors no longer trust it. No matter how good the team is, how great is the product and how well they market it, blockchain developers must focus on protecting the contributors. Here are few minor yet significant changes that can be done to make ICOs attractive for investors again:

1. Capital must be raised on stages and it should be clear what the funds will be used for (development, marketing, legal etc.) Once each stage is completed, major part of the raised amount is to be invested in development and results must be shown before the next fundraising stage begin.

2. Projects that starts without MVP basically have zero value of their token, therefore the price should be set at minimum in the beginning. Naturally the more development is done, the more valuable is the token. The big bonuses for early investors are just a marketing trick. Instead the token price should grow after each stage, which makes a lot more sense.

3. To protect investors interest tokens should be listed on exchanges after there is a functional product where the token is utilized. This will certainly increase the holding period to 12 or 18 months but will result in investors satisfaction. When a token starts to circulate in a growing ecosystem there will be a demand for it which will lead to price appreciation.

Apart of the obvious advantages the above enhancements also guarantee the particular ICO campaign is not a SCAM. While in the past many teams collected millions and disappeared, if funds are raised on stages, then used for development and new stage only starts after results are shown — this pretty much works as an escrow account.

Projects That Stand Out!

If projects like W12 and Crypto Police (both currently fundraising) succeed they will certainly help to protect blockchain investors from being scammed, but I believe that if we want this market to mature each team launching ICO campaign should be responsible for their actions.