How to get exposed to ICOs securely
Originally published at marketprotocol.io.
ICOs have effectuated a massive change in the cryptocurrency space as a novel and innovative approach to crowdfunding. Most of those that the public has deemed popular and game-changing have reached their hard cap rapidly.
For instance, the Basic Attention Token (BAT) sale ended in just 30 seconds. In another case, the Aragon (ANT) ICO reached its hard cap in 25 minutes. Not to mention the Bancor sale, totaling US$153 million, funded entirely within the first 3 hours.
These numbers are staggering.
In fact, all ICOs in 2017 (all 885 of them, according to our source) collectively raised more than US$6 billion. While last year’s ICOs saw significant financial activity, 2018 is poised to be even more substantial. According to CoinSchedule, ICOs have already raised nearly US$18 billion as of mid-July.
But not all is well in the ICO space.
One example that raised ICO concerns was the Arc Block ICO, the sale that ended within 19 minutes, with 53,206 users participating simultaneously from over 170 countries. Unfortunately, this token sale negatively impacted many of these individuals.
Specifically, numerous users were upset they had been whitelisted, but their transactions never went through, after which their ETH was locked for a period (until validation was received that the transactions were made on time, and according to the token sale guidelines).
The issue created a sort of feedback loop, with certain participants continually re-upping their gas fees to have their transactions recorded before others, in what has become a “gas war”, according to Twitter comments. Other participants who did not anticipate the massive fees were simply unable to have their contributions recorded on time.
Public sales woes are only one aspect plaguing crowdsale issues in 2018.
Because the U.S. Securities Exchange Commission (SEC) adopted an active stance toward regulating ICOs this year, prospective ICOs now require a more cautious approach for U.S. participants.
If an ICO’s token represents a security, it must now be registered with the SEC to remain compliant. Among other variables, compliance and legal fees are typically above what a small startup can easily afford, ranging from $100,000 all the way up to $1 million, depending on the service provider.
Moreover, the line between which tokens are and aren’t considered securities has not been explicitly defined. U.S. investors do not comprise a negligible group. Over 25 million U.S. residents have purchased Bitcoin, and combined purchases amount to nearly US$100 billion.
However, despite the existing roadblocks, the ICO approach has continued to thrive.
In Q2 of 2018, ICO funding represented 45% of the entire IPO market. For this expansion to persist, solutions must be made readily available, those that enable the market and its participants to continue to flourish.
Another potential participation method for U.S.-based investors is private sales, typically limited to accredited investors only. Although private investors often see massive discounts and token bonuses that grant them an advantage over public investors and smaller private investors, these tokens are usually followed by a period of illiquidity.
At present, ICO token holders are typically required to wait for the ICO exchange listing to trade and attempt to turn a profit. The tZERO ICO, for example, requires private investors to wait a full year before their coins are granted liquidity.
These private investors are joined by bounty hunters, freelancers, and team members who also face a period of illiquidity, either in anticipation of an exchange listing or awaiting the conclusion of the lockup period.
In the meantime, other investors who were unable to participate during the sale period can drive prices up significantly, or depreciate the currency in a considerable manner.
There are alternatives to waiting for an exchange listing.
Buyers and sellers can participate in over-the-counter trading, where they trade directly, without requiring an intermediary. They can also trade on small exchanges that are quick to list the token.
However, both solutions come with their own challenges.
Both options are relatively insecure, and they are also both illiquid. For large investors, selling worthwhile portions of their investment at reasonable rates can be difficult. Even then, coin offerings oftentimes experience lockup periods, which make it even more difficult for early investors to guarantee a profit. Of course, if the coins are frozen, both of these solutions are incompatible.
Fortunately, MARKET Protocol empowers traders with an opportunity to gain price exposure to any type of underlying asset within a derivative contract, including ICOs.
Early investors, project employees, and other individuals who have been able to accumulate the coin can trade them, and lock in on their profit or salary before the token hits exchanges, or while their tokens are frozen.
If you participated in an ICO, and for whatever reason you wish to sell your token before it hits the exchanges (for instance, if it’s an unvested bonus), or if your funds are locked, you can begin to sell a MARKET contract, deriving value from the ICO token before the token actually becomes liquid.
MARKET Protocol can be an extremely valuable tool in times of uncertainty and market volatility, irrespective of whether you’re a miner, trader, or holder. To learn more, visit https://marketprotocol.io, read our whitepaper, and if you require any clarification whatsoever, please feel free to reach out to us directly via our Telegram chat.
