A Data Dive Into the Token Economy
My previous pieces dove straight into what the f*** blockchain is, followed up by the details behind the China ban. In this article, I wanted to share some data that we have been digging up to show you just how strong this market really is.
Please note: Each graph in this article is property of iComplyICO (except the first one. Please contact me for redistribution credit.
The first graph below depicts what is taking the world by storm (source: www.theatlas.com): Initial Coin Offerings (ICO’s) have surpassed Venture Capital and funding in recent months.
This has been primarily a result of ICO’s — as a financial vehicle — being able to raise non-dilutive capital for projects where they might not have been to raise the funds before.
When you combine this with access to global capital market flows, it is a category killer.
This is a trend that shows no sign of stopping. The last few months has seen an immense amount of capital raised (>$520M in September 2017 alone) as well as the number of issuances.
However, the SEC came knocking on its door on July 25th 2017, and declared that ICO’s can be considered securities — which means that depending on the economic viability, they would have to comply with the current regulatory framework i.e The Securities Act of 1933.
The Canadian Securities Administrators (CSA) issued a press release a few days later, essentially claiming the same thing. This guidance was based on the Howey test, which stems from US case law around investment contracts. This was adopted into Canadian case law in the Pacific Coast Coin Exchange v. Ontario (Securities Commission).
Notice the steep drop off that followed these releases: what resulted in next was multiple ICO’s attempting to skirt laws, classify themselves as strictly utility tokens, and in many cases bypassing US and Canadian investors. This was facilitated by multiple jurisdictions that enabled this behaviour, which also caused many issuers to bypass the US and Canada altogether — due to the regulatory concerns.
It does not matter where you are registered or issue from, once you market to a certain investor, as an issuing entity you have to comply with existing security laws.
But human beings are resilient, aren’t we?
What happened next was the advent of the SAFT (Simple Agreement for Future Tokens) which is similar to the SAFE (Simple Agreement for Future Equity). This document enables US Accredited Investors to participate in token sales and pre-sales, first pioneered by the Filecoin ICO. An open source SAFT document through the Coinlist and Angelist partnership. This was then enhanced through a whitepaper written by Marco Santori, with some great guidance.
One could argue that just by invoking the SAFT, you invoke an expectation of future profit… But we digress.
The chart below shows the bounce-back in issuance post the SEC and CSA announcements. $257M of that September figure is a result of the Filcoin ICO (which used the SAFT, as noted above).
Enough of that. Let’s switch gears a little bit, and talk about trading.
The chart below is intimidating at first, but let me break it down for you before we explain what the end result is. These are the top 15 ERC20 tokens, based on market cap (July data, pre Filecoin). This took some web-scraping, but here we would like to show the market cap, # of holders and the average amount of daily transactions.
EOS is an obvious outlier. It is quite interesting to note how much tokens actually get traded. When you break it out, it is still quite an inefficient market— one thing that is disregarded is just how little liquidity there is for obscure tokens. A result of mining incentives as well as business models. This is just a warning to the new wave of crypto-day traders who might not appreciate the full degree of market dynamics — and the impact of liquidity.
Another important point to note is just how many owners there are per address, and how many transactions actually take place compared to public markets. To take this a step further — check out any of these individual tokens and take a look at how concentrated the top 100 addresses are in the context of available capital.
Don’t believe me on the liquidity? Lets take a look at the most recent transaction data from the three biggest exchanges (24h volume date, October 23rd 2017 — source: www.coinmarketcap.com).
These might be slightly unclear, but they serve to show what trades on the major exchanges. There are about 10,000 tokens on the market, according to the most recent data from etherscan.io.
There are great projects that might not need to change hands too often. However, there is a big incentive for issuers to be listed on an exchange, and gain value in their tokens from secondary trading. Just keep in mind how much value this actually adds to an efficient marketplace.
Hopefully you enjoyed taking a bit of a deeper dive into the Token market. It is absolutely fascinating, and I had a blast compiling this data and playing around on Tableau.
Please feel free to comment, and let me know your thoughts. If I missed anything, or you noticed an error — feel free to reach out!