How do ICO/IEOs really work? Learn the inside story from real world blockchain (DLT) experts Part 3 — Avoid ICOs / IEOs that do not have a clear business model

Unfortunately, Initial Coin Offerings (ICOs) have tarnished the promise of blockchain technology with projects that promised the revolution but didn’t have a business plan to back it up. These types of business scams are known as the ‘pump and dump’ scheme where scammers spent a lot on promoting the token, and then proceeded to dump it and leave with a profit.

As a next step, we considered doing an Initial Exchange Offering (IEO) and listing the token on an exchange. We spent a lot of time and resources researching this, and concluded that it was not a good option. Essentially, the exchanges we planned on working with artificially pump up their trading volumes, openly admitted to engaging in market manipulation, and cannot be trusted.

In March, Bitwise released a 200-page presentation for the US Securities and Exchange Commission that includes an in-depth look at the manipulation of crypto-markets. According to the research, an estimated 95% of crypto exchanges’ reported volume is fake. Bots will trade back and forth with each other to pump up the volume and give the exchange a higher ranking on CoinMarketCap. This gets them more media attention, and enables them to charge higher listing fees due to the alleged increased trading volume and liquidity. Paybis have put together an infographic that summarises the results nicely:

As another example, we can look at an exchange’s reported trade volume and compare it with the internet traffic they receive. Here is CoinBene’s total number of visits for February 2020 on SimilarWeb:

If we compare that with their 30 day volume on CoinMarketCap, there is quite a large discrepancy:

We feel that market manipulation is illegal and goes against our fundamental values. We do not want to engage in a risky operation that could potentially be unlawful, dishonest and unprofitable- on the contrary, our goal is to use the blockchain for more transparency, positive change and community. Furthermore, it would not reflect the true value of the company and could put it in jeopardy in future rounds.

As many of you will know, listing also requires a large amount of capital- from $60,000-$300,000 for listing on a medium-sized exchange, to $1M-$2.5M for listing on a high-volume exchange. At this stage we do not know if it is a good use of resources, especially as we have already spent a considerable amount of time looking into exchanges. In the meantime, we have been putting all of our effort into gaining revenue through www.livetree.com.

Despite these setbacks, we have built a fantastic project and are on our way to generating revenue and realising the blockchain promise. We have 3 options in front of us:

• Create our own exchange
• Create a reward loyalty system for Seed
• Find an exchange and list the token

We will be exploring these in more detail over the coming blogs.