The phenomenon of Initial Coin Offering (ICO), the digital token issues that helped start-up businesses raise more than $ 4 billion in 2018, have experienced a marked slowdown for over a year. A recent study by EY showed that more than 30% of tokens lost all their value, the gains being concentrated on the top 10 projects. The regulations having come into force all around the world undoubtedly make it possible to sort out the wheat from the chaff.
After the “Token Mania”, Blockchain (in the widest meaning) startups with projects related to Blockchain technology have rushed on this alternative form of financing, more flexible and faster, little or not regulated, and others only wanted to take advantage of a global excitement to raise money easily.
Several concordant studies show a clear slowdown in the number of operations in the world, behind some large tricks which have inflated the figures. According to Autonomous Research, the amounts have fallen by 90% since the peak of the years 2017–2018 to 300 million dollars raised in September 2019, at the lowest since May 2017. Figures which exclude the largest operations like the ICO EOS (a platform that wants to replace the Ethereum Blockchain for decentralized applications), the largest to date, which spanned several months to peak in June 2019, and that of encrypted Telegram messaging, some of which operated in pre-sale to private investors. The trend had already been noted before summer 2019. ICO Bench’s September 2019 monthly analysis leads to the same conclusions. The figures compiled by the specialized site Coin Schedule reveal a sharp decline since June in amounts issued, and since May in number of operations (144 per month in May, 56 in September, 36 in October). And this without speaking of all the operations which fail: the very media project Civil, of the consulting company in Blockchain Consensys, intended to reinvent the model of journalism, did not manage to reach the minimum of 8 million dollars that he hoped to raise, but only 1.3 million of which 82% by the headquarter company. Nevertheless, for numerous specialists, it is simply a growth crisis, a correction after overheating, a simple deflation of the bubble.
Several factors can explain this decadent tendency: sharp changes in the prices of the main cryptocurrencies, Bitcoin and especially Ether, which reduces “purchasing power” holders of crypto assets and dulls the interest of other investors, especially speculators.
The Autonomous Research study also shows the sharp rise in fundraising in the Blockchain and crypto sector from venture capital over the past 12 months. An irony, when you know that the ICO has often been presented as a “disruption” of venture capital, which it could even replace in the long term according to some. At the same time, SEC considers most of the token issues by ICO as financial securities (“security tokens”), subject to strict regulations; the use of other more traditional methods of financing (venture capital), for more mature companies.
EY also studied the financial performance of ICOs, sifting through the operations of 141 most important ones. The result is not very bright: 86% of the main tokens are worth less than their issue price and 30% have almost lost all of their value.
In May 2018, the Wall Street Journal published a survey on 1,450 ICOs finding that almost 20% were scams, with false teams, identity theft, copy and paste of documents, etc. According to EY, an investor having built a portfolio of ICO tokens from 2017–2018 would have lost 66% from the peak at the start of the year. The gains are concentrated at 99% on the 10 largest ICOs, which are mainly Blockchain infrastructure companies, while the application projects performed less well.
A year or two after their ICO fundraising, companies have not made much operational progress: 71% of projects remain in the planning stage and have not yet resulted in a product or service that works (13% only) or even a prototype (16%). EY notes that we could have expected a significantly higher percentage if these startups were funded by VCs. “Despite the hype over the past year around ICOs, there seems to be a significant lack of understanding of the risks and benefits of these investments. In addition, there is a difference between those who invest in ICOs and ICO project developers in terms of the return on investment (ROI) horizon. If ICOs are a completely new way to raise capital, participants should understand that certain factors, such as the slow progression towards a product offering that works, what can result in an increased risk for investments” — underlined Paul Brody, the EY Global Manager.
Nevertheless, even in 2017 along with th ICO boom there were companies that decided to take an alternative path. The one that among others was taken by Quppy. Since the very beginning, we decided to build our project using only internal funds and resources. This was a courage decision to take and yet this was probably the right one. We understood that product development might take longer time and make us pass through tough management procedures. We also understood that we will be inviting paying customers and unvestors to an already completely launched and fully operating financial ecosystem. The ecosystem surving needs of our customers, not all of them in the beginning as all projects should be sonstantly growing but an ecosystem in progress that can be trusted itself as a product and not as just an idea. We also believe that taking this very path gave us the very right start to lead us to the actual point when the Quppy app is significntly present and highly rated in Europe, Latin America, the CIS countries and in Asia. And that is just the beginning: in 2020 we have so many plans to raelize and among them African and American markets, Quppy cards launch, brand new lending and investment services.
Install Quppy: https://quppy.net/apps
