ICO landscape analysis
ICO here, ICO there, ICOs everywhere! If you’ve been following the crypto buzz for more than a few weeks, it’s hard to believe you’re not already familiar with the concept. But for the sake of clarity, let’s start with a quick recap of what they actually are (or at least were supposed to be…).
ICO-what?
Simply put, an ICO, or Initial Coin Offering, is a type of crowdfunding using cryptocurrencies, where a blockchain project in-the-making will exchange some of it’s newly created tokens for other more common ones (usually ETH and/or BTC). It is meant as an alternative solution for startups, compared to traditional VCs funding rounds, to easily crowdfund projects and allows to:
- Collect easy and fast money
- At a very early stage (most of the times only with a White Paper, not even a MVP is required)
- While building a community and a theoretical user base
- With little or no regulatory oversight
- And with no obligation to deliver whatsoever (since token holders don’t own any equity)
You understood it right, and most certainly witnessed this in the past months, but thanks to ICOs nothing prevents a group of nerdy friends with a passion for decentralization, a well designed PDF and a glimpse of luck to raise millions of dollars (literally) from the comfort of their bedrooms.
In practice, there’s a wide range of ICO types that we’ll not be detailing here but that each have their own specificities. For example, ICOs can be: capped/uncapped, with/without presale, decomposed in multiple rounds, private/public, using the concept of Dutch auctions or Interactive ICO etc.
It’s worth looking at some notable ICOs through time:
Additionally to the above, and amongst the myriad of ICOs that came into existence in the past few years, we can point out another few that stood out:
- EOS: a 1-year-long ICO, that raised $197M
- Telegram: definitely one of the biggest ICOs, raising an estimated $1.7B, all through a private sale!
- And my personal favorite, the Useless Ethereum Token (UET), which despite their name and White Paper (yes, the following quote is their full white paper)…
“You’re going to give some random person on the internet money, and they’re going to take It and go buy stuff with it. Seriously don’t buy these tokens”
… still managed to raise 310ETH (approximately $100k at the time). Kudos for honesty! This says a lot about the frenzy that got around ICOs…
2017, the ICO year
But the year 2017 was the true ICO year, where everything just boomed (bubble, anyone?):
- A total of ~$6B were raised through ICOs during that year, the top 10 biggest ones sharing 25% of the cake
- Compared to 2016, this represents a 40x increase. But to put things in perspective, this is still less than 2% of what was raised through (more traditional) IPOs on the same period
- It’s now estimated that there are about 50 ICOs launching every month
- Ethereum is by far the leading platform to host such ICOs (80% market share)
Some of those also saw some considerable failures:
- Overall, an estimated 10% of ICOs have resulted in phishing, Ponzi scheme or other scams
- A little more than half of all ICOs (52%) have failed, meaning they were not able to raise their soft caps
In all that wild adventure, we (IBBC) ourselves tried to get involved with ICOs. In fact, with more than 50 ICO screened, 30 written ICO reviews of which 15 were published on Medium, and a total of 11 ICO participation, it was definitely our main portfolio growth driver in 2017.
The ROI reference date corresponds to the time of writing, and doesn’t indicate any buy/sell operation whatsoever (some tokens were sold before that, some were sold after that, some are still owned).
Thanks to our thorough ICO review process, we were able to avoid scams and unprofitable investments!
Can we learn anything from that crazy ICO ride?
- In 2017, stupidly investing in every single ICO without even considering the underlying projects was more profitable than simply investing in ETH or BTC for example.
2. Bitcoin price has no impact on participation
3. Investments pay more when the market is low
What to expect next? Is the party over?
Along the way, although all seemed bright, a few skeptics were heard, the main criticisms being that:
- ICOs are only for pump & dump
- it’s a bubble! ICOs are speculative, not a sustainable investment
- returns are trending downwards
Since its early beginning, it’s important to note that the ICO landscape has also quite dramatically changed. A few considerable evolutions are to be noted, since some go against the very basic principles that saw the rise of ICOs:
- Because of the numerous scams, ICO advertising is now banned from Facebook, Google, Twitter etc.
- KYC (Know Your Customer) registration process are now almost mandatory, with increasing limitations reducing one’s ability to participate
- Growing regulations: SEC oversight + China/South Korea ban
- Move to private presale for funds, with lock-up period
Additionally, ICOs are getting greedy, with the teams behind the projects keeping more and more for themselves, potentially increasing the “fully diluted marketcap”:
And perhaps most importantly, it is becoming more and more difficult for the crowd to back and invest crypto projects, since most are (ironically) turning to more “traditional & serious” established VC funds through Private and Pre-sale mechanisms.
My personal thought regarding the future of ICOs is two-folds:
- The end of the democratized approach has come. We have every reason to believe that it will be increasingly harder for the average Joe to participate in ICOs.
- The crazy “to the moon” time is over, and a Darwinisitic process will kick-in: only the fittest projects will succeed, and there will be more risk and less money to be made overall.
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