Are ICOs Dead? We Say a Resounding “NO!”
There was a time when writing Bitcoin obituaries was all the rage among mainstream media. Now, it seems that Initial Coin Offerings (ICOs) have become the new playground for cryptocurrency critics as they pronounce them dead time and time again. These ‘ICOs are dead’ columns are typically supported by a ton of misinformed facts. Notable points that keep getting repeated in such ‘pronouncements’ include:
‘ICO funding volumes are down’
‘ICO projects continuously flout regulations’
‘ICOs are just a bubble’
While it is undeniable that the hype in the ICO market does not match up to the crazy euphoria you saw in 2017, that by no means is a representation of the state of the market. A lot of stock markets have regularly gone through their own hype cycles, but the loss of hype does not mean that stocks are not valuable to investors. Similarly, even if the ICO market is not booming at the moment, it does not mean that the market has died forever.
So, what changed?
ICOs continue to remain a fantastic instrument for new companies to raise capital globally without going through complex procedures or giving up equity. However, with the growing interest in cryptocurrencies, a lot has changed for the market over the past year, which has resulted in a general negative sentiment around it:
The Bear Market — During the peak of the bull market last year, lots of new money from investors poured into the market. But with the bear market shaving off nearly 80% of the crypto market cap, retail investors have taken a big hit. So, a lot of these investors are waiting patiently on the sidelines for their investments to rise before putting in their hard-earned dollars on newer assets.
Investor Expectations — Last year, investors were essentially buying into the vision of the ICOs promoted in their white papers. A lot of these projects did not even have an MVP to back up all the marketing and hype. Lots of the ICOs were out and out scams as well. The investors have become wiser after getting their hands burnt, and are now asking tougher questions and doing more research before investing in ICOs. They also expect older projects to start delivering on their promises.
Regulatory Obstacles — Let’s face it, no legitimate ICO project really wants to be on the wrong side of the law. It is the lack of clear regulatory guidelines combined with the fact that businesses have to grapple with multiple jurisdictions that make ICOs a tough maze to conquer. Most regulators across the globe have tried to apply the existing financial laws to regulate this nascent industry. However, this is not the best approach clearly evident from the ongoing confusion around SEC and securities in the US. Many ICOs now prohibit investments from certain countries, severely impacting the amount of money that could be raised from the market.
ICO Funds Raised in 2018 > ICO Funds Raised in 2017
Despite the negative sentiment around ICOs, you would be surprised to know that ICOs in 2018 have raised more money than the last year. According to market data by ICOData, the 1,166 ICOs floated this year have cumulatively raised more than $7 billion in 2018, with more month to add to go. The corresponding number for the 875 ICOs launched last year was $6 billion. According to some other unofficial estimates, ICOs have already raised more than $11 billion in 2018, nearly double the amount raised in 2017.
Evolving Trends
The year 2018 would be remembered for big-bang ICOs like Telegram, Kodak and even the highly controversial Petro. The ICOs, despite all the ambiguity, are still an easier pathway to funds compared to venture capital. The bear market has eliminated many bad players from the market, and more quality projects are now coming through. As the ICO market matures, newer projects have found innovative ways to raise capital in the current market as well.
Some of the new trends that are likely to become even bigger in the coming years include:
Emphasis on Private ICOs — Companies are increasingly going the private route first, before opening their ICOs to the public. The Telegram ICO had even cancelled their public sale after generating enough capital in the first phase. Private ICOs allow projects to raise a good amount of money in a short time, which can be used to market their ICO and develop their project. Private ICOs become increasingly important at a time when retail participation is low.
Security Token Offerings (STOs) — This is one of the big trends that we see playing out in 2019. Security tokens are tokens backed by a real asset such as stocks, real estate or even crude oil as in the case of Petro. While the STO market will be a completely different market, we do expect to see a lot of action in this space as there are immense benefits of putting these assets on the blockchain.
Innovative Token Structure Mechanisms — Newer projects will structure their tokens differently to comply with regulations. This article points out four different structures that could be potentially used by ICOs. The Simple Agreement for Future Tokens (SAFT) is one of the more popular approaches. The Real Agreement for Tokens and Equity (RATE), Simple Agreement for Future Equity (SAFE) and even a straight equity offering based on a token are some of the other innovative ways projects might structure their ICOs.
Crypto-Focused Regulatory Approach — Regulators themselves are catching up when it comes to cryptocurrencies. For instance, the Thai Securities and Exchange Commission (SEC) plans to launch a dedicated ICO Portal to approve ICO offerings. More such approaches by crypto-friendly countries will make it easier for businesses to launch new token offerings.
Professional ICO Management Platforms — A lot of cryptocurrency projects preferred a DIY approach to their token sale process last year. However, running an ICO smoothly is a complex process. If the end user experience is not smooth, potential investors could even turn their back on projects. We see a lot of projects working with professional ICO management platforms to manage all aspects of their token sale process.
Our Take
Last year, there was a lot of noise in the ICO market. With the bear market, the focus is back on ‘buidl’ — to sit down and focus on the nuts and bolts of a project first. In our discussions with customers, we are seeing a lot of exciting ideas trying to solve extremely challenging problems with the help of blockchain technology. And it is ample testimony that ICOs are far from being dead — they are alive and kicking!
About ICOMain.io:
ICOMain.io is a full-service solutions provider for all the things needed to complete a successful ICO. Our comprehensive solutions are designed for companies looking to tap into the immense potential of blockchain and launch their ICO in the most efficient manner possible. Our team comprises of seasoned experts who have a wealth of experience in advising ICOs and is complemented by our cutting-edge technology infrastructure. We are dedicated to understanding their clients’ needs who may come from a diverse range of industries. We are also the first sponsor firm for the Gibraltar Blockchain Exchange (GBX) that aims to be a world-leading, institutional-grade token sale platform and cryptocurrency exchange.
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