Champagne poppin’ ICOs droppin’: Will 2018 be the end of the ICO craze?
5 predictions for the token sale landscape in the new year
As 2018 starts, this is how things stand: The crypto-world has repeatedly and incredulously declared 2017 as the year of the ICO; The tally of funds raised through ICOs in the year is more than $5 Billion; December especially ended on a high note notching more than $1 billion in a single month for the first time. But there are many who worry the party might be coming to a close.
ICOs have been banned in China and Korea, and we know the SEC is scrutinizing the space, as are other regulators worldwide. Tezos, one of the most successful ICOs from 2017, is teetering on uncertain ground and facing four separate lawsuits by investors who allege that the organizers violated U.S. securities laws. Overall the Median ICO fundraise is on a steady decline — even though a few recent high-profile ICOs have done better than ever — and the number of projects shutting down without a successful ICO close is ballooning.
It’s tempting to agree with those who predict doom for ICOs this year — that investors will recoil with ICO exhaustion; that regulators will come with stringent regulations to shut down the ICO party; that the ICO model itself will lose viability as a fundraising option.
Discounting the ICO model as merely a bubble or foretelling its death is akin to missing the forest for the trees. Token sales are an innovative funding model for high growth companies and they’re here to stay, even if transformation and maturity are in the cards in the near future. The more interesting question is how will 2018 transform ICOs?
As a tech and strategy group specializing in tokenization, we, at New Alchemy, have our ear to the ground and our eyes to the horizon and this is what we see — or we wish to see — coming in 2018.
The TL:DR? The party may be ending but the good times are not.
#1 — Cue the rise of the quality ICO
Let’s be clear: ICOs in 2017 was a ‘gold rush’. Exuberance, irrational in some cases, was the dominant emotion. Companies raised millions in minutes. Celebrities got in with endorsements. Contributors with FOMO threw money at anyone with an idea, a white paper and a website. Everyone seemed to be doing an ICO, whether or not it made sense for them, and successfully raising incredible amounts. ‘Wild West’ was a repeatedly-used phrase to describe the whole scene.
That’s all over; maybe not overnight but the wheels are rolling. Raise amounts are down, investors are more discerning and the number of successful ICOs is reducing. What will emerge instead — weeding out the scams and the hyped-up ICOs running purely on promotional steam — are quality tokenization projects, with solid token models, clear governance structures, higher standards in terms of transparency and disclosure and, perhaps, greater compliance with securities regulations. ICOs will need to demonstrate real value and put in upfront work, rather than talk about a vague landscape of future promise.
#2 — Institutional money will flock to ICOs
In 2017, ICOs gave early-stage VCs a run for their money (literally!), waking them up to the possibilities of the token sale model. This year, crypto hedge funds proliferate, with more than 170 funds announced in this space, including from newcomers, traditional VCs and Wall Street veterans. As these funds start to deploy their capital in 2018, institutional money will play a greater role in the ICO landscape.
In response to this, startups will need to infuse due diligence, professionalism, and accountability into their ICO projects. Sound business plans, structured growth, startup evaluation are ICO attributes that’ll start to matter. As more and more blockchain projects feel the push to demonstrate value early on, early-stage institutional investors and VCs can provide funds to build out an MVP/PoC before startups go the ICO route.
#3 — The token will take center stage
The ICO babble so far has been all about token value and very little about true token utility. Sure, it’s become de-facto for every token to claim utility, especially after the SEC actions in 2017, but much of it is tacked on as an afterthought. More importance is given to slick marketing, endorsements and promising windfall token value gains.
As the market matures in 2018 and slows down, the tokens that have little utility will ultimately have little value. Discerning investors will realize the most valuable tokens are ones that are integral to the functioning of their networks and born out of its unique requirements. Ensuring a token has true utility will drive its adoption within the platform and real token value will arise from the value flow and creation that you get once there’s a live network. Token prices will begin to reflect the demand that actual users of the tokens are putting on the token, not just speculative valuations from traders. Getting the token mechanics right and working out game theory will be the key to a successful ICO in 2018. Innovative ICO and token models will emerge, whether as a reaction to the absence of governance or the fear of impending regulation.
#4 — The value of tokenizing will overtake its fundraising aspect
Tokenization is a potent model for network businesses, especially ones that are harder to monetize and have historically depended on advertising revenue. When a startup undertakes tokenization, it can go from being a company that services customers to becoming a token-accessible network where it develops and maintains an economy. Value created in such a token-based economy can be more efficiently shared between the different token holders: creators, engineers, users, service providers and investors.
In 2018, startups will focus on the network value and participants that tokenization can bring to their project. When a token is designed and distributed to drive network effects, tokenization can give a massive boost to the project. A globally distributed contributor base, the likes of which are attracted by ICOs, can contribute significant technical resources, evangelize and market the project, and generally add much value. As token holders, they can become ready participants within the network — if a working platform with utility exists — and create massive adoption momentum. This is especially useful for real-world businesses that already have a working ecosystem of participants. In 2018, we’ll see more such real-world businesses explore tokenization as a way to extend their network, possibly bringing billions of non-currency assets to trade on blockchain networks.
#5 — The overall supporting ecosystem will mature
Perhaps, there’s a tinge of wishful thinking here but as ICOs improve in quality and more traditional players get into the market, it is inevitable that the supporting ecosystem will improve. Reliable resources for accurate data on ICOs will emerge, ushering in greater transparency into the landscape. Substantive market analysis around tokens will become available and standard models for crypto valuations will emerge. Platforms that vet new tokens before offering them to contributors will appear on the scene. Even our embryonic knowledge of crypto-economics will evolve, as will our understanding of metrics and analytics.
Overall, ICOs are still a very young capital market; and a dynamic one. Successfully running ICOs in 2018 will require greater expertise and attention than before, to constantly trim sails and adjust to rapidly changing market expectations.
Do you agree with our predictions? Think we’ve missed out on something? Let us know in the comments below.
New Alchemy is a strategy and technology advisory group specializing in tokenization. One of only a handful of companies able to offer a full spectrum of guidance from tactical technical execution to high-level theoretical modeling, New Alchemy provides technology, token game theory, smart contracts, security audits, and ICO advisory to the most innovative startups worldwide. Get in touch with us at Hello@NewAlchemy.io