ICO: How a Flawed Model Raised Over $20 Billion And How It Can Be Fixed

“There are specific identifiers that are entirely recognizable during the bubble’s inflation. One hallmark of mania is the rapid rise in the incidence and complexity of fraud….”

- Michael Lewis, ‘The Big Short’

In 2017, Robert Shiller, economist and author of the book ‘Irrational Exuberance’, predicted Bitcoin to be a bubble. For someone who won a Nobel prize for his work on financial bubbles, he was spot on yet again. Similarly, the ICO mania during this period witnessed such irrational investor behavior that it was a bubble of its own. Repeated instances of fraud and failed ICOs did not deter investors, as they continued to pour billions into concepts on a white paper. ‘Irrational Exuberance’ had gripped the space.

The concept of ICO was born in July 2013 when Mastercoin made an attempt at this new way of fundraising. Ethereum followed suit in 2014 raising $18 million to build its ‘World Computer’. Once, Ethereum’s ERC-20 token standard came into existence in 2015, literally, anyone could create their own token. Blockchain-based projects immediately began adopting this revolutionary model, raising modest capital that, barring a few exceptions, was in sync with early-stage rounds of venture capital. Then came the breakthrough year of 2017 that saw multiple projects raise tens and even hundreds of…