Ethical Fund-Raising The Way To Go for 2018 ICOs
To say that 2017 is a prosperous year for the Initial Coin Offerings (ICOs) scene would be an understatement. Just a few years ago, it was considered rare to see an ICO company raising over a few million dollars. Ethereum, presently the second largest cryptocurrency, raised $18 million in 2015 with its smart contracts technology. The DAO then topped this in 2016 by raising $150 million in a matter of minutes (though they were later hacked from, causing thousands of people to lose their money). If you thought that is as good as it gets, you thought wrong. 2017 saw the ICO scene exploding with many more of these feats up to the point where it became a rarity not to see an ICO company raising a few million dollars. According to the ICO rating website, ICOdata, nearly $5 billion was raised in ICOs last year.
It is evident that the concept has taken off since its humble beginnings, but in any scenario involving big amounts of money, one has to ask: “What are the measures protecting this money from misuse?”
One of the major downsides of having little to no regulatory oversight is that there is no authority to step in to lay some ground rules for the protection of investors. Such ground rules may include setting certain standards, for example, the need for a minimum viable product (MVP), a client base, or any inkling of financial statements or proof of an actual company existing. This would protect investors from undesired cases of failure due to incompetency or worse, fraud.
How then can investors protect themselves from such cases?
Performing due diligence on an ICO
Like young adults out on the road, free from the dependence on their parents, having to care for themselves and make their own judgements, so do investors have to deduce for themselves the good ICOs from the bad ones.
Can people be trusted to fend for themselves without the need for an authority?
To a certain extent, evidence seems to suggest that the answer to this question is ‘yes’. “There has not been a project yet that has only had a PowerPoint and raised more than, I don’t know, £1 million. All of the projects that have raised large amounts have really competent teams and products behind them,” says Jan Isakovic, the CEO of ICO platform Cofound.it. His business raised $14.8 million through an ICO last year and is building a platform to connect ICO-funded companies with experts who can help grow the business.
Perhaps the effect of a free market economy in the ICO scene could be the reason for this. Sure, some scams and low value ICOs have had investors losing money, but people grow resilient to scams and low value products over time. This then puts the pressure on companies carrying out ICOs to produce high value projects and encourage transparency in the company for the investors.
Ethics demonstrated through actions
How will ICO companies allay fears regarding the safety of investors’ money? Well, they now have to go the extra mile to assure investors. Not just in terms of trustworthiness, investors now expect some technical measures to be put in place, such as a multi-signature wallet, so as to ensure a more democratic environment.
“It is our duty as an ICO company to put measures like these into place so that innovations can continue to flourish instead of being stifled. It would be unfortunate to see ideas not get executed just because of some bad apples in the industry, therefore we as companies carrying out ICOs have to step up and show the world that we are here for good and that we are here to stay,” says Deng Guangyuan, creator of 3rd generation digital wallet, SGPay. His company is looking to raise $4.8 million through an ICO in February to build an all-in-one wallet for the Asia Pacific region.
Other suggestions have also been brought up, such as putting the funds raised in an escrow and releasing it in tranches only after certain milestones are achieved. However, the ultimate decision lies with the company on how far they are willing to go to gain investors’ confidence.
